Registration No. 33-28598
File No. 811-5724
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 / 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)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
Oppenheimer Management Corporation
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective on June 2, 1995,
pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered an
indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice for the
year ended September 30, 1994 was filed on November 29, 1994.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement for Oppenheimer Strategic Diversified Income Fund
and
Prospectus for Oppenheimer Strategic Income Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
FORM N-14
OPPENHEIMER STRATEGIC FUNDS TRUST
Cross Reference Sheet
Part A of
Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of Document
- -------- ----------------------------------------------------------------
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Table
(b) Synopsis
(c) Principal Risk Factors
4 (a) Synopsis; Approval of the Reorganization; Comparison between the
Fund and Strategic Income Fund; Method of Carrying Out the
Reorganization; Miscellaneous Information
(b) Approval of the Reorganization - Capitalization Table
(Unaudited)
5 (a) Registrant's Prospectus; Additional Information
(b) *
(c) *
(d) *
(e) Comparison between the Fund and Strategic Income Fund
(f) Comparison between the Fund and Strategic Income Fund
6 (a) Prospectus of Oppenheimer Strategic Diversified Income Fund;
Front Cover Page
(b) Comparison between the Fund and Strategic Income Fund
(c) *
(d) *
7 (a) Introduction; Synopsis
(b) *
(c) Introduction; Approval of the Reorganization
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Oppenheimer Strategic Income Fund's Statement of Additional
Information
(b) *
13 (a) Statement of Additional Information about Oppenheimer Global
Environment Fund
(b) *
14 Registrant's Statement of Additional Information; Statement of
Additional Information about Oppenheimer Strategic Diversified
Income Fund; Annual Report of Oppenheimer Strategic Diversified
Income Fund at 9/30/94; Semi-Annual Report of Oppenheimer
Strategic Diversified Income Fund at 3/31/95; Oppenheimer
Strategic Income Fund Annual Report at 9/30/94 and Semi-Annual
Report (unaudited) at 3/31/95
Part C of
Form N-14
Item No. Other Information Heading
- --------- -------------------------
15 Indemnification
16 Exhibits
17 Undertakings
_______________
* Not Applicable or negative answer
<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant / x /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ X / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Oppenheimer Strategic Funds Trust
- ------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Oppenheimer Strategic Diversified Income Fund
- ------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-
6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- ------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
- ------------------------------------------------------------------
(1) Amount previously paid:
- ------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- ------------------------------------------------------------------
(3) Filing Party:
- ------------------------------------------------------------------
(4) Date Filed:
- -----------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE>
June 1995
Dear Oppenheimer Strategic Diversified Income Fund Shareholder:
Several weeks ago, I sent a letter to let you know about some positive
changes being proposed for your Fund. A shareholder meeting has been
scheduled in July and all shareholders of record on May 12th are being
asked to vote either in person or by proxy. Enclosed you will find
several items including, a notice of the meeting, a proxy statement
detailing the proposal, a ballot card, an Oppenheimer Strategic Income
Fund prospectus, and a postage-paid return envelope for your convenience.
What is being proposed?
In February, your Board of Trustees, which represents your interests
in the day-to-day management of the Fund, recommended approval of the
merger of Strategic Diversified Income Fund into another Oppenheimer
fund, Oppenheimer Strategic Income Fund.
Why does the Board of Trustees recommend this change?
The Board of Trustees feels that this change is in the best interest
of shareholders because both Strategic Diversified Income Fund and
Strategic Income Fund have the same objective -- that is, seeking high
current income. They also use the same flexible approach of investing in
a diverse portfolio of U.S. government securities, lower-rated, high yield
corporate bonds, and foreign fixed income securities to achieve that
objective.
Your Fund's objective and investment management style will not change
as a result of this consolidation. But, by merging into a much larger
fund -- Strategic Income Fund currently has over $4 billion in assets --
shareholders of Strategic Diversified Income Fund may benefit from the
added diversification that comes with having a greater number of
investment options as well as the lower expense ratio of a much larger
fund.
Your vote is very important because these decisions will affect your
investment. So we urge you to consider these issues carefully and to make
your vote count.
How do you vote?
No matter how large or small your investment, your vote is important,
so please review the proxy statement carefully. To cast your vote, simply
mark, sign and date the enclosed proxy ballot and return it in the
postage-paid envelope today. Remember, it can be expensive for the Fund -
- - and ultimately for you as a shareholder -- to remail ballots if not
enough responses are received to conduct the meeting.
Please contact your financial adviser or call us at 1-800-525-7048 if
you have any questions.
As always, we appreciate your confidence in OppenheimerFunds and thank
you for allowing us to manage a portion of your investment assets.
Sincerely,
[JSF signature]
<PAGE>
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 12, 1995
To the Shareholders of Oppenheimer Strategic Diversified Income Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Strategic Diversified Income Fund ("Strategic Diversified
Income Fund"), a registered management investment company, will be held
at 3410 South Galena Street, Denver, Colorado 80231, at 10:00 A.M., Denver
time, on July 12, 1995, or any adjournments thereof (the "Meeting"), for
the following purposes:
1. To approve an Agreement and Plan of Reorganization between Strategic
Diversified Income Fund and Oppenheimer Strategic Income Fund ("Strategic
Income Fund"), and the transactions contemplated thereby, including the
transfer of substantially all the assets of Strategic Diversified Income
Fund, which is a series of Oppenheimer Strategic Funds Trust (the
"Trust"), having one class of shares, designated as Class C, in exchange
for Class C shares of Strategic Income Fund, which is also a series of the
Trust and the distribution of Class C shares to the shareholders of
Strategic Diversified Income Fund in complete liquidation of Strategic
Diversified Income Fund, the cancellation of the outstanding shares of
Strategic Diversified Income Fund and its termination as a series of the
Trust.
2. To act upon such other matters as may properly come before the
Meeting.
Shareholders of record at the close of business on May 12, 1995 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the Proxy Statement and Prospectus. Please read it
carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. Strategic Diversified Income Fund's Board of
Trustees recommends a vote in favor of the Proposal.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Andrew J. Donohue, Secretary
June 2, 1995
_______________________________________________________________________
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
230
<PAGE>
OPPENHEIMER STRATEGIC INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROXY STATEMENT AND PROSPECTUS
Oppenheimer Strategic Funds Trust (the "Trust") has filed with the
Securities and Exchange Commission (the "SEC") a Registration Statement
on Form N-14 relating to the registration of Class C shares of its series
named Oppenheimer Strategic Income Fund ("Strategic Income Fund") to be
offered to the shareholders of the second series of the Trust named
Oppenheimer Strategic Diversified Income Fund (the "Fund"), located at
3410 South Galena Street, Denver, Colorado 80231 (telephone 1-800-525-
7048), pursuant to an Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Strategic Income Fund and Strategic
Diversified Income Fund. This Proxy Statement of Strategic Diversified
Income Fund relating to the Reorganization Agreement and the transactions
contemplated thereby (the "Reorganization") also constitutes a Prospectus
of Strategic Income Fund filed as part of such Registration Statement.
Strategic Income Fund is a mutual fund with the investment objective of
seeking a high level of current income by investing mainly in debt
securities and by writing covered call options on them.
This Proxy Statement and Prospectus sets forth concisely information about
Strategic Income Fund that shareholders of Strategic Diversified Income
Fund should know before voting on the Reorganization. A copy of the
Prospectus for Strategic Income Fund, dated May 26, 1995, supplemented May
26, 1995, is enclosed, and is incorporated herein by reference. The
following documents have been filed with the SEC and are available without
charge upon written request to Oppenheimer Shareholder Services ("OSS"),
the transfer and shareholder servicing agent for Strategic Income Fund and
Strategic Diversified Income Fund, at P.O. Box 5270, Denver, Colorado
80217, or by calling the toll-free number shown above: (i) a Prospectus
for Strategic Diversified Income Fund, dated February 1, 1995,
supplemented May 26, 1995; (ii) a Statement of Additional Information
about Strategic Diversified Income Fund, dated May 26, 1995; and (iii) a
Statement of Additional Information about Strategic Income Fund, dated May
26, 1995 (the "Strategic Income Fund Additional Statement"). The
Strategic Income Fund Additional Statement, which is incorporated herein
by reference, contains more detailed information about Strategic Income
Fund and its management. A Statement of Additional Information relating
to the Reorganization, dated June 2, 1995, has been filed with the SEC as
part of the Strategic Income Fund Registration Statement on Form N-14 and
is incorporated by reference herein, and is available by written request
to OSS at the same address immediately above or by calling the toll-free
number shown above.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated June 2, 1995.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
Page
Introduction
General
Record Date; Vote Required; Share Information
Proxies
Costs of the Solicitation and the Reorganization
Comparative Fee Table
Synopsis
Parties to the Reorganization
The Reorganization
Reasons for the Reorganization
Tax Consequences of the Reorganization
Investment Objectives and Policies
Investment Advisory and Distribution and Service Plan Fees
Purchases, Exchanges and Redemptions
Principal Risk Factors
Approval of the Reorganization (The Proposal)
Reasons for the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Capitalization Table (Unaudited)
Comparison Between Strategic Diversified Income Fund and Strategic Income
Fund
Investment Objectives and Policies
Special Investment Methods
Investment Restrictions
Portfolio Turnover
Description of Brokerage Practices
Expense Ratios and Performance
Shareholder Services
Rights of Shareholders
Management and Distribution Arrangements
Purchase of Additional Shares
Method of Carrying Out the Reorganization
Miscellaneous
Additional Information
Financial Information
Public Information
Other Business
Annex A - Agreement and Plan of Reorganization, dated
February 28, 1995, by and between Oppenheimer Strategic
Diversified Income Fund and Oppenheimer Strategic
Income Fund A-1
<PAGE>
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROXY STATEMENT AND PROSPECTUS
Special Meeting of Shareholders
to be held July 12, 1995
INTRODUCTION
General
This Proxy Statement and Prospectus is being furnished to the
shareholders of Oppenheimer Strategic Diversified Income Fund (the
"Fund"), a registered management investment company, in connection with
the solicitation by the Board of Trustees (the "Board") of Oppenheimer
Strategic Fund Trust (the "Trust") proxies to be used at the Special
Meeting of Shareholders of Strategic Diversified Income Fund to be held
at 3410 South Galena Street, Denver, Colorado 80231, at 10:00 A.M., Denver
time, on July 12, 1995, or any adjournments thereof (the "Meeting"). It
is expected that the mailing of this Proxy Statement and Prospectus will
commence on or about June 12, 1995.
At the Meeting, shareholders of Strategic Diversified Income Fund will be
asked to approve an Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Strategic Diversified Income Fund and
Oppenheimer Strategic Income Fund ("Strategic Income Fund"), and the
transactions contemplated thereby (the "Reorganization"), including the
transfer of substantially all the assets of Strategic Diversified Income
Fund, which is a series of Oppenheimer Strategic Funds Trust (the
"Trust"), having one class of shares, designated as Class C, in exchange
for Class C shares of Strategic Income Fund, the distribution of Class C
shares to the shareholders of Strategic Diversified Income Fund in
complete liquidation of Strategic Diversified Income Fund, and the
cancellation of the outstanding shares of Strategic Diversified Income
Fund and its termination as a series of the Trust. The Class C shares to
be issued by Strategic Income Fund pursuant to the Reorganization will be
issued at net asset value without a sales charge and without the
imposition of the contingent deferred sales load. Additional information
with respect to these changes to Strategic Income Fund is set forth
herein, in the Prospectus of Strategic Income Fund accompanying this Proxy
Statement and Prospectus and in the Strategic Income Fund Additional
Statement which is incorporated herein by reference.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on May 12, 1995 as the
record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Meeting. An affirmative vote
of the holders of a majority of the outstanding shares of Strategic
Diversified Income Fund is defined in the Investment Company Act of 1940
as the vote of the holders of the lesser of: (i) 67% or more of the voting
securities present or represented by proxy at the shareholders meeting,
if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities. Each shareholder will be entitled to one vote for each
share and a fractional vote for each fractional share held of record at
the close of business on the Record Date. Only shareholders of Strategic
Diversified Income Fund will vote on the Reorganization. The vote of
shareholders of Strategic Income Fund is not being solicited.
At the close of business on the Record Date, there were approximately
11,296,673.993 shares of Strategic Diversified Income Fund issued and
outstanding and 588,698,559.025 outstanding Class A shares of
266,560,605.322 outstanding Class B shares of Strategic Income Fund. The
presence in person or by proxy of the holders of a majority of such shares
constitutes a quorum for the transaction of business at the Meeting. To
the knowledge of Strategic Diversified Income Fund, as of the Record Date,
no person owned of record or beneficially 5% or more of its outstanding
shares. As of the Record Date, to the knowledge of Strategic Income Fund,
no person owned of record or beneficially 5% or more of its outstanding
shares. In addition, as of the record date, the Trustees and officers of
the Trust owned less than 1% of the outstanding shares of either Strategic
Diversified Income Fund or Strategic Income.
Proxies
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance
with the choices specified thereon, and will be included in determining
whether there is quorum to conduct the Meeting. The proxy will be voted
in favor of the Proposal unless a choice is indicated to vote against or
to abstain from voting on the Proposal.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer
based on instructions received from its customers. If no instructions are
received, the broker-dealer may (if permitted under applicable stock
exchange rules), as record holder, vote such shares on the Proposal in the
same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted. If a
shareholder executes and returns a proxy but fails to indicate how the
votes should be cast, the proxy will be voted in favor of the Proposal.
The proxy may be revoked at any time prior to the voting thereof by: (i)
writing to the Secretary of Strategic Diversified Income Fund at Two World
Trade Center, 34th Floor, New York, New York 10048-0203; (ii) attending
the Meeting and voting in person; or (iii) signing and returning a new
proxy (if returned and received in time to be voted).
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be borne by Strategic
Diversified Income Fund. Any documents such as existing prospectuses or
annual reports that are included in that mailing will be a cost of the
fund issuing the document. In addition to the solicitation of proxies by
mail, proxies may be solicited by officers of Strategic Diversified Income
Fund or officers and employees of OSS, personally or by telephone or
telegraph; any expenses so incurred will be borne by OSS. Proxies may be
solicited by a proxy solicitation firm hired at Strategic Diversified
Income Fund's expense for such purpose. Brokerage houses, banks and other
fiduciaries may be requested to forward soliciting material to the
beneficial owners of shares of Strategic Diversified Income Fund and to
obtain authorization for the execution of proxies. For those services,
if any, they will be reimbursed by Strategic Diversified Income Fund for
their reasonable out-of-pocket expenses.
With respect to the Reorganization, Strategic Diversified Income Fund and
Strategic Income Fund will bear the cost of their respective tax opinions.
Any other out-of-pocket expenses of Strategic Diversified Income Fund and
Strategic Income Fund associated with the Reorganization, including legal,
accounting and transfer agent expenses, will be borne by Strategic
Diversified Income Fund and Strategic Income Fund, respectively, in the
amounts so incurred by each.
COMPARATIVE FEE TABLE
Strategic Diversified Income Fund and Strategic Income Fund each pay
a variety of expenses directly for management of their assets,
administration, distribution of their shares and other services, and those
expenses are reflected in each fund's net asset value per share.
Shareholders pay other expenses directly, such as sales charges. The
following table is provided to help you compare the direct expenses of
investing in Strategic Diversified Income Fund with the direct expenses
of investing in Strategic Income Fund. The direct expenses of investing
in the surviving Strategic Income Fund are not expected to be different
as a result of the Reorganization.
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Strategic DiversifiedStrategic Income
Income Fund Class C Fund Class A Class B Class C
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge on
Purchases (as a % of
offering price) None 4.75% None None
Sales Charge on Reinvested
Dividends None None None None
Deferred Sales Charge (as
a % of the lower of the
original purchase price
or redemption proceeds) 1%(1) None 5% in the first year1%(1)
declining to 1%
in the sixth year
and eliminated
thereafter
Pro Forma Surviving
Strategic Income Fund
Class A Class B Class C
Maximum Sales Charge on
Purchases (as a % of
offering price) 4.75% None None
Sales Charge on Reinvested
Dividends None None None
Deferred Sales Charge (as
a % of the lower of the
original purchase price
or redemption proceeds) None 5% in the first 1%(1)
year declining to
1% in the sixth
year and eliminated
thereafter
</TABLE>
(1) If you redeem shares within 12 months of buying them, you may have to
pay a 1% contingent deferred sales charge ("CDSC"). The CDSC will not be
imposed on Fund shares exchanged in this Reorganization but will continue
to apply to Strategic Income shares received, based on the date your Fund
shares were purchased.
The following numbers are projections of Strategic Diversified Income
Fund's business expenses based on a six month period (annualized) ended
March 31, 1995 (unaudited). Since Class C shares of Strategic Income Fund
were not publicly offered during the fiscal year ended September 30, 1994,
the annual operating expenses are estimates, based on Class B shares of
Strategic Income Fund. The pro forma information with respect to Class
C shares is based on estimates of the business expenses for Strategic
Income Class B shares after giving effect to the Reorganization. These
amounts are shown as a percentage of average net assets. The 12b-1
Distribution and Service Plan fees are the 12b-1 service plan fees (0.25%
of average annual net assets) and the annual asset-based sales charges of
0.75%.
<TABLE>
<CAPTION>
Strategic Pro Forma
Diversified Strategic Strategic
Income Fund Income Fund Income
Class C Class C Class C
<S> <C> <C> <C>
Management Fees .75% .54% .54%
12b-1 Distribution and Service
Plan Fees 1.00% 1.00% 1.00%
Other Expenses .44% .15% .15%
Total Fund Operating Expenses 2.19% 1.69% 1.69%
</TABLE>
Class A and Class B shares will not be issued to shareholders of
Strategic Diversified Income Fund as part of the Reorganization. However,
for informational purposes, the business expenses of Class A and Class B
shares, for the six months ended March 31, 1995 (annualized) was with
respect to Class A shares, .54% of management fees, .24% of 12b-1 service
plan fees, and .16% of other expenses for total operating expenses of
.94%. With respect to Class B shares, .54% of management fees, 1.00% of
12b-1 Distribution and Service Plan Fees and .17% of other expenses, for
total operating expenses of 1.71%. The pro forma estimates with respect
to Class A and Class B shares after giving effect to the Reorganization
would be the same.
Example. To try and show the effect of the expenses in an investment over
time, the hypotheticals shown below have been created. Assume that you
make a $1,000 investment in either the Class C shares of Strategic
Diversified Income Fund, Class C shares of Strategic Income or the pro
forma surviving Strategic Income Fund and that the annual return is 5% and
that the operating expenses for each fund are the ones shown in the 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
each period shown.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
<S> <C> <C> <C> <C>
Oppenheimer Strategic
Diversified Income Fund
Class C Shares $32 $69 $117 $252
Oppenheimer Strategic
Income Fund
Class C Shares $27 $53 $92 $200
Pro Forma Combined Fund
Class C Shares $27 $53 $92 $200
If you did not redeem your investment, it would incur the following expenses:
1 year 3 years 5 years 10 years*
Oppenheimer Strategic
Diversified Income Fund
Class C Shares $22 $69 $117 $252
Oppenheimer Strategic
Income Fund
Class C Shares $17 $53 $92 $200
Pro Forma Surviving Strategic
Income Fund
Class C Shares $17 $53 $92 $200
<FN>
- -------------------
* Because of the asset-based sales charge imposed on shares of Strategic Diversified Income Fund, long term shareholders could
pay the economic equivalent of more than the maximum front-end sales charge allowed under applicable regulatory requirements.
</TABLE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus and
presents key considerations for shareholders of Strategic Diversified
Income Fund to assist them in determining whether to approve the
Reorganization. This synopsis is only a summary and is qualified in its
entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and by the Reorganization
Agreement, a copy of which is attached as an Annex hereto. Shareholders
should carefully review this Proxy Statement and Prospectus and the
Reorganization Agreement in their entirety and, in particular, the current
Prospectus of Strategic Income Fund which accompanies this Proxy Statement
and Prospectus and is incorporated by reference herein.
Parties to the Reorganization
Strategic Diversified Income 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 Strategic Diversified Income 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.
Strategic Diversified Income Fund and Strategic Income Fund are each
located at 3410 South Galena Street, Denver, Colorado 80231. There is
one Board of Trustees of the Trust. Oppenheimer Management Corporation
(the "Manager") acts as investment adviser to Strategic Diversified Income
Fund and Strategic Income Fund (collectively referred to herein as the
"funds"). Additional information about the parties is set forth below.
Shares to be Issued. Shareholders of Strategic Diversified Income Fund
will receive Class C shares of Strategic Income Fund in exchange for their
shares of Strategic Diversified Income Fund. The Board of Trustees of the
Trust have established three classes of shares of Strategic Income which
are Classes A, B and C. All classes of shares vote together in the
aggregate as to certain matters, however shares of a particular class vote
together on matters that affect that class alone. With respect to
Strategic Diversified Income Fund, there is only one class of shares, and
Fund shareholders vote exclusively on all matters submitted to a vote of
Fund shareholders. In most other respects, the shares of Strategic
Diversified Income Fund, and Class C shares of Strategic Income to be
issued in the reorganization are substantially similar.
The Reorganization
The Reorganization Agreement provides for the transfer of substantially
all the assets of Strategic Diversified Income Fund to Strategic Income
Fund in exchange for Class C shares of Strategic Income Fund. Presently
Strategic Diversified Income Fund has only one class of shares (Class C
shares). The net asset value of Strategic Income Fund Class C shares
issued in the exchange will equal the value of the assets of Strategic
Diversified Income Fund received by Strategic Income Fund. Following the
Closing of the Reorganization presently scheduled for August 4, 1995,
Strategic Diversified Income Fund will distribute the Class C shares of
Strategic Income Fund received by Strategic Diversified Income Fund on the
Closing Date to holders of Fund shares issued and outstanding as of the
Valuation Date (as hereinafter defined). As a result of the
Reorganization, each Fund shareholder will receive that number of full and
fractional Strategic Income Fund Class C shares equal in value to such
shareholder's pro rata interest in the assets transferred to Strategic
Income Fund as of the Valuation Date. The Board has determined that the
interests of existing Fund shareholders will not be diluted as a result
of the Reorganization. For the reasons set forth below under "The
Reorganization - Reasons for the Reorganization," the Board, including the
trustees who are not "interested persons" of the Trust (the "Independent
Trustees'), as that term is defined in the Investment Company Act, has
concluded that the Reorganization is in the best interests of Strategic
Diversified Income Fund and its shareholders and recommends approval of
the Reorganization by Fund shareholders. If the Reorganization is not
approved, Strategic Diversified Income Fund will continue in existence as
a series of the Trust and the Board will determine whether to pursue
alternative actions.
Reasons for the Reorganization
At a meeting of the Board of Trustees (the "Board") held February 28,
1995, the Trustees reviewed and discussed materials relevant to the
Reorganization. The Board, including the Independent Trustees,
unanimously approved and recommended to shareholders of Strategic
Diversified Income Fund that they approve the Reorganization. Strategic
Diversified Income Fund and Strategic Income Fund are each series of the
same Trust. Strategic Diversified Income Fund presently offers one class
of shares designated as Class C. Strategic Income Fund has three
designated classes of shares; Class A, Class B and Class C. Each series
has its own investment portfolio and its own assets and liabilities. The
Board, in its review of the proposed reorganization, noted that both
Strategic Diversified Income Fund and Strategic Income Fund share the
identical investment objective of seeking a high level of current income
by investing primarily in debt securities and by writing covered call
options on them. The investment policies and restrictions of each fund
are substantially the same. While sharing identical investment objectives
and policies, Strategic Diversified Income Fund is a new fund which
commenced the sales of its shares on February 1, 1994. Strategic
Diversified Income Fund has not grown and it is significantly smaller in
size compared to Strategic Income Fund. The Board considered that
Strategic Income Fund would provide a greater diversification of
investments to Fund shareholders, and at the same time Fund shareholders
would have the benefit of a reduction in management fee rates and business
expenses based on the large asset size and the large number of
shareholders of Strategic Income Fund. As of March 31, 1995, Strategic
Diversified Income Fund has ______ net assets and Strategic Income Fund
had approximately net assets of ___________. The Board concluded that as
a result of such Reorganization, shareholders of Strategic Diversified
Income Fund would become shareholders of a larger fund and should benefit
from the economics of scale.
The Board, in reviewing financial information, considered that Fund
shareholders would expect a reduction in overall expenses as a result of
becoming shareholders in the larger Strategic Income Fund. Although the
Manager had been voluntarily reimbursing Strategic Diversified Income Fund
to the level needed to maintain the dividend, the voluntary reimbursement
is no longer necessary, and it was terminated in September of 1994. The
ratio of expenses to average net assets for Strategic Diversified Income
Fund for the fiscal year ended September 30, 1994 was 1.71% (after
reimbursement). For the six months ended March 31, 1995, the ratio of
expenses to average net assets was 2.19%. Before voluntary reimbursement
by the Manager these expenses for the period ended September 30, 1994 were
2.13%.
For the fiscal year ended September 30, 1994, and the six month period
ended March 31, 1995 (unaudited) on a pro forma basis giving effect to the
Reorganization, the expense ratio of Strategic Income Fund, as a
percentage of average annual net assets would have been 1.71% and 1.69%,
respectively, for Class C shares.
In addition to the above, the Board also considered information with
respect to the investment performance of Strategic Diversified Income
Fund. The Board considered information concerning Class B shares of
Strategic Income Fund, which has comparable business expenses to the
expected expenses of the Class C shares of Strategic Diversified Income
Fund, and determined that both standardized yield and average annual
return were better for Class B shares of Strategic Income Fund than Class
C shares of Strategic Diversified Income Fund. Although past performance
is not predictive of future results, shareholders of Strategic Diversified
Income Fund would have an opportunity to become shareholders of Strategic
Diversified Income Fund with better past performance.
The Board also considered that the Reorganization would be a tax-free
reorganization, and there would be no sales charge imposed in effecting
the Reorganization. The Board concluded that the combining of Strategic
Diversified Income Fund with Class C shares of Strategic Income Fund would
not result in dilution to the shareholders of Strategic Diversified Income
Fund and it would not result in dilution to shareholders of Strategic
Income Fund.
Tax Consequences of the Reorganization
In the opinion of Deloitte & Touche LLP, tax adviser to Strategic
Diversified Income Fund, the Reorganization will qualify as a tax-free
reorganization for Federal income tax purposes. As a result, no gain or
loss will be recognized by the Trust, Strategic Income Fund, or the
shareholders of Strategic Diversified Income Fund for Federal income tax
purposes as a result of the Reorganization. For further information about
the tax consequences of the Reorganization, see "Approval of the
Reorganization - Tax Aspects" below.
Investment Objectives and Policies
Strategic Diversified Income Fund and Strategic Income Fund have virtually
identical investment objectives and policies. Each 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 funds do not invest with the objective of seeking capital
appreciation.
Each 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 funds
will invest in each of these three sectors, but from time to time the
Manager will adjust the amounts the funds invest in each sector.
Investment Advisory and Distribution and Service Plan Fees
The terms and conditions of each investment advisory agreement are the
same. The funds obtain investment management services from the Manager.
The management fee is payable monthly and computed on the net asset value
of each fund as of the close of business each day. Both Strategic
Diversified Income Fund and Strategic Income Fund pay the same management
fee at the rate of 0.75% of the first $200 million of 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.
Each fund has a Distribution and Service Plan (the "Plan" for its Class
C shares pursuant to which payments are made to Oppenheimer Funds
Distributor, Inc. (the "Distributor") in connection with distributing each
fund's Class C shares and servicing accounts. Under each 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 Plan for
Strategic Diversified Income Fund makes payments to reimburse the
Distributor for its distribution expenses. The Plan for Strategic Income
is a compensation plan under which Strategic Income pays the Distributor
for certain distribution services but Strategic Income payments are not
tied to reimbursing the Distributor for its expenses.
Purchases, Exchanges and Redemptions
Strategic Diversified Income Fund and Strategic Income Fund are each
series of Oppenheimer Strategic Funds Trust. The funds are part of the
OppenheimerFunds complex of mutual funds. The procedures for purchases,
exchanges and redemptions of shares of the funds are substantially the
same. Shares of either fund may be exchanged only for Class C shares of
Oppenheimer Funds and the number of Oppenheimer Funds offering Class C
shares is limited.
There is no initial sales charge on purchases of either Fund shares,
however, if shares of either Fund are sold within 12 months, there will
be a contingent deferred sales charge of 1%. Class C shares of Strategic
Income Fund received in the Reorganization will be issued at net asset
value, without a sales charge and no CDSC will be imposed as a result of
the Reorganization. Services available to shareholders of both funds
include purchase and redemption of shares through OppenheimerFunds
AccountLink and PhoneLink (an automated telephone system), telephone
redemptions, and exchanges by telephone to other OppenheimerFunds which
offer Class C shares, and reinvestment privileges. Please see
"Shareholder Services," and you should refer to Strategic Diversified
Income Fund's prospectus and Strategic Income Fund's prospectus included
with this document for further information.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in
Strategic Income Fund, shareholders should carefully consider the
following risk factors, the information set forth in this Proxy Statement
and Prospectus and the more complete description of risk factors set forth
in the documents incorporated by reference herein, including the
Prospectuses of the funds and their respective Statements of Additional
Information. As stated in their respective Prospectuses, as a general
matter, both Strategic Diversified Income Fund and Strategic Income Fund
are designed for investors willing to assume additional risk in return for
seeking high current income. The funds do not invest with the objective
of seeking capital appreciation.
Both Strategic Diversified Income Fund and Strategic Income Fund seek high
current income mainly from interest on debt securities. They also seek
to enhance income by writing covered call options on debt securities. In
seeking their investment objectives, both funds invest in higher-yielding,
lower-rated debt securities, commonly known as "junk bonds." The types
of securities each Fund invests in are substantially similar, including
foreign securities and certain derivative investments. These securities
and risks of investing in them are described below under "Investment
Objectives and Policies" on page 15. The Board of Trustees has concluded
that shareholders of Strategic Diversified Income Fund should not be
subject to any material increase in investment risks as shareholders of
Strategic Income.
APPROVAL OF THE REORGANIZATION
(The Proposal)
Reasons for the Reorganization
At a meeting of the Board of Trustees (the "Board") held February 28,
1995, the Trustees reviewed and discussed materials relevant to the
proposed Reorganization. The Board, including the Independent Trustees,
unanimously approved and recommended to shareholders of Strategic
Diversified Income Fund that they approve the Reorganization. Strategic
Diversified Income Fund and Strategic Income Fund are each series of the
same Trust. Strategic Diversified Income Fund presently offers one class
of shares designated as Class C. Strategic Income Fund has three
designated classes of shares; Class A, Class B and Class C. Each series
has its own investment portfolio and its own assets and liabilities. The
Board, in its review of the proposed reorganization, noted that both
Strategic Diversified Income Fund and Strategic Income Fund share the
identical investment objective of seeking a high level of current income
by investing primarily in debt securities and by writing covered call
options on them. The investment policies and restrictions of each fund
are substantially the same. While sharing identical investment
objectives, Strategic Diversified Income Fund is a new fund which
commenced the sales of its shares on February 1, 1994. Strategic
Diversified Income Fund has not grown and it is significantly smaller in
size than Strategic Income Fund. The Board considered that Strategic
Income Fund would provide a greater diversification of investments to Fund
shareholders, and at the same time Fund shareholders would have the
benefit of a reduction in management fee rates and business expenses based
on the large asset size and the large number of shareholders of Strategic
Income Fund. As of March 31, 1995, Strategic Diversified Income Fund had
net assets of 49,094,881 and Strategic Income Fund had approximately net
assets of 4,643,263,905. The Board concluded that as a result of such
Reorganization, shareholders of Strategic Diversified Income Fund would
become shareholders of a larger fund and should benefit from the economics
of scale.
The Board, in reviewing financial information, considered that Fund
shareholders would expect a reduction in overall expenses as a result of
becoming shareholders in the larger Strategic Income Fund. Although the
Manager had been voluntarily reimbursing Strategic Diversified Income Fund
to the level needed to maintain the dividend, the voluntary reimbursement
was terminated in September, 1994 because it was no longer necessary to
maintain the dividend. The ratio of expenses to average net assets for
Strategic Diversified Income Fund for the fiscal year ended September 30,
1994 was 1.71% (after reimbursement). For the six months ended March 31,
1995, the ratio of expenses to average net assets was 2.19%. Before
voluntary reimbursement by the Manager these expenses for the period ended
September 30, 1994 were 2.13%.
In addition to the above, the Board also considered information with
respect to the performance of Strategic Diversified Income Fund. All
shares of all classes of Strategic Income Fund represent interests in the
same portfolio of investment securities, and the investment performance
of Strategic Income Fund's investments affects each share equally. The
investment return on the shares of the different classes is affected by
the expenses borne by each class. The Board reviewed information
concerning Class B shares of Strategic Income Fund, and considered that
the business expenses which will be incurred by Class C shares of
Strategic Income Fund are similar to the business expenses of Strategic
Income Fund's Class B shares. Through the economies of scale mentioned
above, it is anticipated that the expenses to be borne by Strategic Income
Fund's Class C shares should be less than the expenses borne by Strategic
Diversified Income Fund's shareholders. Based on this analysis, the Board
anticipates that the investment performance of Strategic Income Fund's
Class C shares should be better than the investment performance of shares
of Strategic Diversified Income Fund if there were no Reorganization.
Based on a similar analysis, the Board also considered that both
standardized yield and average annual return were better for Class B
shares of Strategic Income Fund than Class C shares of Strategic
Diversified Income Fund. Although past performance is not predictive of
future results, shareholders of Strategic Diversified Income Fund would
have an opportunity to become shareholders of a fund with lower expenses.
The Board also considered that the Reorganization would be a tax-free
reorganization, and there would be no sales charge imposed in effecting
the Reorganization. The Board concluded that the Reorganization would not
result in dilution to the shareholders of Strategic Diversified Income
Fund and it would not result in dilution to shareholders of Strategic
Income Fund.
The Reorganization
The Reorganization Agreement (a copy of which is set forth in full as
Annex A to this Proxy Statement and Prospectus) contemplates a
reorganization under which (i) all of the assets of Strategic Diversified
Income Fund (other than the cash reserve described below (the "Cash
Reserve")) as a series of Oppenheimer Strategic Funds Trust will be
transferred to Strategic Income Fund in exchange for Class C shares of
Strategic Income Fund, (ii) these shares will be distributed among the
shareholders of Strategic Diversified Income Fund in complete liquidation
of Strategic Diversified Income Fund, (iii) Strategic Diversified Income
Fund will be terminated as a series of the Trust and (iv) the outstanding
shares of Strategic Diversified Income Fund will be cancelled. Strategic
Income Fund will not assume any of Strategic Diversified Income Fund's
liabilities except for portfolio securities purchased which have not
settled and outstanding shareholder redemption and dividend checks.
The result of effectuating the Reorganization would be that: (i) Strategic
Income Fund will add to its gross assets all of the assets (net of any
liability for portfolio securities purchased but not settled and
outstanding shareholder redemption and dividend checks) of Strategic
Diversified Income Fund other than its Cash Reserve; and (ii) the
shareholders of Strategic Diversified Income Fund as of the close of
business on the Closing Date will become shareholders of Class C shares
of Strategic Income Fund.
The effect of the Reorganization will be that shareholders of Strategic
Diversified Income Fund who vote their shares in favor of the
Reorganization will be electing to redeem their shares of Strategic
Diversified Income Fund (at net asset value on the Valuation Date referred
to below under "Method of Carrying Out the Reorganization Plan,"
calculated after subtracting the Cash Reserve) and reinvest the proceeds
in Class C shares of Strategic Income Fund at net asset value without
sales charge and without recognition of taxable gain or loss for Federal
income tax purposes (see "Tax Aspects of the Reorganization" below). The
Cash Reserve is that amount retained by Strategic Diversified Income Fund
which is sufficient in the discretion of the Board for the payment of: (a)
Strategic Diversified Income Fund's expenses of liquidation, and (b) its
liabilities, other than those assumed by Strategic Income Fund. Strategic
Diversified Income Fund and Strategic Income Fund, each as a series of
Oppenheimer Strategic Funds Trust will bear all of their respective
expenses associated with the Reorganization, as set forth under "Costs of
the Solicitation and the Reorganization" above. Management estimates that
such expenses associated with the Reorganization to be borne by Strategic
Diversified Income Fund will not exceed $_____. Liabilities as of the
date of the transfer of assets will consist primarily of accrued but
unpaid normal operating expenses of Strategic Diversified Income Fund,
excluding the cost of any portfolio securities purchased but not yet
settled and outstanding shareholder redemption and dividend checks. See
"Method of Carrying Out the Reorganization Plan" below.
The Reorganization Agreement provides for coordination between the funds
as to their respective portfolios so that, after the closing, Strategic
Income Fund will be in compliance with all of its investment policies and
restrictions. Strategic Diversified Income Fund will recognize capital
gain or loss on any sales made pursuant to this paragraph. As noted in
"Tax Aspects of the Reorganization" below, if Strategic Diversified Income
Fund realizes net gain from the sale of securities in 1995, such gain, to
the extent not offset by capital loss carry forward, will be distributed
to shareholders prior to the Closing Date and will be taxable to
shareholders as capital gain.
Tax Aspects of the Reorganization
Immediately prior to the Valuation Date referred to in the Reorganization
Agreement, Strategic Diversified Income Fund will pay a dividend or
dividends which, together with all previous such dividends, will have the
effect of distributing to Strategic Diversified Income Fund's shareholders
all of Strategic Diversified Income Fund's investment company taxable
income for taxable years ending on or prior to the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net
capital gain, if any, realized in taxable years ending on or prior to the
Closing Date (after reduction for any available capital loss carry-
forward). Such dividends will be included in the taxable income of
Strategic Diversified Income Fund's shareholders as ordinary income and
capital gain, respectively.
The exchange of the assets of Strategic Diversified Income Fund for Class
C shares of Strategic Income Fund and the assumption by Strategic Income
Fund of certain liabilities of Strategic Diversified Income Fund is
intended to qualify for Federal income tax purposes as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of
1986, as amended (the "Code"). Strategic Diversified Income Fund has
represented to Deloitte & Touche, tax adviser to Strategic Diversified
Income Fund, that there is no plan or intention by any Fund shareholder
who owns 5% or more of Strategic Diversified Income Fund's outstanding
shares, and, to Strategic Diversified Income Fund's best knowledge, there
is no plan or intention on the part of the remaining Fund shareholders,
to redeem, sell, exchange or otherwise dispose of a number of Strategic
Income Fund Class C shares received in the transaction that would reduce
Strategic Diversified Income Fund shareholders' ownership of Strategic
Income Fund shares to a number of shares having a value, as of the Closing
Date, of less than 50% of the value of all the formerly outstanding Fund
shares as of the same date. Oppenheimer Strategic Funds Trust has
represented to Deloitte & Touche that, as of the Closing Date, it will
qualify as a regulated investment company or will meet the diversification
test of Section 368(a)(2)(F)(ii) of the Code.
As a condition to the closing of the Reorganization, Strategic Income Fund
and Strategic Diversified Income Fund will receive the opinion of Deloitte
to the effect that, based on the Reorganization Agreement, the above
representations, existing provisions of the Code, Treasury Regulations
issued thereunder, current Revenue Rulings, Revenue Procedures and court
decisions, for Federal income tax purposes:
1. The transactions contemplated by the Reorganization Agreement will
qualify as a tax-free "reorganization" within the meaning of Section
368(a)(1) of the Code.
2. Strategic Diversified Income Fund and Strategic Income Fund will each
qualify as "a party to a reorganization" within the meaning of Section
368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of Strategic
Diversified Income Fund upon the distribution of Class C shares of
beneficial interest in Strategic Income Fund to the shareholders of
Strategic Diversified Income Fund pursuant to Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be recognized
by Strategic Diversified Income Fund by reason of the transfer of its
assets solely in exchange for Class C shares of Strategic Income Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized by
Strategic Income Fund by reason of the transfer of Strategic
Diversified Income Fund's assets solely in exchange for Class C shares
of Strategic Income Fund.
6. The shareholders of Strategic Diversified Income Fund will have the
same tax basis and holding period for the shares of beneficial
interest in Strategic Income Fund that they receive as they had for
Strategic Diversified Income Fund stock that they previously held,
pursuant to Sections 358(a) and 1223(1) of the Code, respectively.
7. The securities transferred by Strategic Diversified Income Fund to
Strategic Income Fund will have the same tax basis and holding period
in the hands of Strategic Income Fund as they had for Strategic
Diversified Income Fund, pursuant to Sections 362(b) and 1223(1) of
the Code, respectively.
Shareholders of Strategic Diversified Income Fund should consult their tax
advisors regarding the effect, if any, of the Reorganization in light of
their individual circumstances. Since the foregoing discussion only
relates to the Federal income tax consequences of the Reorganization,
shareholders of Strategic Diversified Income Fund should also consult
their tax advisers as to state and local tax consequences, if any, of the
Reorganization.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of Strategic Diversified
Income Fund and Strategic Income Fund and indicates the pro forma combined
capitalization as of March 31, 1995 as if the Reorganization had occurred
on such dates.
<TABLE>
<CAPTION>
March 31, 1995
Net Asset
Shares Value
Net Assets Outstanding Per Share
<S> <C> <C> <C>
Oppenheimer Strategic
Income Fund
Class A $2,990,586,689 663,783,585 $4.51
Class B $1,652,677,216 366,177,811 $4.51
Oppenheimer Strategic
Diversified Income Fund
Class C $ 49,094,881 10,832,351 $4.53
Oppenheimer Strategic
Income Fund (Pro Forma
Combined Fund)
Class A $2,990,586,689 663,783,585 $4.51
Class B $1,652,672,216 336,177,811 $4.51
Class C $ 49,094,881 10,885,787 $4.51
</TABLE>
Reflects issuance of 10,885,787 shares of Strategic Income Fund in a tax-
free exchange for the net assets of Strategic Diversified Income Fund,
aggregating $49,094,881.
The pro forma ratio of expenses to average annual net assets of the Class
C shares at September 30, 1994 and at March 31, 1995 would have been 1.71%
and 1.69%, respectively, for Class C shares. The pro forma ratio of
expenses to average net assets of Class A of September 30, 1994 and March
31, 1995 would have been .93% and .94%, respectively. The pro forma ratio
of expenses to average net assets of Class B at September 30, 1994 and
March 31, 1995 would have been 1.71% and 1.69%, respectively.
COMPARISON BETWEEN Strategic Diversified Income Fund AND
STRATEGIC INCOME FUND
Information about Strategic Diversified Income Fund and Strategic Income
Fund is presented below. Additional information about Strategic Income
Fund is set forth in its Prospectus, accompanying this Proxy Statement and
Prospectus, and additional information about both funds is set forth in
documents that may be obtained upon request of the transfer agent and upon
review at the offices of the SEC. See "Miscellaneous - Public
Information."
Investment Objectives and Policies
As their investment objective, both Strategic Diversified and Strategic
Income Fund seek a high level of current income by investing mainly in
debt securities and by writing covered calls on them. The funds do not
invest with the objective of capital appreciation. In seeking their
investment objectives, the funds employ virtually identical investment
policies as described in detail below. The Manager is the investment
adviser to both Strategic Diversified Income Fund and Strategic Income
Fund.
Each of the funds seek their 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
funds will invest in each of these three sectors, but from time to time
the Manager will adjust the amounts Strategic Diversified Income Fund
invests in each sector.
By investing in all three sectors, the funds seek 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, Strategic Diversified Income Fund may invest up to 100%
of their respective assets in any one sector if the Manager believes that
in doing so the funds can achieve their objective without undue risk to
a fund's assets.
When investing the fund's respective 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 each fund may seek to earn income by writing covered
call options, market price movements may make it disadvantageous to do so.
The funds may also try to hedge against losses by using hedging strategies
described below. When market conditions are unstable, the funds may
invest substantial amounts of their assets in money market instruments for
defensive purposes. These instruments include U.S. Government Securities,
bank obligations, commercial paper, corporate obligations and other
instruments approved by the Board of Trustees.
Lower Rated Securities
In seeking high current income, each fund may invest in higher-yielding,
lower-rated debt securities, commonly known as "junk bonds." There is no
restriction on the amount of each 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. Each 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. They are also subject to
greater credit risk. For example, 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. All corporate debt
securities (whether foreign or domestic) are subject to some degree of
credit risk.
These risks mean that either fund may not achieve the expected income from
lower-grade securities, and that either fund's net asset value per share
may be affected by declines in value of these securities. Strategic
Diversified Income 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 each fund's Statement of Additional
Information.
Interest Rate Risks
In addition to credit risks, referred to 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 each fund mean that each fund's share prices can go up or down when
interest rates change because of the effect of the change on the value of
each fund's portfolio of debt securities.
Risk of Foreign Securities
Both Strategic Diversified Income Fund and Strategic Income 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 each fund receives. Each 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." However, if the assets of either fund are held abroad, the
countries in which they are held and the sub-custodians holding them must
be approved by the Board of Trustees. Each of the funds 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 a fund from adverse
exchange rate changes, there is a risk of loss if the Manager fails to
predict currency exchange movements correctly. For example, foreign
issuers are not required to use accounting methods that correspond to
generally-accepted accounting principles. If foreign securities are not
registered under the Securities Act of 1933, as amended (the "Securities
Act"), the issuer may not have to comply with the disclosure requirements
of the Securities Exchange Act of 1934, as amended. The values of foreign
securities investments will be affected by a variety of factors,
including, among others, incomplete or inaccurate information available
as to foreign issuers, changes in currency rates, exchange control
regulations or currency blockage, expropriation or nationalization of
assets, application of foreign tax laws (including withholding taxes),
changes in governmental administration or economic or monetary policy in
the U.S. or abroad, or changed circumstances in dealings between nations.
In addition, it is generally more difficult to obtain court judgments
outside the U.S. Additional costs may be incurred in connection with
investments in foreign securities because of generally higher foreign
commissions and the additional custodial costs associated with monitoring
foreign securities. Foreign securities markets may be less liquid, more
volatile and less subject to governmental regulation than in the U.S.
Debt Securities of Foreign Governments and Companies. The funds 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. The funds will not invest more than 25% of their respective total
assets in government securities of any one foreign country or more than
25% of its assets in companies in one foreign country. Otherwise, the
funds are not restricted in the amount of assets they may invest in
foreign countries or in which countries. Both funds 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 funds from adverse
exchange rate changes, there is a risk of loss if the Manager fails to
predict currency exchange movements correctly.
U.S. Government Securities. The funds 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 funds invest in. Other mortgage-
related U.S. Government Securities Strategic Diversified Income 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 Strategic Diversified Income 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 one of the funds 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.
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. Each of the funds accrues interest into holdings
without receiving the accrual costs. As a result, the funds may be forced
to seek portfolio securities to pay cash dividends of net redemptions.
The funds may invest up to 50% of their respective 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 funds 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 funds 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 a 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 funds may also invest in CMOs that are "stripped." That means that
the security is divided into two parts, one of which receives some or all
of the principal payments (and is known as a "P/O") and the other which
receives some or all of the interest (and is known as an "I/O"). P/Os and
I/Os are generally referred to as "derivative investments," discussed
further below.
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the funds
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall, and
in times of rapidly falling interest rates, the funds might receive back
less than their investment.
The value of "principal only" 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.
Debt Securities of U.S. Companies. Each of the funds 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 funds may purchase these securities in
public offerings or through private placements. The funds have 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 funds. 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. Each of the funds 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 each 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, each 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 each fund's limitations on investments in illiquid securities.
See "Illiquid and Restricted Securities" below.
Special Investment Methods
Strategic Diversified Income Fund and Strategic Income Fund use the
special investment methods summarized below.
Borrowing For Leverage. From time to time, Strategic Diversified Income
Fund and Strategic Income Fund may increase their ownership of securities
by borrowing up to 50% of the value of their respective assets from banks
on an unsecured basis and investing the borrowed funds (on which the fund
will pay interest), subject to the 300% asset coverage requirement of the
Investment Company Act. Purchasing securities with borrowed funds is a
speculative investment method known as leveraging. There are risks
associated with leveraging purchases of portfolio securities by borrowing,
including a possible reduction of income and increased fluctuation of net
asset value per share.
Short Sales Against-the-Box. The funds may not sell securities short
except in transactions referred to as "short sales against-the-box." No
more than 15% of each fund's net assets will be held as collateral for
such short sales at any one time.
Hedging. Each of the funds 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."
Strategic Diversified Income Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described below.
The funds may buy and sell options, futures and forward contracts for a
number of purposes. They may do so to try to manage its exposure to the
possibility that the prices of their portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. They may do so to try to manage
their exposure to changing interest rates. Some of these strategies, such
as selling futures, buying puts and writing covered calls, hedge each
fund's portfolio against price fluctuations. Other hedging strategies,
such as buying futures and call options, tend to increase the funds'
exposure to the securities market. Forward contracts are used to try to
manage foreign currency risks on each fund's foreign investments. Foreign
currency options are used to try to protect against declines in the dollar
value of foreign securities each 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 each fund for liquidity purposes
or defensive reasons or to raise cash to distribute to shareholders.
Futures. The funds 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). Each of the funds may buy and sell
certain kinds of put options (puts) and call options (calls). The funds
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 Strategic Diversified Income Fund previously wrote.
The funds 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).
Each of the funds may purchase put options. Buying a put on an investment
gives a fund the right to sell the investment at a set price to a seller
of a put on that investment. Each 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. Each fund may purchase puts on investments it
does not own. Writing puts requires the segregation of liquid assets to
cover the put. Neither fund will write a put if it will require more than
50% of that fund's respective net assets to be segregated to cover the put
obligation.
Each of the funds 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.
Each 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 each fund's total assets that may be subject to covered calls. Each
fund can also write calls on foreign currencies (discussed below). Each
fund may also write covered calls on Futures Contracts it owns, but these
calls must be covered by securities or other liquid assets Strategic
Diversified Income 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 a fund's put and call options would
exceed 5% of a 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 funds use them to "lock-in" the U.S.
dollar price of a security denominated in a foreign currency that each
fund, respectively has bought or sold, or to protect against losses from
changes in the relative values of the U.S. dollar and a foreign currency.
Each 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, a 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 funds enter into swaps only on
securities they own. The funds may not enter into swaps with respect to
more than 25% of their total assets. Also, each 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 a fund's return. Each of the funds 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 each fund. There are also special risks in particular hedging
strategies. If a covered call written by one of the funds is exercised
on a security that has increased in value, that 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 their exposure in foreign currency exchange contracts,
each 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. Each of the funds could be obligated to pay more under their
respective swap agreements than it receives under them, as a result of
interest rate changes. The funds will not enter into swaps with respect
to more than 25% of their respective total assets.
Derivative Investments. Strategic Diversified Income Fund and
Strategic Income Fund can invest in a number of different kinds of
"derivative investments." Each of the funds 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.
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 a 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 a fund's share price. Certain derivative investments held by each
of the funds 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.
Illiquid and Restricted Securities. Strategic Diversified Income Fund
will not purchase or otherwise acquire any securities that may be illiquid
by virtue of the absence of a readily-available market or because their
disposition would be subject to legal restrictions ("restricted
securities") if, as a result, more than 10% of Strategic Diversified
Income Fund's net assets would be invested in securities that are illiquid
(including repurchase agreements maturing in more than seven days). This
limit may increase to 15% if certain state laws are changed or Strategic
Diversified Income Fund's shares are no longer sold in those states. This
policy does not limit the acquisition of restricted securities eligible
for resale to qualified institutional buyers pursuant to Rule 144A under
the Securities Act that are determined to be liquid by Strategic
Diversified Income Fund's Board of Trustees or by the Manager under Board-
approved guidelines. Such guidelines take into account, among other
factors, trading activity for such securities and the availability of
reliable pricing information. If there is a lack of trading interest in
particular Rule 144A securities, Strategic Diversified Income Fund's
holdings of those securities may be illiquid. There may be undesirable
delays in selling such securities at prices representing their fair value.
Strategic Income Fund has an identical policy with respect to investment
in restricted and illiquid securities.
Loans of Portfolio Securities. To attempt to increase income for
liquidity purposes, each fund may lend its portfolio securities (other
than in repurchase transactions) to brokers, dealers and other financial
institutions meeting specified credit conditions if the loan is
collateralized in accordance with applicable regulatory requirements and
if, after any loan, the value of the securities loaned does not exceed 25%
of the value of that fund's total assets. Each fund presently does not
intend that the value of securities loaned in the current fiscal year will
exceed 5% of the value of its respective total assets.
Repurchase Agreements. Each fund may acquire securities subject to
repurchase agreements to generate income for liquidity purposes to meet
anticipated redemptions, or pending the investment of proceeds from sales
of fund shares or settlement of purchases of portfolio investments. If
the vendor fails to pay the agreed-upon resale price on the delivery date,
the fund's risks may include any costs of disposing of such collateral,
and any loss from any delay in foreclosing on the collateral. Each fund's
repurchase agreements will be fully collateralized. There is no limit on
the amount of the fund's net assets that may be subject to repurchase
agreements having a maturity of seven days or less.
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. Strategic Diversified Income Fund may invest up to 5% of its
total assets in warrants or rights. That 5% does not apply to warrants
and rights Strategic Diversified Income Fund acquired as part of units
with other securities or that were attached to other securities. No more
than 2% of Strategic Diversified Income Fund's assets may be invested in
warrants that are not listed on the New York or American Stock Exchanges.
Strategic Income Fund has the same policy with respect to warrants and
rights.
"When-Issued" and Delayed Delivery Transactions. Strategic Diversified
Income 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 Strategic Diversified Income Fund if the value of the security
declines prior to the settlement date. Strategic Income Fund has the same
policy with respect to when issued and delayed delivery transactions.
Investment Restrictions
Strategic Diversified Income Fund and Strategic Income Fund have
certain investment restrictions that, together with their investment
objectives, are fundamental policies, changeable only by shareholder
approval. Set forth below is a summary of these investment restrictions
which is qualified in its entirety by the investment policies and
restrictions of the funds contained in their respective Prospectus and
Statement of Additional Information.
Strategic Diversified Income Fund and Strategic Income Fund each have
other investment restrictions which are fundamental policies. Under these
fundamental policies, the funds cannot do any of the following: (1) as to
75% of total assets, the funds may not buy securities issued or guaranteed
by a single issuer if, as a result, the funds would have invested more
than 5% of their 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 funds
may not borrow money in excess of 50% of the value of total assets, and
it may borrow only subject to the restrictions described under "Borrowing
for Leverage;" (3) the funds may not invest more than 25% of 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); (4) the
funds may not invest more than 5% of total assets in securities of issuers
(including their predecessors) that have been in operation less than three
years; (5) buy or sell real estate, or commodities or commodity contracts;
however, the funds 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 funds may buy and sell Hedging Instruments; (6) buy securities on
margin, except that the funds may make margin deposits in connection with
any of the Hedging Instruments which it may use; (7) 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; (8) buy and retain
securities of any issuer if those officers, Trustees or Directors of
Strategic Diversified Income 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; (9) invest in oil, gas, or other mineral
exploration or development programs; (10) buy the securities of any
company for the purpose of exercising management control; (11) 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"; (12) 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.
Portfolio Turnover
Holding a portfolio security for any particular length of time is not
generally a consideration in investment decisions. As a result of each
fund's investment policies and market factors, their portfolio securities
are actively traded to try to benefit from short-term yield differences
among debt securities. As a result, portfolio turnover of each of the
funds 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 each of the funds to qualify for
tax deductions for payments made to shareholders as a "regulated
investment company" under the Internal Revenue Code. Strategic
Diversified Income Fund and Oppenheimer Strategic Income Fund each
qualified in their last fiscal year and intend to do so in the coming
year, although they reserve the right not to qualify.
For the fiscal year ended September 30, 1994, the portfolio turnover rate
for Strategic Diversified Income Fund and Strategic Income Fund was 108.8%
and 119.0%, respectively. For the six months ended March 31, 1995
(unaudited), the portfolio turnover rate for Strategic Diversified Income
Fund and Strategic Income Fund was 79.7% and 66.9%, respectively.
Description of Brokerage Practices
Subject to the provisions of the advisory agreement, when brokers are used
for each 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
other procedures and rules. 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
either of the funds 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 each fund are principal transactions at net
prices, each fund incurs little or no brokerage costs. Each of the funds
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 funds seek 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 funds 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
portfolio of the funds 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.
Expense Ratios and Performance
The ratio of expenses to average net assets for Strategic Diversified
Income Fund for the fiscal year ended September 30, 1994 was 2.13% (before
expense reimbursement). For the six months ended March 31, 1995
(unaudited) the ratio of expenses to average net assets for Strategic
Diversified Income Fund was 2.19% (annualized). Further details are set
forth under "Fund Expenses" and "Financial Highlights" in Strategic Income
Fund's Prospectus dated May 26, 1995, which accompanies this Proxy
Statement and Prospectus, and in Strategic Diversified Income Fund's
Annual Report as of September 30, 1994 and Semi-Annual Report as of March
31, 1995 (unaudited), and Strategic Income Fund's Annual Report as of
September 30, 1994 and Semi-Annual Report as of March 31, 1995
(unaudited), which are included in the Additional Statement. The
standardized yield for Strategic Diversified Income Fund for the 30 day
period ended March 31, 1995 was 8.15% and the average annual return for
the one year period ended March 31, 1995 and since inception of Strategic
Diversified Income Fund (February 1, 1994) was <1.04%> and <1.06%>,
respectively. For the 30 day period ended March 31, 1995, the
standardized yield for the Strategic Income's Class B shares was 8.40%.
For the one year period ended March 31, 1995, and since inception
(November 30, 1992) the average annual return on an investment in Class
B shares of Strategic Income Fund were <4.96%> and 5.06%, respectively.
For the one year period ended March 31, 1995, and since inception of
Strategic Diversified Income Fund (February, 1994), the average annual
return at net asset value was <.11%> and <1.06%>. For the one year period
ended March 31, 1995 and since inception of Strategic Income Fund Class
B shares (November 30, 1992), the average annual return at net asset value
was <.39%> and 6.16%.
Shareholder Services
The policies of Strategic Diversified Income Fund and Strategic Income
Fund with respect to minimum initial investments and subsequent
investments by its shareholders are substantially the same. Both
Strategic Diversified Income Fund and Strategic Income Fund offer the
following privileges: (i) Rights of Accumulation, (ii) Letters of Intent,
(iii) reinvestment of dividends and distributions at net asset value, (iv)
net asset value purchases by certain individuals and entities, (v) Asset
Builder (automatic investment) Plans, (vi) Automatic Withdrawal and
Exchange Plans for shareholders who own shares of the fund valued at
$5,000 or more, (vii) reinvestment of net redemption proceeds at net asset
value within six months of a redemption, (viii) AccountLink and PhoneLink
arrangements, (ix) exchanges of shares for shares of certain other funds
at net asset value, and (x) telephone redemption and exchange privileges.
Shareholders may purchase shares through OppenheimerFunds AccountLink,
which links a shareholder account to an account at a bank or financial
institution and enables shareholders to send money electronically between
those accounts to perform a number of types of account transactions. This
includes the purchase of shares through the automated telephone system
(PhoneLink). Exchanges can also be made by telephone, automatically
through PhoneLink. After AccountLink privileges have been established
with a bank account, shares may be purchased by telephone up to $100,000.
Shares of either Fund may be exchanged only for Class C shares of other
OppenheimerFunds although the number of Funds offering Class C shares is
limited. Shareholders of the funds may redeem their shares by written
request or by telephone request in an amount up to $50,000 in any seven-
day period. Shareholders may arrange to have share redemption proceeds
wired to a pre-designated account at a U.S. bank or other financial
institution that is an ACH member ("AccountLink redemption"). There is
no dollar limit on telephone redemption proceeds sent to a bank account
when an AccountLink has been established. Shareholders may also redeem
shares automatically by telephone by using PhoneLink. Shareholders may
also have the Transfer Agent send redemption proceeds of $2,500 or more
by Federal Funds wire to a designated commercial bank, which is a member
of the Federal Reserve wire system. Shareholders of the funds may
reinvest redemption proceeds within six months of a redemption at net
asset value in Class A shares of the funds or any of numerous "Eligible
Funds" within the OppenheimerFunds complex. Strategic Diversified Income
Fund and Strategic Income Fund may redeem accounts valued at less than
$200 if the account has fallen below such stated amount for reasons other
than market value fluctuations. Both funds offer Automatic Withdrawal and
Automatic Exchange Plans under certain conditions.
Rights of Shareholders
Shares of both Strategic Diversified Income Fund and Strategic Income
are sold without sales charge, but if the shares are sold within 12 months
of their purchase, a contingent deferred sales charge will be imposed.
Thereafter, shares of Strategic Diversified Income Fund and Strategic
Income Fund are redeemable at their net asset value. The shares of each
such fund, including shareholders of each class, entitle the holder to one
vote per share on the election of trustees and all other matters submitted
to shareholders of the fund. Shares of Strategic Diversified Income Fund
and the Class C shares of Strategic Income Fund which Fund shareholders
will receive in the Reorganization participate equally in the fund's
dividends and distributions and in the fund's net assets upon liquidation.
All shares of Strategic Diversified Income Fund, and Class A, Class B, and
Class C shares, when issued, are fully paid and non-assessable. It is not
contemplated that the Trust, Strategic Diversified Income Fund or
Strategic Income Fund will hold regular annual meetings of shareholders.
Under the Investment Company Act, shareholders of Strategic Diversified
Income Fund do not have rights of appraisal as a result of the
transactions contemplated by the Reorganization Agreement. However, they
have the right at any time prior to the consummation of such transaction
to redeem their shares at net asset value subject to the contingent
deferred sales charge. Shareholders of the Trust have the right, under
certain circumstances, to remove a Trustee and will be assisted in
communicating with other shareholders for such purpose.
Oppenheimer Strategic Funds Trust is organized as a Massachusetts Business
Trust and is governed principally by its Declaration of Trust and by-laws.
Although the Trust was originally organized with one series, in December
1993, the Trust was reorganized to become a multi-series business trust.
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 (Strategic Diversified Income Fund and
Strategic Income Fund) has its own shares. The Board of Trustees has the
power, without shareholder approval, to establish and designate one or
more series and to divide unissued shares of Strategic Diversified Income
Fund or Strategic Income Fund into two or more classes. The Board has
done so with respect to its Oppenheimer Strategic Income Fund series,
which has three classes of shares, Class A, Class B and Class C. Each
class has its own dividends and distributions and pays certain expenses
which may be different for the different classes. Each share has one vote
at shareholder meetings, with fractional shares voting proportionately.
Shares of a particular class vote together on matters that affect that
class. Shares are free transferable. Most Amendments to the Declaration
of Trust require the approval of a "majority" (as defined in the
Investment Company Act) of a fund's shareholders. Under certain
circumstances, shareholders of the funds may be held personally liable as
partners for the fund's obligations, and under the Declaration of Trust
such a shareholder is entitled to indemnification rights by the funds; the
risk of a shareholder incurring any such loss is limited to the remote
circumstances in which the fund is unable to meet its obligations.
As of May 12, 1995 there were 165,923 shares of Strategic Fund Class A and
89,981 shares of Strategic Income Class B. Class C shares were not issued
as of this date.
Management and Distribution Arrangements
The Manager, located at Two World Trade Center, New York, New York
10048-0203, acts as the investment adviser for Strategic Diversified
Income Fund pursuant to an investment advisory agreement with Strategic
Diversified Income Fund dated February 1, 1994 (the "Fund Advisory
Agreement") and acts as the investment adviser to Strategic Income Fund
pursuant to an investment advisory agreement with Strategic Income Fund
dated October 22, 1990 (the "Strategic Income Fund Advisory Agreement").
Strategic Diversified Income Fund Advisory Agreement has not been
submitted to or approved by the shareholders of Strategic Diversified
Income Fund. The Strategic Income Fund Advisory Agreement was submitted
to and approved by the shareholders of Strategic Income Fund at a meeting
held on October 1, 1990. The monthly management fee payable to the
Manager by each fund is set forth under "Synopsis - Investment Advisory
and Service Plan Fees." The 12b-1 Distribution and Service Plan fees paid
by Strategic Diversified Income Fund to the Distributor (including the
asset-based sales charge) and the 12b-1 Distribution and Service Plan fees
with respect to Class C shares (including the asset-based sales charge)
of Strategic Income Fund are set forth under "Synopsis - Investment
Advisory and Service Plan Fees," and are more fully explained below.
The terms and conditions of the investment advisory agreement for each
fund are the same.
Pursuant to Strategic Diversified Income Fund Advisory Agreement and
the Strategic Income Fund Advisory Agreement, the Manager supervises the
investment operations of the funds and the composition of their portfolios
and furnishes advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities. The
Investment Advisory Agreements require the Manager to provide Strategic
Diversified Income Fund and Strategic Income 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 funds, 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 each fund.
For the fiscal year ended September 30, 1994 and the six months ended
March 31, 1995 (unaudited), the management fees paid by Strategic
Diversified Income Fund were $171,570 and $109,624, respectively. For the
fiscal year ended September 30, 1994 and the six months ended March 31,
1995 (unaudited) the management fees for Strategic Income Fund were
$23,416,092 and $12,485,016, respectively. Neither fund's advisory
agreement contains any expense limitation. However, independently of the
advisory agreement, the Manager has undertaken that the total expenses of
Strategic Diversified Income Fund and Strategic Income Fund in any fiscal
year (including the management fee but exclusive of taxes, interest,
brokerage commissions, distribution plan payments and any extraordinary
non-recurring expenses, including litigation) shall not exceed the most
stringent state regulatory limitation on fund expenses applicable to the
funds. At present, that limitation is imposed by California and limits
expenses (with specified exclusions) to 2.5% of the first $30 million of
average annual net assets, 2% 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, during the fiscal
year ended September 30, 1994, the Manager previously had voluntarily
agreed to assume any expense of Strategic Diversified Income Fund in a
fiscal year to the extent required to enable Strategic Diversified Income
Fund to accrue income, net of expenses, to allow Strategic Diversified
Income Fund to pay dividends at the annualized rate of $.3525 per share.
As a result of the expense assumption, the yield and total return of
Strategic Diversified Income Fund may have been higher during that period
than they otherwise would have been. After September 30, 1994, there has
been no reimbursement by the Manager. With respect to Strategic Income
Fund, the Manager has undertaken to assume Strategic Diversified Income
Fund's expenses (other than extraordinary non-recurring expenses) to
enable Strategic Diversified Income Fund to pay a dividend of $0.438 per
share per annum. The Manager reserves the right to change or eliminate
the expense limitations at any time and there can be no assurance as to
the duration of the expense limitation by either fund. It is not expected
that Strategic Income Fund will maintain a fixed dividend rate for its
Class C shares and there can be no assurance as to the payment of any
dividends or the realization of any capital gains by either fund.
The Manager is controlled by OAC, a holding company owned in part by
senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company that also advises pension plans and investment companies. The
Manager has operated as an investment company adviser since 1959. The
Manager and its affiliates currently advise investment companies with
combined net assets aggregating over $30 billion as of March 31, 1995,
with more than 2.4 million shareholder accounts. Oppenheimer Shareholder
Services, a division of the Manager, acts as transfer and shareholder
servicing agent on an at-cost basis for Strategic Diversified Income Fund
and Strategic Income Fund and for certain other open-end funds managed by
the Manager and its affiliates.
The Distributor, a wholly-owned subsidiary of the Manager, acts as the
general distributor of each fund's shares under a General Distributor's
Agreement for each fund dated February 1, 1994. For the fiscal year ended
September 30, 1994, the contingent deferred sales charge collected on Fund
shares totalled $18,270, all of which the Distributor retained.
Under the Distribution and Service Plans adopted by both Strategic
Diversified Income Fund and Strategic Income Fund for its Class C shares,
the Distributor is paid an annual asset-based sales charge of 0.75% per
year in addition to the 0.25% annual service fee. The asset-based sales
charge allows an investor to buy shares without a front-end sales charge
while allowing the Distributor to compensate dealers that sell shares of
the funds. The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold shares of the funds.
The asset-based sales charge and service fees increase expenses by up to
1% of average net assets per year. The Distributor pays the 0.25% service
fee to dealers in advance for the first year after Class C 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 during the first year shares are outstanding to recoup the
sales commissions it pays, the advancing of service fee payments it makes,
and its financing costs. The Distributor plans to pay the asset-based
sales charge as an ongoing commission to the dealer on shares of Strategic
Diversified Income Fund, or Class C shares of Strategic Income,
respectively, which have been outstanding for a year or more.
Purchase of Additional Shares
Shares of Strategic Diversified Income Fund and Class C shares of
Strategic Income Fund are sold without a sales charge. If shares of
Strategic Diversified Income Fund or Strategic Income are redeemed within
12 months of buying them, a contingent deferred sales charge of 1% may be
imposed.
The contingent deferred sales charge on Class C shares of Strategic Income
Fund will only affect shareholders of Strategic Diversified Income Fund
to the extent that they desire to make additional purchases of shares of
Strategic Income Fund in addition to the shares which they will receive
as a result of the Reorganization. The Class C shares to be issued under
the Reorganization Agreement will be issued by Strategic Income Fund at
net asset value without a sales charge. Future dividends and capital gain
distributions of Strategic Income Fund, if any, may be reinvested without
sales charge. Any Fund shareholder who is entitled to a reduced sales
charge on additional purchases by reason of a Letter of Intent or Rights
of Accumulation based upon holdings of shares of Strategic Diversified
Income Fund will continue to be entitled to a reduced sales charge on any
future purchase of shares of Strategic Income Fund.
METHOD OF CARRYING OUT THE REORGANIZATION
The consummation of the transactions contemplated by the
Reorganization Agreement is contingent upon the approval of the
Reorganization by the shareholders of Strategic Diversified Income Fund
and the receipt of the other opinions and certificates set forth in
Sections 10 and 11 of the Reorganization Agreement and the occurrence of
the events described in those Sections. Under the Reorganization
Agreement, all the assets of Strategic Diversified Income Fund, excluding
the Cash Reserve, will be delivered to Strategic Income Fund in exchange
for Class C shares of Strategic Income Fund. The Cash Reserve to be
retained by Strategic Diversified Income Fund will be sufficient in the
discretion of the Board for the payment of Strategic Diversified Income
Fund's liabilities, and Strategic Diversified Income Fund's expenses of
liquidation.
Assuming the shareholders of Strategic Diversified Income Fund approve the
Reorganization, the actual exchange of assets is expected to take place
on August 4, 1995 or as soon thereafter as is practicable (the "Closing
Date") on the basis of net asset values as of the close of business on the
business day preceding the Closing Date (the "Valuation Date"). Under the
Reorganization Agreement, all redemptions of shares of Strategic
Diversified Income Fund shall be permanently suspended on the Valuation
Date; only redemption requests received in proper form on or prior to the
close of business on that date shall be fulfilled by it; redemption
requests received by Strategic Diversified Income Fund after that date
will be treated as requests for redemptions of Class C shares of Strategic
Income Fund to be distributed to the shareholders requesting redemption.
The exchange of assets for shares will be done on the basis of the per
share net asset value of the Class C shares of Strategic Income Fund, and
the value of the assets of Strategic Diversified Income Fund to be
transferred as of the close of business on the Valuation Date, in the
manner used by Strategic Income Fund in the valuation of assets.
Strategic Income Fund is not assuming any of the liabilities of Strategic
Diversified Income Fund, except for portfolio securities purchased which
have not settled and outstanding shareholder redemption and dividend
checks.
The net asset value of the shares transferred by Strategic Income Fund to
Strategic Diversified Income Fund will be the same as the value of the
assets of the portfolio received by Strategic Income Fund. For example,
if, on the Valuation Date, Strategic Diversified Income Fund were to have
securities with a market value of $95,000 and cash in the amount of
$10,000 (of which $5,000 was to be retained by it as the Cash Reserve),
the value of the assets which would be transferred to Strategic Income
Fund would be $100,000. If the net asset value per share of Strategic
Income Fund were $10 per share at the close of business on the Valuation
Date, the number of shares to be issued would be 10,000 ($100,000 divided by
$10). These 10,000 shares of Strategic Income Fund would be distributed to
the former shareholders of Strategic Diversified Income Fund. This example
is given for illustration purposes only and does not bear any relationship
to the dollar amounts or shares expected to be involved in the
Reorganization.
After the Closing Date, Strategic Diversified Income Fund will
distribute on a pro rata basis to its shareholders of record on the
Valuation Date the Class C shares of Strategic Income Fund received by
Strategic Diversified Income Fund at the closing, in liquidation of the
outstanding shares of Strategic Diversified Income Fund, and the
outstanding shares of Strategic Diversified Income Fund will be cancelled.
To assist Strategic Diversified Income Fund in this distribution,
Strategic Income Fund will, in accordance with a shareholder list supplied
by Strategic Diversified Income Fund, cause its transfer agent to credit
and confirm an appropriate number of shares of Strategic Income Fund to
each shareholder of Strategic Diversified Income Fund. Certificates for
Class C shares of Strategic Income Fund will be issued upon written
request of a former shareholder of Strategic Diversified Income Fund but
only for whole shares with fractional shares credited to the name of the
shareholder on the books of Strategic Income Fund. Former shareholders
of Strategic Diversified Income Fund who wish certificates representing
their shares of Strategic Income Fund must, after receipt of their
confirmations, make a written request to OSS, P.O. Box 5270, Denver,
Colorado 80217. Shareholders of Strategic Diversified Income Fund holding
certificates representing their shares will not be required to surrender
their certificates to anyone in connection with the Reorganization. After
the Reorganization, however, it will be necessary for such shareholders
to surrender such certificates in order to redeem, transfer or exchange
any shares of Strategic Income Fund.
Under the Reorganization Agreement, within one year after the Closing
Date, Strategic Diversified Income Fund shall: (a) either pay or make
provision for all of its debts and taxes; and (b) either (i) transfer any
remaining amount of the Cash Reserve to Strategic Income Fund, if such
remaining amount is not material (as defined below) or (ii) distribute
such remaining amount to the shareholders of Strategic Diversified Income
Fund who were such on the Valuation Date. Such remaining amount shall be
deemed to be material if the amount to be distributed, after deducting the
estimated expenses of the distribution, equals or exceeds one cent per
share of the number of Fund shares outstanding on the Valuation Date.
Within one year after the Closing Date, Strategic Diversified Income Fund
will complete its liquidation.
Under the Reorganization Agreement, either Strategic Diversified Income
Fund or Strategic Income Fund may abandon and terminate the Reorganization
Agreement without liability if the other party breaches any material
provision of the Reorganization Agreement or, if prior to the closing, any
legal, administrative or other proceeding shall be instituted or
threatened (i) seeking to restrain or otherwise prohibit the transactions
contemplated by the Reorganization Agreement and/or (ii) asserting a
material liability of either party, which proceeding or liability has not
been terminated or the threat thereto removed prior to the Closing Date.
In the event that the Reorganization Agreement is not consummated for any
reason, the Board will consider and may submit to the shareholders other
alternatives.
MISCELLANEOUS
Additional Information
Financial Information
The Reorganization will be accounted for by the surviving fund in its
financial statements similar to a pooling. Further financial information
as to Strategic Diversified Income Fund is contained in its current
Prospectus, which is available without charge from Oppenheimer Shareholder
Services, the Transfer Agent, P.O. Box 5270, Denver, Colorado 80217, and
is incorporated herein, and in its audited financial statements as of
September 30, 1994, and unaudited financial statements as of March 31,
1995, which are included in the Additional Statement. Financial
information for Strategic Income Fund is contained in its current
Prospectus accompanying this Proxy Statement and Prospectus and
incorporated herein, and in its audited financial statements as of
September 30, 1994 and unaudited financial statements as of March 31,
1995, which are included in the Additional Statement.
Public Information
Additional information about Strategic Diversified Income Fund and
Strategic Income Fund is available, as applicable, in the following
documents which are incorporated herein by reference: (i) Strategic Income
Fund's Prospectus dated May 26, 1995, accompanying this Proxy Statement
and Prospectus and incorporated herein; (ii) Strategic Diversified Income
Fund's Prospectus dated May 26, 1995, which may be obtained without charge
by writing to OSS, P.O. Box 5270, Denver, Colorado 80217; (iii) Strategic
Income Fund's Annual Report as of September 30, 1994 and unaudited
financial statements as of March 31, 1995, which may be obtained without
charge by writing to OSS at the address indicated above; and (iv)
Strategic Diversified Income Fund's Annual Report as of September 30, 1994
and unaudited financial statements as of March 31, 1995, which may be
obtained without charge by writing to OSS at the address indicated above.
All of the foregoing documents may be obtained by calling the toll-free
number on the cover of this Proxy Statement and Prospectus.
Additional information about the following matters is contained in the
Additional Statement, which incorporates by reference the Strategic Income
Fund Statement of Additional Information, and Strategic Diversified Income
Fund's Prospectus dated May 26, 1995, and Statement of Additional
Information dated May 26, 1995: the organization and operation of
Strategic Income Fund and Strategic Diversified Income Fund; more
information on investment policies, practices and risks; information about
Strategic Diversified Income Fund's and Strategic Income Fund's Boards of
Trustees and their responsibilities; a further description of the services
provided by Strategic Income Fund's and Strategic Diversified Income
Fund's investment adviser, distributor, and transfer and shareholder
servicing agent; dividend policies; tax matters; an explanation of the
method of determining the offering price of the shares and/or contingent
deferred sales charges, as applicable of Class A, B and C shares of
Strategic Income Fund and Class C shares of Strategic Diversified Income
Fund; purchase, redemption and exchange programs; and distribution
arrangements.
Strategic Diversified Income Fund and Strategic Income Fund are subject
to the informational requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith, file reports and other
information with the SEC. Proxy material, reports and other information
about Strategic Diversified Income Fund and Strategic Income Fund which
are of public record can be inspected and copied at public reference
facilities maintained by the SEC in Washington, D.C. and certain of its
regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, Washington, D.C. 20549.
OTHER BUSINESS
Management of Strategic Diversified Income Fund knows of no business
other than the matters specified above which will be presented at the
Meeting. Since matters not known at the time of the solicitation may come
before the Meeting, the proxy as solicited confers discretionary authority
with respect to such matters as properly come before the Meeting,
including any adjournment or adjournments thereof, and it is the intention
of the persons named as attorneys-in-fact in the proxy to vote this proxy
in accordance with their judgment on such matters.
By Order of the Board of Trustees
George C. Bowen, Secretary
June 2, 1995 230
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
February 28, 1995 by and between Oppenheimer Strategic Diversified Income
Fund (the "Fund"), a Massachusetts business trust, and Oppenheimer
Strategic Income Fund ("Strategic Income Fund"), a Massachusetts business
trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of Strategic Diversified Income Fund through the
acquisition by Strategic Income Fund of substantially all of the assets
of Strategic Diversified Income Fund in exchange for the voting shares of
beneficial interest ("shares") of Strategic Income Fund and the assumption
by Strategic Income Fund of certain liabilities of Strategic Diversified
Income Fund, which shares of Strategic Income Fund are thereafter to be
distributed by Strategic Diversified Income Fund pro rata to its
shareholders in complete liquidation of Strategic Diversified Income Fund
and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt a Plan of Reorganization
pursuant to Section 368(a)(1) of the Code as follows: The reorganization
will be comprised of the acquisition by Strategic Income Fund of
substantially all of the properties and assets of Strategic Diversified
Income Fund in exchange for shares of Strategic Income Fund and the
assumption by Strategic Income Fund of certain liabilities of Strategic
Diversified Income Fund, followed by the distribution of such Strategic
Income Fund shares to the shareholders of Strategic Diversified Income
Fund in exchange for their shares of Strategic Diversified Income Fund,
all upon and subject to the terms of the Agreement hereinafter set forth.
The share transfer books of Strategic Diversified Income Fund will
be permanently closed at the close of business on the Valuation Date (as
hereinafter defined) and only redemption requests received in proper form
on or prior to the close of business on the Valuation Date shall be
fulfilled by Strategic Diversified Income Fund; redemption requests
received by Strategic Diversified Income Fund after that date shall be
treated as requests for the redemption of the shares of Strategic Income
Fund to be distributed to the shareholder in question as provided in
Section 5.
2. On the Closing Date (as hereinafter defined), all of the assets
of Strategic Diversified Income Fund on that date, excluding a cash
reserve (the "Cash Reserve") to be retained by Strategic Diversified
Income Fund sufficient in its discretion for the payment of the expenses
of Strategic Diversified Income Fund's dissolution and its liabilities,
but not in excess of the amount contemplated by Section 10E, shall be
delivered as provided in Section 8 to Strategic Income Fund, in exchange
for and against delivery to Strategic Diversified Income Fund on the
Closing Date of a number of shares of Strategic Income Fund having an
aggregate net asset value equal to the value of the assets of Strategic
Diversified Income Fund so transferred and delivered.
3. The net asset value of shares of Strategic Income Fund and the
value of the assets of Strategic Diversified Income Fund to be transferred
shall in each case be determined as of the close of business of the New
York Stock Exchange on the Valuation Date. The computation of the net
asset value of the shares of Strategic Income Fund and Strategic
Diversified Income Fund shall be done in the manner used by Strategic
Income Fund and Strategic Diversified Income Fund, respectively, in the
computation of such net asset value per share as set forth in their
respective prospectuses. The methods used by Strategic Income Fund in
such computation shall be applied to the valuation of the assets of
Strategic Diversified Income Fund to be transferred to Strategic Income
Fund.
Strategic Diversified Income Fund shall declare and pay,
immediately prior to the Valuation Date, a dividend or dividends which,
together with all previous such dividends, shall have the effect of
distributing to Strategic Diversified Income Fund's shareholders all of
Strategic Diversified Income Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing (the "Closing") shall be at the office of Oppenheimer
Management Corporation (the "Agent"), Two World Trade Center, Suite 3400,
New York, New York 10048, at 4:00 P.M. New York time on August 4, 1995,
or at such other time or place as the parties may designate or as provided
below (the "Closing Date"). The business day preceding the Closing Date
is herein referred to as the "Valuation Date."
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940, as amended (the "Act"),
or any rule, regulation or order thereunder, suspended the redemption of
its shares or postponed payment therefor, the Closing Date shall be
postponed until the first business day after the date when both parties
have ceased such suspension or postponement; provided, however, that if
such suspension shall continue for a period of 60 days beyond the
Valuation Date, then the other party to the Agreement shall be permitted
to terminate the Agreement without liability to either party for such
termination.
5. As soon as practicable after the closing, Strategic Diversified
Income Fund shall distribute on a pro rata basis to the shareholders of
Strategic Diversified Income Fund on the Valuation Date the shares of
Strategic Income Fund received by Strategic Diversified Income Fund on the
Closing Date in exchange for the assets of Strategic Diversified Income
Fund in complete liquidation of Strategic Diversified Income Fund; for the
purpose of the distribution by Strategic Diversified Income Fund of such
shares of Strategic Income Fund to its shareholders, Strategic Income Fund
will promptly cause its transfer agent to: (a) credit an appropriate
number of shares of Strategic Income Fund on the books of Strategic Income
Fund to each shareholder of Strategic Diversified Income Fund in
accordance with a list (the "Shareholder List") of its shareholders
received from Strategic Diversified Income Fund; and (b) confirm an
appropriate number of shares of Strategic Income Fund to each shareholder
of Strategic Diversified Income Fund; certificates for shares of Strategic
Income Fund will be issued upon written request of a former shareholder
of Strategic Diversified Income Fund but only for whole shares with
fractional shares credited to the name of the shareholder on the books of
Strategic Income Fund.
The Shareholder List shall indicate, as of the close of business
on the Valuation Date, the name and address of each shareholder of
Strategic Diversified Income Fund, indicating his or her share balance.
Strategic Diversified Income Fund agrees to supply the Shareholder List
to Strategic Income Fund not later than the Closing Date. Shareholders
of Strategic Diversified Income Fund holding certificates representing
their shares shall not be required to surrender their certificates to
anyone in connection with the reorganization. After the Closing Date,
however, it will be necessary for such shareholders to surrender their
certificates in order to redeem, transfer or pledge the shares of
Strategic Income Fund which they received.
6. Within one year after the Closing Date, Strategic Diversified
Income Fund shall (a) either pay or make provision for payment of all of
its liabilities and taxes, and (b) either (i) transfer any remaining
amount of the Cash Reserve to Strategic Income Fund, if such remaining
amount (as reduced by the estimated cost of distributing it to
shareholders) is not material (as defined below) or (ii) distribute such
remaining amount to the shareholders of Strategic Diversified Income Fund
on the Valuation Date. Such remaining amount shall be deemed to be
material if the amount to be distributed, after deduction of the estimated
expenses of the distribution, equals or exceeds one cent per share of
Strategic Diversified Income Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
the parties as to their respective portfolios so that, after the closing,
Strategic Income Fund will be in compliance with all of its investment
policies and restrictions. At the Closing, Strategic Diversified Income
Fund shall deliver to Strategic Income Fund two copies of a list setting
forth the securities then owned by Strategic Diversified Income Fund.
Promptly after the Closing, Strategic Diversified Income Fund shall
provide Strategic Income Fund a list setting forth the respective federal
income tax bases thereof.
8. Portfolio securities or written evidence acceptable to Strategic
Income Fund of record ownership thereof by The Depository Trust Company
or through the Federal Reserve Book Entry System or any other depository
approved by Strategic Diversified Income Fund pursuant to Rule 17f-4 under
the Act shall be endorsed and delivered, or transferred by appropriate
transfer or assignment documents, by Strategic Diversified Income Fund on
the Closing Date to Strategic Income Fund, or at its direction, to its
custodian bank, in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any.
The cash delivered shall be in the form of certified or bank cashiers'
checks or by bank wire or intra-bank transfer payable to the order of
Strategic Income Fund for the account of Strategic Income Fund. Shares
of Strategic Income Fund representing the number of shares of Strategic
Income Fund being delivered against the assets of Strategic Diversified
Income Fund, registered in the name of Strategic Diversified Income Fund,
shall be transferred to Strategic Diversified Income Fund on the Closing
Date. Such shares shall thereupon be assigned by Strategic Diversified
Income Fund to its shareholders so that the shares of Strategic Income
Fund may be distributed as provided in Section 5.
If, at the Closing Date, Strategic Diversified Income Fund is
unable to make delivery under this Section 8 to Strategic Income Fund of
any of its portfolio securities or cash for the reason that any of such
securities purchased by Strategic Diversified Income Fund, or the cash
proceeds of a sale of portfolio securities, prior to the Closing Date have
not yet been delivered to it or Strategic Diversified Income Fund's
custodian, then the delivery requirements of this Section 8 with respect
to said undelivered securities or cash will be waived and Strategic
Diversified Income Fund will deliver to Strategic Income Fund by or on the
Closing Date and with respect to said undelivered securities or cash
executed copies of an agreement or agreements of assignment in a form
reasonably satisfactory to Strategic Income Fund, together with such other
documents, including a due bill or due bills and brokers' confirmation
slips as may reasonably be required by Strategic Income Fund.
9. Strategic Income Fund shall not assume the liabilities (except
for portfolio securities purchased which have not settled and for
shareholder redemption and dividend checks outstanding) of Strategic
Diversified Income Fund, but Strategic Diversified Income Fund will,
nevertheless, use its best efforts to discharge all known liabilities, so
far as may be possible, prior to the Closing Date. The cost of printing
and mailing the proxies and proxy statements will be borne by Strategic
Diversified Income Fund. Strategic Diversified Income Fund and Strategic
Income Fund will bear the cost of their respective tax opinion. Any
documents such as existing prospectuses or annual reports that are
included in that mailing will be a cost of the fund issuing the document.
Any other out-of-pocket expenses of Strategic Income Fund and Strategic
Diversified Income Fund associated with this reorganization, including
legal, accounting and transfer agent expenses, will be borne by Strategic
Diversified Income Fund and Strategic Income Fund, respectively, in the
amounts so incurred by each.
10. The obligations of Strategic Income Fund hereunder shall be
subject to the following conditions:
A. The Board of Trustees of the Trust shall have authorized
the execution of the Agreement, and the shareholders of Strategic
Diversified Income Fund shall have approved the Agreement and the
transactions contemplated thereby, and Strategic Diversified Income Fund
shall have furnished to Strategic Income Fund copies of resolutions to
that effect certified by the Secretary or an Assistant Secretary of
Strategic Diversified Income Fund; such shareholder approval shall have
been by the affirmative vote of "a majority of the outstanding voting
securities" (as defined in the Act) of Strategic Diversified Income Fund
at a meeting for which proxies have been solicited by the Proxy Statement
and Prospectus (as hereinafter defined).
B. Strategic Income Fund shall have received an opinion dated
the Closing Date of counsel to Strategic Diversified Income Fund, to the
effect that (i) Strategic Diversified Income Fund is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full powers to carry on its business
as then being conducted and to enter into and perform the Agreement; and
(ii) that all action necessary to make the Agreement, according to its
terms, valid, binding and enforceable on Strategic Diversified Income Fund
and to authorize effectively the transactions contemplated by the
Agreement have been taken by Strategic Diversified Income Fund.
C. The representations and warranties of Strategic Diversified
Income Fund contained herein shall be true and correct at and as of the
Closing Date, and Strategic Income Fund shall have been furnished with a
certificate of the President, or a Vice President, or the Secretary or the
Assistant Secretary or the Treasurer of Strategic Diversified Income Fund,
dated the Closing Date, to that effect.
D. On the Closing Date, Strategic Diversified Income Fund
shall have furnished to Strategic Income Fund a certificate of the
Treasurer or Assistant Treasurer of Strategic Diversified Income Fund as
to the amount of the capital loss carry-over and net unrealized
appreciation or depreciation, if any, with respect to Strategic
Diversified Income Fund as of the Closing Date.
E. The Cash Reserve shall not exceed 10% of the value of the
net assets, nor 30% in value of the gross assets, of Strategic Diversified
Income Fund at the close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by Strategic
Funds Trust under the Securities Act of 1933, as amended (the "1933 Act"),
containing a preliminary form of the Proxy Statement and Prospectus, shall
have become effective under the 1933 Act not later than May 26, 1995.
G. On the Closing Date, Strategic Income Fund shall have
received a letter of Andrew J. Donohue or other senior executive officer
of Oppenheimer Management Corporation acceptable to Strategic Income Fund,
stating that nothing has come to his or her attention which in his or her
judgment would indicate that as of the Closing Date there were any
material actual or contingent liabilities of Strategic Diversified Income
Fund arising out of litigation brought against Strategic Diversified
Income Fund or claims asserted against it, or pending or to the best of
his or her knowledge threatened claims or litigation not reflected in or
apparent from the most recent audited financial statements and footnotes
thereto of Strategic Diversified Income Fund delivered to Strategic Income
Fund. Such letter may also include such additional statements relating
to the scope of the review conducted by such person and his or her
responsibilities and liabilities as are not unreasonable under the
circumstances.
H. Strategic Income Fund shall have received an opinion, dated
the Closing Date, of Deloitte & Touche LLP, to the same effect as the
opinion contemplated by Section 11.E. of the Agreement.
I. Strategic Income Fund shall have received at the closing
all of the assets of Strategic Diversified Income Fund to be conveyed
hereunder, which assets shall be free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever.
11. The obligations of Strategic Diversified Income Fund hereunder
shall be subject to the following conditions:
A. The Board of Trustees of Strategic Income Fund shall have
authorized the execution of the Agreement, and the transactions
contemplated thereby, and Strategic Income Fund shall have furnished to
Strategic Diversified Income Fund copies of resolutions to that effect
certified by the Secretary or an Assistant Secretary of Strategic Income
Fund.
B. Strategic Diversified Income Fund's shareholders shall have
approved the Agreement and the transactions contemplated hereby, by an
affirmative vote of "a majority of the outstanding voting securities" (as
defined in the Act) of Strategic Diversified Income Fund, and Strategic
Diversified Income Fund shall have furnished Strategic Income Fund copies
of resolutions to that effect certified by the Secretary or an Assistant
Secretary of Strategic Diversified Income Fund.
C. Strategic Diversified Income Fund shall have received an
opinion dated the Closing Date of counsel to Strategic Income Fund, to the
effect that (i) Strategic Income Fund is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts with full powers to carry on its business as then being
conducted and to enter into and perform the Agreement; (ii) all action
necessary to make the Agreement, according to its terms, valid, binding
and enforceable upon Strategic Income Fund and to authorize effectively
the transactions contemplated by the Agreement have been taken by
Strategic Income Fund, and (iii) the shares of Strategic Income Fund to
be issued hereunder are duly authorized and when issued will be validly
issued, fully-paid and non-assessable, except as set forth in Strategic
Income Fund's then current Prospectus and Statement of Additional
Information.
D. The representations and warranties of Strategic Income Fund
contained herein shall be true and correct at and as of the Closing Date,
and Strategic Diversified Income Fund shall have been furnished with a
certificate of the President, a Vice President or the Secretary or an
Assistant Secretary or the Treasurer of Strategic Income Fund to that
effect dated the Closing Date.
E. Strategic Diversified Income Fund shall have received an
opinion of Deloitte & Touche LLP to the effect that the Federal tax
consequences of the transaction, if carried out in the manner outlined in
this Plan of Reorganization and in accordance with (i) Strategic
Diversified Income Fund's representation that there is no plan or
intention by any Fund shareholder who owns 5% or more of Strategic
Diversified Income Fund's outstanding shares, and, to Strategic
Diversified Income Fund's best knowledge, there is no plan or intention
on the part of the remaining Fund shareholders, to redeem, sell, exchange
or otherwise dispose of a number of Strategic Income Fund shares received
in the transaction that would reduce Strategic Diversified Income Fund
shareholders' ownership of Strategic Income Fund shares to a number of
shares having a value, as of the Closing Date, of less than 50% of the
value of all of the formerly outstanding Fund shares as of the same date,
and (ii) the representation by each of Strategic Diversified Income Fund
and Strategic Income Fund that, as of the Closing Date, Strategic
Diversified Income Fund and Strategic Income Fund will qualify as
regulated investment companies or will meet the diversification test of
Section 368(a)(2)(F)(ii) of the Code, will be as follows:
1. The transactions contemplated by the Agreement will qualify
as a tax-free "reorganization" within the meaning of Section 368(a)(1) of
the Code, and under the regulations promulgated thereunder.
2. Strategic Diversified Income Fund and Strategic Income Fund
will each qualify as a "party to a reorganization" within the meaning of
Section 368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of
Strategic Diversified Income Fund upon the distribution of Class C shares
of beneficial interest in Strategic Income Fund to the shareholders of
Strategic Diversified Income Fund pursuant to Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be
recognized by Strategic Diversified Income Fund by reason of the transfer
of substantially all its assets in exchange for shares of Strategic Income
Fund.
5. Under Section 1032 of the Code no gain or loss will be
recognized by Strategic Income Fund by reason of the transfer of
substantially all Strategic Diversified Income Fund's assets in exchange
for Class C shares of Strategic Income Fund and Strategic Income Fund's
assumption of certain liabilities of Strategic Diversified Income Fund.
6. The shareholders of Strategic Diversified Income Fund will
have the same tax basis and holding period for the Class C shares of
beneficial interest in Strategic Income Fund that they receive as they had
for Strategic Diversified Income Fund shares that they previously held,
pursuant to Section 358(a) and 1223(1), respectively, of the Code.
7. The securities transferred by Strategic Diversified Income
Fund to Strategic Income Fund will have the same tax basis and holding
period in the hands of Strategic Income Fund as they had for Strategic
Diversified Income Fund, pursuant to Section 362(b) and 1223(1),
respectively, of the Code.
F. The Cash Reserve shall not exceed 10% of the value of the
net assets, nor 30% in value of the gross assets, of Strategic Diversified
Income Fund at the close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by Oppenheimer
Strategic Funds Trust under the 1933 Act, containing a preliminary form
of the Proxy Statement and Prospectus, shall have become effective under
the 1933 Act not later than May 26, 1995.
H. On the Closing Date, Strategic Diversified Income Fund
shall have received a letter of Andrew J. Donohue or other senior
executive officer of Oppenheimer Management Corporation acceptable to
Strategic Diversified Income Fund, stating that nothing has come to his
or her attention which in his or her judgment would indicate that as of
the Closing Date there were any material actual or contingent liabilities
of Strategic Income Fund arising out of litigation brought against
Strategic Income Fund or claims asserted against it, or pending or, to the
best of his or her knowledge, threatened claims or litigation not
reflected in or apparent by the most recent audited financial statements
and footnotes thereto of Strategic Income Fund delivered to Strategic
Diversified Income Fund. Such letter may also include such additional
statements relating to the scope of the review conducted by such person
and his or her responsibilities and liabilities as are not unreasonable
under the circumstances.
I. Strategic Diversified Income Fund shall acknowledge receipt
of the shares of Strategic Income Fund.
12. Strategic Diversified Income Fund hereby represents and warrants
that:
A. The financial statements of Strategic Diversified Income
Fund as at September 30, 1994 (audited) and March 31, 1995 (unaudited)
heretofore furnished to Strategic Income Fund, present fairly the
financial position, results of operations, and changes in net assets of
Strategic Diversified Income Fund as of that date, in conformity with
generally accepted accounting principles applied on a basis consistent
with the preceding year; and that from September 30, 1994 through the date
hereof there have not been, and through the Closing Date there will not
be, any material adverse change in the business or financial condition of
Strategic Diversified Income Fund, it being agreed that a decrease in the
size of Strategic Diversified Income Fund due to a diminution in the value
of its portfolio and/or redemption of its shares shall not be considered
a material adverse change;
B. Contingent upon approval of the Agreement and the
transactions contemplated thereby by Strategic Diversified Income Fund's
shareholders, Strategic Diversified Income Fund has authority to transfer
all of the assets of Strategic Diversified Income Fund to be conveyed
hereunder free and clear of all liens, encumbrances, security interests,
restrictions and limitations whatsoever;
C. The Prospectus, as amended and supplemented, contained in
Strategic Diversified Income Fund's Registration Statement under the 1933
Act, as amended, is true, correct and complete, conforms to the
requirements of the 1933 Act and does not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Registration Statement, as amended, was, as of the date of the filing of
the last Post-Effective Amendment, true, correct and complete, conformed
to the requirements of the 1933 Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading;
D. There is no material contingent liability of Strategic
Diversified Income Fund and no material claim and no material legal,
administrative or other proceedings pending or, to the knowledge of
Strategic Diversified Income Fund, threatened against Strategic
Diversified Income Fund, not reflected in such Prospectus;
E. There are no material contracts outstanding to which
Strategic Diversified Income Fund is a party other than those ordinary in
the conduct of its business;
F. Strategic Diversified Income Fund is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; and has all necessary and material Federal
and state authorizations to own all of its assets and to carry on its
business as now being conducted; and Strategic Diversified Income Fund is
duly registered under the Act and such registration has not been rescinded
or revoked and is in full force and effect;
G. All Federal and other tax returns and reports of Strategic
Diversified Income Fund required by law to be filed have been filed, and
all Federal and other taxes shown due on said returns and reports have
been paid or provision shall have been made for the payment thereof and
to the best of the knowledge of Strategic Diversified Income Fund no such
return is currently under audit and no assessment has been asserted with
respect to such returns and to the extent such tax returns with respect
to the taxable year of Strategic Diversified Income Fund ended September
30, 1994 have not been filed, such returns will be filed when required and
the amount of tax shown as due thereon shall be paid when due; and
H. Strategic Diversified Income Fund has elected to be treated
as a regulated investment company and, for each fiscal year of its
operations, Strategic Diversified Income Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a regulated
investment company and Strategic Diversified Income Fund intends to meet
such requirements with respect to its current taxable year.
13. Strategic Income Fund hereby represents and warrants that:
A. The financial statements of Strategic Income Fund as at
September 30, 1994 (audited) and March 31, 1995 (unaudited) heretofore
furnished to Strategic Diversified Income Fund, present fairly the
financial position, results of operations, and changes in net assets of
Strategic Income Fund, as of that date, in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding year; and that from September 30, 1993 through the date hereof
there have not been, and through the Closing Date there will not be, any
material adverse changes in the business or financial condition of
Strategic Income Fund, it being understood that a decrease in the size of
Strategic Income Fund due to a diminution in the value of its portfolio
and/or redemption of its shares shall not be considered a material or
adverse change;
B. The Prospectus, as amended and supplemented, contained in
Oppenheimer Strategic Funds Trust's Registration Statement under the 1933
Act, is true, correct and complete, conforms to the requirements of the
1933 Act and does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Registration
Statement, as amended, was, as of the date of the filing of the last Post-
Effective Amendment, true, correct and complete, conformed to the
requirements of the 1933 Act and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
C. There is no material contingent liability of Strategic
Income Fund and no material claim and no material legal, administrative
or other proceedings pending or, to the knowledge of Strategic Income
Fund, threatened against Strategic Income Fund, not reflected in such
Prospectus;
D. There are no material contracts outstanding to which
Strategic Income Fund is a party other than those ordinary in the conduct
of its business;
E. Strategic Income Fund is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts; has all necessary and material Federal and state
authorizations to own all its properties and assets and to carry on its
business as now being conducted; the shares of Strategic Income Fund which
it issues to Strategic Diversified Income Fund pursuant to the Agreement
will be duly authorized, validly issued, fully-paid and non-assessable,
except as otherwise set forth in Strategic Income Fund's Registration
Statement; and will conform to the description thereof contained in
Strategic Income Fund's Registration Statement, will be duly registered
under the 1933 Act and in the states where registration is required; and
Strategic Income Fund is duly registered under the Act and such
registration has not been revoked or rescinded and is in full force and
effect;
F. All Federal and other tax returns and reports of Strategic
Income Fund required by law to be filed have been filed, and all Federal
and other taxes shown due on said returns and reports have been paid or
provision shall have been made for the payment thereof and to the best of
the knowledge of Strategic Income Fund no such return is currently under
audit and no assessment has been asserted with respect to such returns and
to the extent such tax returns with respect to the taxable year of
Strategic Income Fund ended September 30, 1993 have not been filed, such
returns will be filed when required and the amount of tax shown as due
thereon shall be paid when due;
G. Strategic Income Fund has elected to be treated as a
regulated investment company and, for each fiscal year of its operations,
Strategic Income Fund has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company and
Strategic Income Fund intends to meet such requirements with respect to
its current taxable year;
H. Strategic Income Fund has no plan or intention (i) to
dispose of any of the assets transferred by Strategic Diversified Income
Fund, other than in the ordinary course of business, or (ii) to redeem or
reacquire any of the shares issued by it in the reorganization other than
pursuant to valid requests of shareholders; and
I. After consummation of the transactions contemplated by the
Agreement, Strategic Income Fund intends to operate its business in a
substantially unchanged manner.
14. Each party hereby represents to the other that no broker or
finder has been employed by it with respect to the Agreement or the
transactions contemplated hereby. Each party also represents and warrants
to the other that the information concerning it in the Proxy Statement and
Prospectus will not as of its date contain any untrue statement of a
material fact or omit to state a fact necessary to make the statements
concerning it therein not misleading and that the financial statements
concerning it will present the information shown fairly in accordance with
generally accepted accounting principles applied on a basis consistent
with the preceding year. Each party also represents and warrants to the
other that the Agreement is valid, binding and enforceable in accordance
with its terms and that the execution, delivery and performance of the
Agreement will not result in any violation of, or be in conflict with, any
provision of any charter, by-laws, contract, agreement, judgment, decree
or order to which it is subject or to which it is a party. Strategic
Income Fund hereby represents to and covenants with Strategic Diversified
Income Fund that, if the reorganization becomes effective, Strategic
Income Fund will treat each shareholder of Strategic Diversified Income
Fund who received any of Strategic Income Fund's shares as a result of the
reorganization as having made the minimum initial purchase of shares of
Strategic Income Fund received by such shareholder for the purpose of
making additional investments in shares of Strategic Income Fund,
regardless of the value of the shares of Strategic Income Fund received.
15. Strategic Income Fund agrees that it will prepare and file a
Registration Statement on Form N-14 under the 1933 Act which shall contain
a preliminary form of proxy statement and prospectus contemplated by Rule
145 under the 1933 Act. The final form of such proxy statement and
prospectus is referred to in the Agreement as the "Proxy Statement and
Prospectus." Each party agrees that it will use its best efforts to have
such Registration Statement declared effective and to supply such
information concerning itself for inclusion in the Proxy Statement and
Prospectus as may be necessary or desirable in this connection. Strategic
Income Fund covenants and agrees to deregister as an investment company
under the Investment Company Act of 1940, as amended, as soon as
practicable and, thereafter, to cause the cancellation of its outstanding
shares.
16. The obligations of the parties under the Agreement shall be
subject to the right of either party to abandon and terminate the
Agreement without liability if the other party breaches any material
provision of the Agreement or if any material legal, administrative or
other proceeding shall be instituted or threatened between the date of the
Agreement and the Closing Date (i) seeking to restrain or otherwise
prohibit the transactions contemplated hereby and/or (ii) asserting a
material liability of either party, which proceeding has not been
terminated or the threat thereof removed prior to the Closing Date.
17. The Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are
merged into the Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
19. Strategic Diversified Income Fund understands that the
obligations of Strategic Income Fund under the Agreement are not binding
upon any Trustee or shareholder of Strategic Income Fund personally, but
bind only Strategic Income Fund and Strategic Income Fund's property.
Strategic Diversified Income Fund represents that it has notice of the
provisions of the Declaration of Trust of Strategic Income Fund
disclaiming shareholder and Trustee liability for acts or obligations of
Strategic Income Fund.
20. Strategic Income Fund understands that the obligations of
Strategic Diversified Income Fund under the Agreement are not binding upon
any Trustee or shareholder of Strategic Diversified Income Fund
personally, but bind only Strategic Diversified Income Fund and Strategic
Diversified Income Fund's property. Strategic Income Fund represents that
it has notice of the provisions of the Declaration of Trust of Strategic
Diversified Income Fund disclaiming shareholder and Trustee liability for
acts or obligations of Strategic Diversified Income Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
Attest: OPPENHEIMER STRATEGIC FUNDS TRUST
on behalf of Oppenheimer Strategic
Diversified Income Fund
__________________________ By:__________________________________
Robert G. Zack George C. Bowen
Assistant Secretary Treasurer
Attest: OPPENHEIMER STRATEGIC FUNDS TRUST
on behalf of Oppenheimer Strategic
Income Fund
__________________________ By:_________________________________
Robert G. Zack Andrew J. Donohue
Assistant Secretary Vice President
<PAGE>
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD JULY 12, 1995
The undersigned shareholder of Oppenheimer Strategic Diversified
Income Fund (the "Fund"), does hereby appoint George C. Bowen, Rendle Myer
and James C. Swain, and each of them, as attorneys-in-fact and proxies of
the undersigned, with full power of substitution, to attend the Special
Meeting of Shareholders of Strategic Diversified Income Fund to be held
on July 12, 1995, at 3410 South Galena Street, Denver, Colorado at 10:00
A.M., Denver time, and at all adjournments thereof, and to vote the shares
held in the name of the undersigned on the record date for said meeting
on the Proposal specified on the reverse side. Said attorneys-in-fact
shall vote in accordance with their best judgment as to any other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHO RECOMMENDS A VOTE
FOR THE PROPOSAL ON THE REVERSE SIDE. THE SHARES REPRESENTED HEREBY WILL
BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR IF NO CHOICE IS
INDICATED.
Please mark your proxy, date and sign it on the reverse side and return
it promptly in the accompanying envelope, which requires no postage if
mailed in the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between Strategic
Diversified Income Fund and Oppenheimer Strategic Income Fund, and the
transactions contemplated thereby, including the transfer of substantially
all the assets of Strategic Diversified Income Fund, which is a series of
Oppenheimer Strategic Funds Trust (the "Trust"), having one class of
shares, designated as Class C, in exchange for Class C shares of Strategic
Income Fund, which is also a series of the Trust and the distribution of
Class C shares to the shareholders of Strategic Diversified Income Fund
in complete liquidation of Strategic Diversified Income Fund, the
cancellation of the outstanding shares of Strategic Diversified Income
Fund and its termination as a series of the Trust.
FOR____ AGAINST____ ABSTAIN____
Dated: ___________________________, 1995
(Month) (Day)
___________________________________
Signature(s)
___________________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
230
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
PART B
STATEMENT OF ADDITIONAL INFORMATION
June 2, 1995
___________________________________
This Statement of Additional Information of Oppenheimer Strategic
Funds Trust consists of this cover page and the following documents:
1. Prospectus of Oppenheimer Strategic Income Fund dated May 26, 1995,
supplemented May 26, 1995, filed herein and is incorporated herein by
reference.
2. Statement of Additional Information of Oppenheimer Strategic Income
Fund dated May 26, 1995, filed herein and is incorporated herein by
reference.
3. Prospectus of Oppenheimer Strategic Diversified Income Fund dated
February 1, 1995, supplemented May 26, 1995, filed herein and is
incorporated herein by reference.
4. Statement of Additional Information of Oppenheimer Strategic
Diversified Income Fund dated May 26, 1995, filed herein and is
incorporated herein by reference.
5. Strategic Income Fund's Annual Report as of September 30, 1994, which
has been previously filed and is incorporated herein by reference.
6. Strategic Income Fund's Semi-Annual Report (unaudited) as of March 31,
1995, filed herein and is incorporated herein by reference.
7. Strategic Diversified Income Fund's Annual Report as of September 30,
1994, which has been previously filed and is incorporated herein by
reference.
8. Strategic Diversified Income Fund's Semi-Annual Report as of March 31,
1995, filed herein and is incorporated herein by reference.
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Proxy Statement and Prospectus, which may be obtained
by written request to Oppenheimer Shareholder Services ("OSS"), P.O. Box
5270, Denver, Colorado 80217, or by calling OSS at the toll-free number
shown above.
<PAGE>
OPPENHEIMER STRATEGIC INCOME FUND
Supplement dated May 26, 1995 to the
Prospectus dated May 26, 1995
The Prospectus is amended by adding the following text to the
paragraph immediately below the sales charge table in "Class A Shares" on
page 30 of the Prospectus:
In addition to paying dealers the regular commission for
sales of Class A shares stated in the sales charge table in
"Class A Shares," and the commission for sales of Class B
shares described in the third paragraph in "Distribution and
Service Plan for Class B Shares" on page 35 of this Prospectus,
the Distributor will pay additional commission to participating
brokers, dealers or financial institutions that have a sales
agreement with the Distributor (these are referred to as
"participating firms") for shares of the Fund sold in
"qualifying transactions" from May 15, 1995, through August 18,
1995 under the following conditions. The Distributor will pay
(1) 0.75% of the offering price of Class A shares sold by a
registered representative or sales representative of a
participating firm, and (2) .50% of the offering price of Class
B shares sold by a registered representative or sales
representative of a participating firm.
"Qualifying transactions" are sales by a registered
representative or sales representative in the amount of
$150,000 or more (calculated at offering price) of Class A
and/or Class B shares (if offered) of any one or more of the
following OppenheimerFunds: the Fund, Oppenheimer Global Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Champion High
Yield Fund, Oppenheimer Growth Fund, Oppenheimer Limited-Term
Government Fund and Oppenheimer Main Street Income & Growth
Fund. "Qualifying transactions" do not include sales of Class
A shares (a) at net asset value without sales charge, or (b)
subject to a contingent deferred sales charge, or (c) intended
but not yet transacted under a Letter of Intent. However, if
Class A shares of the Fund or any of the other OppenheimerFunds
listed above are purchased at net asset value without sales
charge from May 15, 1995, through August 18, 1995, with the
proceeds of shares redeemed within the prior 12 months from
another mutual fund (other than a fund managed by the Manager
or one of its affiliates) on which an initial sales charge or
contingent deferred sales charge was paid, the amount of that
purchase will count toward the $150,000 qualifying amount
described above (but not for the payment of additional
commission).
May 26, 1995
<PAGE>
Oppenheimer Strategic Income Fund
Prospectus dated May 26, 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 are 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.
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
May 26, 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 ("SEC") and is incorporated into this Prospectus
by reference (which means that it is legally part of this Prospectus).
(OppenheimerFunds logo)
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
ABOUT THE FUND
Expenses
Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
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 __ through __ for an explanation of how and when these charges
apply.
Class A Class B Class C
Shares Shares Shares
Maximum Sales 4.75% None None
Charge on
Purchases (as a %
of offering price)
Sales Charge on None None None
Reinvested
Dividends
Deferred Sales None(1) 5% in the 1% if
Charge (as a % first year, shares are
of the lower declining redeemed
of the original to 1% in the within 12
purchase price sixth year months of
or redemption and purchase(2)
proceeds) eliminated
thereafter(2)
Exchange Fee None None None
Redemption Fee None(3) None(3) None(3)
(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) See "How to Buy Shares," below, for more information on the contingent
deferred sales charges.
(3) There is a $10 transaction fee for redemptions paid by Federal Funds
wire, but not for redemptions paid by check or by ACH wire through
AccountLink, or for which checkwriting privileges are used (see "How to
Sell 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 and Class C shares, the 12b-
1 Distribution Plan Fees are service fees and asset-based sales charges.
The service fee for each class is 0.25% of average annual net assets of
the class and the asset-based sales charge for Class B and Class C 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 C shares were not publicly offered during the
fiscal year ended September 30, 1994. Therefore, the Annual Fund
Operating Expenses for Class C shares are estimates based on amounts that
would have been payable in that period assuming that Class C shares were
outstanding during such fiscal year.
Class A Class B Class C
Shares Shares Shares
Management Fees 0.54% 0.54% 0.54%
12b-1 Distribution Plan
Fees 0.25% 1.00% 1.00%
Other Expenses 0.16% 0.17% 0.17%
Total Fund Operating 0.95% 1.71% 1.71%
Expenses
- 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
Class C Shares $27 $54 $93 $202
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
Class C Shares $17 $54 $93 $202
* 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. Because of the asset-based
sales charge and the contingent deferred sales charge on Class B and Class
C shares, long-term Class B and Class C shareholders could pay the
economic equivalent of an amount greater than the maximum front-end sales
charge allowed under applicable regulatory requirements. For Class B
shareholders, the automatic conversion of Class B shares to Class A shares
is designed to minimize the likelihood that this will occur. Please refer
to "How to Buy Shares" 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 __.
- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation, which (including a subsidiary) advises
investment company portfolios having over $30 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
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 not as risky as
aggressive growth funds, but is 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 ___ 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? The Fund has three
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 and
Class C shares are offered without a front-end sales charge, but may be
subject to a contingent deferred sales charge if redeemed within 6 years
or 12 months, respectively, of purchase. There is also an annual asset-
based sales charge on Class B and Class C shares. Please review "How To
Buy Shares" starting on page ___ 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, by writing a check against your Fund account (available for Class
A shares only) or by wire to a previously designated bank account. Please
refer to "How To Sell Shares" on page ___. The Fund also offers exchange
privileges to other OppenheimerFunds, described in "How to Exchange
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 the following pages presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This information
has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report on the Fund's financial statements for the fiscal
year ended September 30, 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. Class C shares were not
publicly offered during the fiscal year ended September 30, 1994.
Accordingly, no information on Class C shares is reflected in the table
below or in the Fund's other financial statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Highlights
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%
</TABLE>
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.
<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
Fsecurities 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," such as debt securities that 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 or if unrated, determined by the Manager to be
comparable to the category indicated (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, 0.80%; AA, 0.00%; A, 0.07%;
BBB, 1.59%; BB, 4.29%; B, 22.66%; CCC, 4.37%; CC, 0.71%; C, 0.46%; D,
0.69%. 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 risk, 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 or in the Statement of Additional
Information 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 and has no limitations on the maturity or
capitalization of the issuer of the foreign debt securities in which it
invests, although it is expected that most issuers will have total assets
or capitalization in excess of $100 million. 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. Thus, the risks of corporate asset-backed
securities are ultimately dependent upon payment of consumer loans by the
individual borrowers.
- 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 net 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, (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 (as a non-fundamental policy, that
limit is applied to the Fund's net 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.
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 three classes of shares,
Class A, Class B and Class C. 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 (including a subsidiary) currently manages investment companies,
including other OppenheimerFunds, with assets of more than $30 billion as
of March 31, 1995, and with more than 2.4 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. When total returns are shown for a one-year period for Class
C shares, they reflect the effect of the contingent deferred sales charge.
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 and Class C
shares do not reflect the deduction of the contingent deferred sales
charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 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 Class A and
Class B shares of the Fund from the inception of each respective 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. Class
C shares were not publicly offered during the fiscal year ended September
30, 1994. Accordingly, no information is presented on Class C shares in
the graph below.
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 three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). 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.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%.
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 and Class C 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 each class, and considered the effect of
the asset-based sales charges on Class B and Class C expenses (which 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.
Investing for the Short Term. If you have a short term horizon (that
is, you plan to hold your shares less than six years), you should probably
consider purchasing Class C shares rather than Class A or Class B shares.
This is because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to amounts you sell
after holding them one year.
However, if you plan to invest more than $250,000 for a period less
than six years, Class C shares might not be as advantageous as Class A
shares. This is because the annual asset-based sales charge on Class C
shares (and the contingent deferred sales charges that apply if you redeem
Class C shares within a year of purchase) might have a greater impact on
your account during the period than the initial sales charge that would
apply if Class A shares were purchased instead at the applicable reduced
Class A sales charge rate.
For most investors who invest $500,000 or more, in most cases, Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B, or orders
for more than $1 million of Class C shares from a single investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class A shares will likely be more
advantageous than Class B or Class C shares. This is because of the
effect of expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A shares
under the Fund's Right of Accumulation. Class B shares may be appropriate
for smaller investments held for the longer term because there is no
initial sales charge on Class B shares and Class B shares held six years
following their purchase convert into Class A shares.
Of course, all of these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical investment
over time, using the assumed annual performance return stated above, and
you should analyze your options carefully.
- Are There Differences in Account Features That Matter to You?
Because some account features (such as checkwriting) may not be available
to Class B or Class C 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
or Class C shareholders, you should carefully review how you plan to use
your investment account before deciding which class of shares to buy.
Additionally, dividends payable to Class B and Class C shareholders will
be reduced by the additional expenses borne by those classes that are not
borne by Class A, such as the Class B and Class C asset-based sales
charges described below and in the Statement of Additional Information.
Also, because not all OppenheimerFunds currently offer Class B and
Class C 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 or
servicing one class of shares than another class. It is important that
investors understand that the purpose of the contingent deferred sales
charge and asset-based sales charge for Class B and Class C shares 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, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "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 Prices Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange, on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor 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
As a As a Commission as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
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 may 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.
The Class A contingent deferred sales charge will not exceed the aggregate
commissions the Distributor paid to your dealer on all Class A shares of
all OppenheimerFunds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. 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, or (d) purchased and paid for with proceeds of
shares redeemed in the prior 12 months from a mutual fund on which an
initial sales charge or contingent deferred sales charge was paid (other
than a fund managed by the Manager or any of its affiliates); this waiver
must be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver. There is a further discussion of this policy in "Reduced
Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge 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 Charge
Beginning of Month In Which on Redemptions in that Year
Purchase Order was Accepted (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, Class B and Class C 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.
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of
1.0% will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions).
The Class C contingent deferred sales charge is paid to the Distributor
to reimburse its expenses of providing distribution-related services to
the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
- Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived if the shareholder requests it for any of the
redemptions or circumstances described above under "Waivers of Class B
Sales Charge."
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to compensate
the Distributor for distributing Class C 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 C shares. The Distributor also
receives a service fee of 0.25% per year. Both fees are computed on the
average annual net assets of Class C shares, determined as of the close
of each regular business day. The asset-based sales charge allows
investors to buy Class C shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by 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 C shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the service fee
on a quarterly basis. The Distributor pays sales commissions of 0.75% of
the purchase price to dealers from its own resources at the time of sale.
The total up-front commission paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.00% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
The Fund pays the asset-based sales charge to the Distributor for its
services rendered in connection with the distribution of Class C shares.
Those payments are at a fixed rate which is not related to the
Distributor's expenses. The services rendered by the Distributor include
paying and financing the payment of sales commissions, service fees, and
other costs of distributing and selling Class C shares, including
compensating personnel of the Distributor who support distribution of
Class C shares. 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 distributing Class C shares 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 only to redemptions of Class A
shares or to redemptions of Class B shares of the Fund that you purchased
by reinvesting dividends or distributions or on which you paid a
contingent deferred sales charge when your redeemed them. 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 small business owners
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, by using the Fund's
checkwriting privilege or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis, as described above.
If you have questions about any of these procedures, and especially if you
are redeeming shares in a special situation, such as due to the death of
the owner, or from a retirement plan, please call the Transfer Agent
first, at 1-800-525-7048, for assistance.
- 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 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 or by Wire. 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.
Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal Reserve
wire system. There is a $10 fee for each Federal Funds wire. To place
a wire redemption request, call the Transfer Agent at 1-800-852-8457. The
wire will normally be transmitted on the next bank business day after the
shares are redeemed. There is a possibility that the wire may be delayed
up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of
shares that have been redeemed and are awaiting transmittal by wire. To
establish wire redemption privileges on an account that is already
established, please contact the Transfer Agent for instructions.
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 C 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.
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. 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, Class B and Class C
shares. Therefore, the redemption value of your shares may be more or less
than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. Effective June 7, 1995,
for accounts registered in the name of a broker-dealer, payment will be
forwarded within 3 business days. The Transfer Agent may delay forwarding
a check or processing a payment via AccountLink for recently purchased
shares, but only until the purchase payment has cleared. That delay may
be as much as 10 days from the date the shares were purchased. That delay
may be avoided if you purchase shares by certified check or arrange 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, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B
and Class C shares from net investment income each regular business day
and pays those dividends to shareholders monthly. Normally, dividends are
paid on the 25th day of each month (or the prior regular business day if
the 25th is not a regular business day), 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 or Class C shares because expenses
allocable to Class B and Class C 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 or Class C 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>
Oppenheimer Lehman Bros. Salomon Brothers
Fiscal Year Strategic Aggregate World Government
(Period) Ended Income Fund A Bond Index Bond Index
<S> <C> <C> <C>
10/16/89(1) $ 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
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Lehman Bros. Salomon Brothers
Fiscal Year Strategic Aggregate World Government
(Period) Ended Income Fund B Bond Index Bond Index
<S> <C> <C> <C>
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
</TABLE>
- ----------------------
(1) The Fund commenced operations on October 16, 1989.
(2) Class B shares of the Fund were first publicly offered on November 30,
1992.
<PAGE>
Oppenheimer Strategic Income Fund
3410 South Galena Street
Denver, CO 80231
Telephone: 1-800-525-7048
Investment 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.
PR0230.001.0595 * Printed on recycled paper
<PAGE>
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
Supplement dated May 26, 1995 to the
Prospectus dated February 1, 1995
The Prospectus is amended as follows:
1. The supplement dated May 10, 1995 to the Prospectus is replaced by
this supplement.
2. The effective date of the Prospectus on the cover page and the back
cover page is amended to read as May 26, 1995.
3. The second sentence of the last paragraph on the cover page is
amended to read as follows:
"You can find more detailed information about the Fund in the May 26, 1995
Statement of Additional Information."
4. Under "Expenses" on page 2, the chart "Shareholder Transaction
Expenses" is amended by deleting the references to the $5.00 fee next to
the heading "Exchange Fee" and inserting "None" on that line next to the
heading; footnote 2 is deleted from that chart.
5. The following paragraphs are added at the end of "How the Fund is
Managed" on page 15:
The Board of Trustees of Oppenheimer Strategic Diversified
Income Fund (referred to as "Strategic Diversified Income
Fund" or the "Fund") has determined that it is in the best
interest of the Fund's shareholders that the Fund reorganize
with and into Oppenheimer Strategic Income Fund ("Strategic
Income Fund"). The Board unanimously approved the terms of an
agreement and plan of reorganization to be entered into
between these funds (the "reorganization plan") and the
transactions contemplated (the transactions are referred to as
the "reorganization"). The Board further determined that the
reorganization should be submitted to the Fund's shareholders
for approval, and recommended that shareholders approve the
reorganization.
Pursuant to the reorganization plan, (i) substantially all of
the assets of the Fund would be exchanged for Class C shares
of Strategic Income Fund, (ii) these shares of Strategic
Income Fund would be distributed to the shareholders of the
Fund, (iii) Strategic Diversified Income Fund would be
cancelled. It is expected that the reorganization will be
tax-free, pursuant to Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended, and the Fund will request an
opinion of tax counsel to that effect.
A meeting of the shareholders of Strategic Diversified Income
Fund is expected to be held on or about July 12, 1995 to vote on
the reorganization. Approval of the reorganization requires the
affirmative vote of a majority of the outstanding shares of the
Fund (the term "majority" is defined in the Investment Company
Act as a special majority. It is also explained in the Statement
of Additional Information). There is no assurance that Strategic
Diversified Income Fund's shareholders will approve the
reorganization. Details about the proposed reorganization will
be contained in a proxy statement and other soliciting materials
sent to Strategic Diversified Income Fund's shareholders of
record on May 12, 1995. Persons who become shareholders of the
Fund after the record date for the shareholder meeting will not
be entitled to vote on the reorganization.
6. In the first paragraph of the section "How To Exchange Shares" on page
21, the second and third sentences are deleted.
7. In the subsection "Dividends" under the heading "Dividends, Capital
Gains and Taxes" on page 23, the second sentence of the first paragraph
of that subsection is amended to read as follows:
Normally, dividends are paid on the 25th day of every month
(if the 25th is not a regular business day, dividends are paid
on the prior regular business day), but the Board of Trustees
can change that date.
May 26, 1995
<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
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
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 1.00%
Other Expenses
(After Expense Reimbursement) .38%
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
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 ___ 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
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 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
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 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 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
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 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
reimbursement.
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
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 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
contributions 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 expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with other requirements for
such distributions under the Internal Revenue Code and may not exceed 10%
of the account value annually, measured from the date the Transfer Agent
receives the request).
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
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.
- Distribution and Service Plan. The Fund has adopted a
Distribution 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
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 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
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 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
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 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
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.
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
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 DIVERSIFIED INCOME FUND
Graphic material included in Prospectus of Oppenheimer Strategic
Diversified Income Fund: "Comparison of Total Return of Oppenheimer
Strategic Diversified 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
Diversified Income Fund (the "Fund") depicting the initial account value
and subsequent account value of a hypothetical $10,000 investment in the
Fund since the commencement of the Fund's operations (February 1, 1994)
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 "Performance of the Fund - Comparing the
Fund's Performance to the Market."
<TABLE>
<CAPTION>
Oppenheimer Lehman Bros. Salomon Brothers
Fiscal Year Strategic Diversified Aggregate World Government
(Period) Ended Income Fund A Bond Index Bond Index
<S> <C> <C> <C>
2/1/94(1) $10,000 $10,000 $10,000
09/30/94 $ 9,966 $ 9,543 $10,104
</TABLE>
1. The Fund commenced operations on February 1, 1994.
<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>
Oppenheimer Strategic Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated May 26, 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 May 26, 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 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 11
Other Investment Restrictions 25
How the Fund is Managed 25
Organization and History 25
Trustees and Officers of the Fund 26
The Manager and Its Affiliates 30
Brokerage Policies of the Fund 31
Performance of the Fund 33
Distribution and Service Plans 38
About Your Account 40
How To Buy Shares 40
How To Sell Shares 46
How To Exchange Shares 50
Dividends, Capital Gains and Taxes 52
Additional Information About the Fund 54
Independent Auditors' Report 55
Financial Statements 56
Appendix: Industry Classifications A-1
<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 current 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. This is not a fundamental policy.
How the Fund Is Managed
Organization and History. As a series of 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 and Oppenheimer Strategic Diversified Income Fund ("OSDIF")
are separate series of Oppenheimer Strategic Funds Trust. Each series is
a fund that issues its own shares and has its own investment portfolio,
assets and liabilities. The Board of Trustees has approved an agreement
and plan of reorganization (the "Plan") between the Fund and OSDIF in
which the Fund would survive the reorganization. Implementation of the
Plan is subject to approval of OSDIF shareholders, and would ultimately
result in the Fund being the only series of Oppenheimer Strategic Funds
Trust. Neither this Statement of Additional Information nor the Prospectus
will be amended to disclose implementation of the Plan.
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 May 2, 1995, 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 53
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).
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 41
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.
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.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
- Remuneration of Trustees. The officers of the Trust 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 (i) from the Fund during its fiscal year ended
September 30, 1994, and (ii) 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:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
<S> <C> <C>
Robert G. Avis $6,907.62 $53,000.00
Trustee
William A. Baker $9,547.76 $73,257.01
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $8,900.88 $68,293.67
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $6,907.62 $53,000.00
Trustee
C. Howard Kast $6,907.62 $53,000.00
Trustee
Robert M. Kirchner $8,900.88 $68,293.67
Audit and Review
Committee Member
and Trustee
Ned M. Steel $6,907.62 $53,000.00
Trustee
</TABLE>
______________________
1 For the 1994 calendar year.
Major Shareholders. As of May 2, 1995, no person owned of record or was
known by the Fund to own beneficially 5% or more of the Fund's outstanding
Class A or Class B shares. As of that date, no Class C shares were
outstanding.
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 Manager and the Fund have a Code of Ethics. It is designed
to detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
- The Investment Advisory Agreement. 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, Class B and Class
C shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under the
Distribution and Service Plans), 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. No total return and yield
calculations are presented below for Class C shares because no shares of
that class were publicly issued during the fiscal year ended September 30,
1994.
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,
Class B and Class C 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, Class B or Class C 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 or Class C shares, the maximum
offering price is the net asset value per share, without considering the
effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value (instead
of its 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, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The cumulative "total 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, Class B or Class C 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, Class B or Class C 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, Class B or Class C 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
Distribution and Service Plans for Class B and Class C shares of the Fund
under Rule 12b-1 of the Investment Company Act, pursuant to which the Fund
makes payments to the Distributor 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 Plans
for the Class B and Class C shares, the votes were cast by the Manager as
the then-sole initial holder of such shares.
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.
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. Any Plan may be terminated
at any time by the vote of a majority of the Independent Trustees or by
the vote of the holders of a "majority" (as defined in the Investment
Company Act) of the outstanding shares of that class. No Plan may be
amended to increase materially the amount of payments to be made unless
such amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required by an
exemptive order issued by the Securities and Exchange Commission to
obtain the approval of Class B as well as Class A shareholders for a
proposed amendment to the Class A Plan that would materially increase the
amount to be paid by Class A shareholders under the Class A Plan. Such
approval must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by 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 under the
Class B Plan, 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 and Class C Plan allow the service fee payments
to be paid by the Distributor to Recipients in advance for the first year
such shares are outstanding, and thereafter on a quarterly basis, as
described in the Prospectus. The advance payment is based on the net
asset value of shares sold. An exchange of shares does not entitle the
Recipient to an advance payment of the service fee. 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 the advance of
the service fee payment to the Distributor.
Although the Class B Plan and the Class C Plan permit the
Distributor to retain both the asset-based sales charges and the service
fee, 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 and the Class
C Plan by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B Plan and the Class C Plan are
subject to the limitations imposed by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. on payments of asset
based sales charges and service fees. The 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 and from the contingent deferred
sales charges collected on redeemed Class B shares) 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. No payments have been made under the Class
C Plan during that period, as no Class C shares were outstanding.
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 and Class C
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 or Class C Plan and from contingent deferred sales charges.
Under the Class B Plan, 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 such shares. 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.
The Class C Plan provides for the Distributor to be compensated
at a flat rate, whether the Distributor's distribution expenses are more
or less than the amounts paid by the Fund. Such payments are made in
recognition that the Distributor (i) pays sales commissions to authorized
brokers and dealers at the time of sale, as described in the Prospectus,
(ii) may finance such commissions and/or the advance of the service fee
payment to Recipients under that Plan, (iii) employs personnel to support
distribution of shares, and (iv) may bear the costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor will not accept
any order for $1 million or more of Class B or Class C shares on behalf
of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor
to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a
taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class
B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for
the holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to 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, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day
that the Exchange is open by dividing the value of the Fund's net assets
attributable to 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, Class B and Class C 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 New Jersey 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
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
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. This enables the investor to obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase 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 purchase 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 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.
- Selling Shares by Wire. The wire of redemptions proceeds may
be delayed if the Fund's custodian bank is not open for business on a day
when the Fund would normally authorize the wire to be made, which is
usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next
bank business day on which the Fund is open for business. No dividends
will be paid on the proceeds of redeemed shares awaiting transfer by wire.
- 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. 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 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 and Class C
contingent deferred sales charge will be followed in determining the order
in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 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 per share will be the
net asset value next computed after receipt of an order placed by such
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
(effective through June 7, 1995, within three) 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
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
and Class C shareholders should not establish withdrawal plans, because
of the imposition of the contingent deferred sales charge on such
withdrawals (except where the Class B and Class C contingent deferred
sales charge is waived as described in the Prospectus under "Class B
Contingent Deferred Sales Charge" and "Class C Contingent Deferred Sales
Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other 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 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 C
shares:
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Target Fund
Oppenheimer Cash Reserves (Class C shares are available only by
exchange)
Oppenheimer Strategic Diversified Income Fund
Oppenheimer Main Street Income & Growth Fund
The following other OppenheimerFunds 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 contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares purchased subject to a Class A contingent deferred sales
charge are redeemed within 18 months of the end of the calendar month of
the initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class
B contingent deferred sales charge is imposed on Class B shares redeemed
within six years of the initial purchase of the exchanged Class B shares.
The Class C contingent deferred sales charge is imposed on Class C shares
acquired by exchange if they are redeemed within 12 months of the initial
purchase of the exchanged Class C shares.
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 or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B and Class C contingent deferred sales charge
will be followed in determining the order in which the shares are
exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
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, Class B and Class
C 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 and Class C shares are expected to be lower as a result of the
asset-based sales charge on Class B and Class C shares, and Class B
dividends will also differ in amount as a consequence of any difference
in net asset value between the classes.
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, Class B and Class
C 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 and 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.
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.
/s/ Deloitte & Touche LLP
- ----------------------------
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>
4 Oppenheimer Strategic Income Fund
<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>
5 Oppenheimer Strategic Income Fund
<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>
6 Oppenheimer Strategic Income Fund
<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 0 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>
7 Oppenheimer Strategic Income Fund
<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>
8 Oppenheimer Strategic Income Fund
<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>
9 Oppenheimer Strategic Income Fund
<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>
10 Oppenheimer Strategic Income Fund
<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>
11 Oppenheimer Strategic Income Fund
<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>
12 Oppenheimer Strategic Income Fund
<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>
13 Oppenheimer Strategic Income Fund
<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>
14 Oppenheimer Strategic Income Fund
<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>
15 Oppenheimer Strategic Income Fund
<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>
16 Oppenheimer Strategic Income Fund
<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.
17 Oppenheimer Strategic Income Fund
<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>
18 Oppenheimer Strategic Income Fund
<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.
19 Oppenheimer Strategic Income Fund
<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.
20 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Highlights
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.
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.
23 Oppenheimer Strategic Income Fund
<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 allocatedratably to these companies.
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>
<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
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
0Broadcasting
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
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated May 26, 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 May 26, 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 2
Investment Policies and Strategies. 2
Other Investment Techniques and Strategies 11
Other Investment Restrictions 25
How the Fund is Managed 26
Organization and History 26
Trustees and Officers 26
The Manager and Its Affiliates 30
Brokerage Policies of the Fund 31
Performance of the Fund 33
Distribution and Service Plan 36
About Your Account 38
How To Buy Shares 38
How To Sell Shares 41
How To Exchange Shares 45
Dividends, Capital Gains and Taxes 46
Additional Information About the Fund 48
Independent Auditors' Report 50
Financial Statements 51
Appendix: Industry Classifications A-1
<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
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 se-
curities 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 appli-
cable 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 as-
sets 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 "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 associa-
tions. 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 mort-
gagor 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 guar-
anteed 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 securi-
ties. 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. Fore-
closures 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 matu-
rities 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 under-
lying 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
(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 "Illiquid and Re-
stricted 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 insti-
tution 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 ob-
ligation 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 au-
tomobile 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 en-
hancement, 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 princi-
pal 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 con-
tinuously 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 insti-
tutional 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 ac-
count 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 per-
mitted 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 in-
denture 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 com-
mitment 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 re-
ceived, 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 for-
ward 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 in-
tervals 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 tran-
saction 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 pur-
chased 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 de-
nominated, 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 move-
ments 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 securi-
ties, 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 cur-
rency 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 de-
nominated 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 Con-
tract, 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 dol-
lar 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 for-
eign currency subject to a forward purchase contract at a price as high
or higher than the forward contract price. Unanticipated changes in cur-
rency 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 real-
ize 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 transac-
tions 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 op-
tion, 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 lia-
bilities 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 imper-
fectly 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 outstand-
ing shares.
Under these additional restrictions, the Fund cannot: (1) buy or
sell real estate, real estate limited partnerships, or commodities or com-
modity 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. This is not a fundamental policy.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the sharehold-
ers. 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, as-
sume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, while Mas-
sachusetts 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 of the Trust. 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 May 2, 1995, 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 ad-
viser 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 53
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 41
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.
- 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 of-
ficers 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 (i) from the Fund during its fiscal year ended
September 30, 1994, and (ii) 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:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
<S> <C> <C>
Robert G. Avis $10.85 $53,000.00
Trustee
William A. Baker $14.99 $73,257.01
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $13.97 $68,293.67
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $10.85 $53,000.00
Trustee
C. Howard Kast $10.85 $53,000.00
Trustee
Robert M. Kirchner $13.97 $68,293.67
Audit and Review
Committee Member
and Trustee
Ned M. Steel $10.85 $53,000.00
Trustee
</TABLE>
______________________
1 For the 1994 calendar year.
Major Shareholders. As of May 2, 1995, no person owned of record or was
known by the Fund to own beneficially 5% or more of the Fund's outstanding
shares. 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 Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully maintained and strictly enforced by the Manager.
- 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 catego-
ries 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, 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. 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 deter-
mination 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 manag-
ers 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 com-
mission 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 reimburse-
ments).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of the
period, adjusted for undistributed net investment income.
The Fund's 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 in-
vestment 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 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 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 publica-
tions. 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 securi-
ties, 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
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 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 distribu-
tion 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
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the receipt of an order placed by such
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
customer 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
(effective June 7, 1995, within three) 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 Strategic Income Fund
Oppenheimer Cash Reserves (Class C shares are available
only by exchange)
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 fluctua-
tions), 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 "Redemp-
tion 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 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, 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 distribu-
tions at the required levels and to pay the excise tax on the undistribut-
ed 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.
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.
/s/ DELOITTE & TOUCHE LLP
-----------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1994
<TABLE>
<CAPTION>
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-----------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------
4 Oppenheimer Strategic Diversified Income Fund
<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
- -------------------------------------------------------------------------------------------------------------------------
5 Oppenheimer Strategic Diversified Income Fund
<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
-----------------------------------------------------------------------------------------------------
6 Oppenheimer Strategic Diversified Income Fund
<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>
7 Oppenheimer Strategic Diversified Income Fund
<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.
8 Oppenheimer Strategic Diversified Income Fund
<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.
9 Oppenheimer Strategic Diversified Income Fund
<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.
10 Oppenheimer Strategic Diversified Income Fund
<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.
11 Oppenheimer Strategic Diversified Income Fund
<PAGE>
----------------------------------------------------------
----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Strategic Diversified 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 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.
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.
2. SHARES OF BENEFICAL INTEREST
The Fund has authorized an unlimited number of no 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 AND LOSSES
ON INVESTMENTS
At September 30, 1994, net unrealized depreciation on investments and
options written 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
OTHER TRANSACTIONS WITH
AFFILIATES
Management fees paid to the Manager were in acordance with the investment
advisory agreement and 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. 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.
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 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 $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 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
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 Income Fund
Semiannual Report March 31, 1995
"We want our money to work hard, but we're concerned about risk."
Appendix photo: man and woman at flower show
[Oppenheimer Funds Logo]
<PAGE>
This Fund is for people who want high income
from an investment that's strategically designed to
lower risk.
News
"Over the trailing three-year period, the fund has been one of the
top-performing strategic-income offerings. This fund has a lot to offer one-stop
fixed-income shoppers."
Morningstar Mutual Funds
12/9/94
"The Fund's Class A shares are ranked HHHH among 189 hybrid funds as of
3/31/95.(1)
How Your Fund Is Managed
Oppenheimer Strategic Income Fund seeks high current income by
strategically allocating its assets among three sectors: U.S. government issues,
foreign fixed income securities and higher-yielding, lower-rated corporate
bonds. Strategic investing gives the Fund's managers the flexibility to shift
assets among three fixed income sectors to capitalize on worldwide investment
opportunities. At the same time, allocating the Fund's assets among three
distinct fixed income sectors can provide the diversification necessary to
lower risk.
Performance
Total returns at net asset value for the 6 months ended 3/31/95 for Class A
and B shares were -0.42% and -1.01%, respectively.(2)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1- and 5-year periods ended 3/31/95 and since inception
of the Class on 10/16/89 were -4.38%, 9.00% and 8.90%, respectively. For Class B
shares, average annual total returns for the 1-year period ended 3/31/95 and
since inception of the Class on 11/30/92 were -4.96% and 5.06%, respectively.(3)
Outlook
"The outlook for the bond market is more positive today than it has been in
some time, both in terms of income and potential total returns. The Fund's
ability to shift assets strategically among market sectors worldwide remains a
major advantage for shareholders in the current environment. It allows us to
seek high yields, while keeping portfolio risks under careful control."
David Negri and Art Steinmetz, Portfolio Managers
March 31, 1995
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and
principal value on an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
1. Source: Morningstar Mutual Funds, 3/31/95. Morningstar, Inc., an
independent mutual fund monitoring service, produces proprietary monthly
rankings of funds in broad investment categories (equity, taxable bond,
tax-exempt bond, or "hybrid") based on risk-adjusted investment return, after
considering sales charges and expenses. Investment return measures a fund's
(or class's) 3-, 5-, and 10-year (depending on the inception of the class or
fund) average annual total returns in excess of 90-day U.S. Treasury bill
returns. Risk measures a fund's (or class's) performance below 90-day U.S.
Treasury bill returns. Risk and returns 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%), 4 stars is "above
average" and 1 star is the lowest (bottom 1%). The 4-star current ranking is
a weighted average of the 3- and 5-year rankings for the class, which were
both 4 stars, weighted 40%/60%. The Fund was ranked among 189 hybrid funds.
Rankings are subject to change. The Fund's Class A and Class B shares have
the same portfolio.
2. Based on the change in net asset value per share for the periods shown,
without deducting any sales charges. Such performance would have been lower
if sales charges were taken into account.
3. Class A returns show results of hypothetical investments on 4/1/94, 4/1/90,
and 10/16/89 (inception of class), after deducting the current maximum initial
sales charge of 4.75%. Class B returns show results of hypothetical investments
on 4/1/94 and 11/30/92 (inception of class) and the deduction of the applicable
contingent deferred sales charge of 5% (1-year) and 4% (since inception). An
explanation of the different total returns is in the Fund's prospectus.
2 Oppenheimer Strategic Income Fund
<PAGE>
Dear OppenheimerFunds Shareholder,
1994 was marked by one of the greatest tests the bond markets faced in more
than six decades. As the U.S. Federal Reserve undertook the most aggressive
moves in its history to raise interest rates, bond prices and bond mutual funds
declined across the board. Changing interest rates are a fact of life and they
affect the short-term performance of all bond markets. That is why we believe
the best measure of any fixed income mutual fund is its performance over the
long term. And we believe the long-term outlook for the bond markets is very
positive.
To see how greatly the U.S. bond market has improved since last fall, we
need look no further than the market's reaction to the Fed's most recent
short-term rate increase in February. While the markets had already anticipated
this move, unlike previous rate increases, long-term interest rates continued to
decline and bonds rallied further. Although the Fed could raise rates again, we
believe that this positive environment will prove more than momentary as a
result of several factors.
First, concerns about the effects of inflation on bond prices are fading
fast. By most indicators, economic growth is slowing to a pace that can be
sustained without reigniting inflation or causing a recession. Second, at
current prices, intermediate and long-term bonds are producing some of the best
inflation-adjusted returns in years. With the actual inflation rate running just
over 3 percent today, many fixed income investors are clearly being rewarded.
Attracted by the strong, real returns intermediate and long-term bonds offer,
investors are returning to bonds in a significant way. This rising demand is
providing solid support for bond prices. Third, as the Fed concludes its
tightening efforts and recent reports suggest that point is near-long-term
interest rates will likely stay within their current range, and could decline
further. Of course, rates could rise later this year if future reports indicate
that the economy isn't slowing as quickly as it seems to be today; however, we
believe that over the longer term, the downward trend of rates will continue.
Two uncertainties affecting the fixed income markets are foreign investors'
attitudes toward U.S. debt and the weakness of the U.S. dollar abroad relative
to other major currencies. But investors' attitudes overseas and the dollar's
decline, in our view, should prove temporary. Both have been driven by the
government's moves to support the Mexican peso, a widening trade deficit, and
Congress's apparent inability to limit the Federal budget deficit.
We believe the trade deficit will narrow with increasing U.S. exports as
European economies come out of recession and emerging world markets stabilize.
Additionally, the need to support the peso has begun to decline as Mexico's
tough domestic economic policy has gained credibility. Finally, we are confident
that Congress will be able to get the budget deficit issue dealt with because
Americans are demanding it.
Of course, no one can predict the future with perfect clarity. The bond
markets are always subject to fluctuations and, as we saw in 1994, the shifts
can sometimes be sharp. Overall, however, we believe the outlook for the bond
markets today appears positive.
Your portfolio manager discusses the outlook for your Fund on the following
pages. We appreciate your trust, and we'll continue to do our best to help you
meet your long-term investment objectives.
James C. Swain Jon S. Fossel
April 24, 1995
James C. Swain
Chairman
Oppenheimer
Strategic Income Fund
Jon S. Fossel
President
Oppenheimer
Strategic Income Fund
3 Oppenheimer Strategic Income Fund
<PAGE>
Q + A
An interview with your Fund's managers.
Q What's your outlook for the Fund?
Investments in emerging markets historically have played an important role
in the Fund's portfolio. Did the devaluation of the peso affect your strategy?
It certainly did with regard to Mexico itself, where we have drastically reduced
our positions. And it had a short-term negative impact on performance.
In other emerging markets, however, we think the perception of risk has been
exaggerated. We've reduced our emerging-market holdings as a defensive measure,
but for the most part we've redirected our investments among emerging markets,
to countries like Morocco and Poland, with relatively stronger markets and
economies, and where attractive yields should compensate for perceived risks. We
also continue to maintain positions in several other markets that were not
significantly affected by the turmoil in Mexico. (1)
These markets don't, of course, develop in straight lines. Foreign
investments are always subject to adverse market changes as a result of currency
fluctuations, and sometimes the shifts can be sharp. But over time, we expect
that the long-term returns will more than compensate for temporary risks,
especially when these investments are part of a diversified portfolio.
Have changes in interest rates and the economy affected your allocations
among the U.S. government and high yield corporate sectors?
While where we allocate the Fund's assets among fixed income sectors is
critical to producing good returns, how we allocate assets within each sector is
just as important to meeting the Fund's objectives. For example, last year, when
interest rates were rising and the economy was gaining strength, our strategy
was to decrease the impact of interest-rate risk by shortening Treasury
maturities and investing in corporate bonds with stronger prospects than their
credit ratings suggested.
That strategy worked well for us, but today, as the economic expansion and
interest rates approach what we believe will be their peak, we're revers-
1. The Fund's portfolio is subject to change.
4 Oppenheimer Strategic Income Fund
<PAGE>
ing that strategy. With interest rates poised to fall and the economy
slowing, we're extending Treasury maturities and upgrading the quality of the
high yield portion of the portfolio.
Have you made any changes in the types of bonds you're buying in the high
yield sector of the portfolio?
While we think the expansion phase of the economic cycle is drawing to a
close, cyclical companies continue to do well, and we are still focusing on
industrial companies whose earnings benefit in the later stages of the economic
cycle.
At the same time, however, there's little doubt the Fed's efforts to
control inflation are slowing the economy. For high yield issuers, that means
earnings and cash flow may come under pressure, and we've been managing the
Fund's high yield sector more conservatively, focusing on issuers' financial
strength and orienting the portfolio toward relatively higher quality. Of
course, investments in high yield bonds are subject to greater risk that the
issuer will default in principal or interest payments. Our focus on quality,
however, helps reduce that risk.
Has the recent weakness of the dollar affected the Fund?
It has to some extent. The dollar's decline was driven largely by the U.S.
government's attempt to support Mexico by buying peso-denominated securities. As
our government pumped U.S. dollars into the system, and as the supply of dollars
rose, their value fell. But as investors sought stability, other markets and
currencies, notably Germany and the mark, benefitted. Currency declines
affecting one sector of the Fund were largely offset by currency gains in
Europe.
What's your outlook for the Fund?
The Fund's flexibility and diversification should continue to help us
manage risk and seek solid returns. And now that the prospects for the bond
markets in general are positive, we believe that the Fund is positioned for good
performance in 1995.
Facing page
Top left: Art Steinmetz,
Portfolio Manager
Top right: The trading desk
Bottom: Eva Zeff, Assistant VP
Fixed Income Investments
Portfolio Management Team
This page
Top: Ashwin Vasan, VP
Fixed Income Investments
Portfolio Management Team
Bottom: David Negri,
Portfolio Manager
A Flexibility and diversification should continue to help us manage risk
and seek solid returns.
5 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Face Market Value
Amount(1) See Note 1
==========================================================
==========================================================
================
<S> <C> <C> <C>
Certificates of Deposit--1.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank CD:
10.50%, 7/14/95(2) ARA $ 7,400,000 $ 7,401,821
-----------------------------------------------------------------------------------------------------------
10.75%, 11/20/95--11/21/95(2) CLP 2,735,851,960 6,779,462
-----------------------------------------------------------------------------------------------------------
13%, 11/13/95(2) CLP 970,588,931 2,405,127
-----------------------------------------------------------------------------------------------------------
15%, 8/28/95(2) CLP 1,166,000,000 2,889,357
-----------------------------------------------------------------------------------------------------------
16%, 5/3/95--8/17/95(2) CLP 9,007,661,571 22,321,053
-----------------------------------------------------------------------------------------------------------
16.25%, 5/30/95(2) CLP 1,988,563,369 4,927,674
-----------------------------------------------------------------------------------------------------------
16.50%, 7/12/95(2) CLP 2,558,400,000 6,339,733
-----------------------------------------------------------------------------------------------------------
Indonesia (Republic of) CD, Bank Negara, Zero Coupon, 4/24/95 IDR 56,500,000,000
24,986,983
---------------
Total Certificates of Deposit (Cost $77,911,253) 78,051,210
==========================================================
==========================================================
================
Mortgage-Backed Obligations--11.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Agency--8.9%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/
Sponsored--6.2% Federal Home Loan Mortgage Corp., Series 176, Cl. F, 8.95%, 3/15/20 16,988,000
17,290,726
-----------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, 10.50%, 11/25/20 38,400,000 43,535,613
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1993-87, Cl. S, Inverse Floater, 4.875%, 6/25/23(3) 28,806,289 14,457,157
Interest-Only Stripped Mtg.-Backed Security:
Trust 221, Cl. 2, 7.50%, 5/25/23(4) 179,107,604 63,835,070
Trust 222, Cl. 2, 7%, 6/25/23(4) 97,830,154 34,821,420
Trust 240, Cl. 2, 7%, 9/25/23(4) 189,670,144 68,696,156
Trust 258, Cl. 2, 7%, 3/25/24(4) 34,471,293 12,097,270
Principal-Only Stripped Mtg.-Backed Security, Series 1993-253,
Cl. G, Zero Coupon, 11/25/23(5) 7,802,220 3,966,941
Series 1994-83, Cl. Z, 7.50%, 6/25/24 33,168,748 28,013,994
---------------
286,714,347
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--2.7% Government National Mortgage Assn., 7.50%, 4/1/25--6/1/25(6) 123,500,000
126,085,781
- ------------------------------------------------------------------------------------------------------------------------------------
Private--2.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Agricultural--0.2% Prudential Agricultural Credit, Inc., Farmer Mac Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass-Through Certificates, Series 1992-2:
Cl. B2, 8.961%, 1/15/03(7)(8) 5,720,249 4,342,921
Cl. B3, 9.294%, 4/15/09(7)(8) 5,635,220 4,205,371
---------------
8,548,292
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial--1.1% Citicorp Mortgage Securities, Inc., Sub. Bonds, Series 1993-5:
Cl. B3, 7%, 4/25/23 1,653,341 1,142,356
Cl. B4, 7%, 4/25/23(8) 1,594,295 223,201
-----------------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through
Certificates, Cl. 1E-1, 11%, 2/15/14(9) 12,000,000 11,637,588
-----------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25(8) 2,500,000 2,452,344
Cl. 2-E, 8.70%, 9/25/25(8) 2,500,000 2,366,406
Cl. 2-G, 8.70%, 9/25/25 4,870,000 4,443,875
6 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial (continued) Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 $ 1,740,537 $ 1,713,191
Series 1992-CHF, Cl. D, 8.25%, 12/25/20 9,890,259 9,609,005
Series 1993-C1, Cl. B, 8.75%, 5/25/24 7,572,000 7,564,901
Series 1993-C1, Cl. D, 9.45%, 5/25/24 6,370,007 6,332,185
Series 1993-C2, Cl. E, 8.50%, 3/25/25 137,688 131,880
Series 1994-C2, Cl. D, 8%, 4/25/25 1,988,211 1,871,090
Series 1994-C1, Cl. E, 8%, 6/25/26 4,875,808 3,728,470
---------------
53,216,492
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family--1.0% Countrywide Funding Corp., Series 1993-12, Cl. B1, 6.625%, 2/25/24 3,500,000
2,855,781
-----------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M6, Cl. B4, 6.45%, 6/25/21(7) 10,573,125 10,199,762
Series 1992-M4, Cl. B, 7.20%, 9/25/21 4,468,291 4,369,850
Series 1994-C1, Cl. C, 8%, 6/25/26 8,000,000 7,658,750
Series 1994-C2, Cl. E, 8%, 4/25/25 19,595,191 16,407,911
Series 1994-C2, Cl. G, 8%, 4/25/25 3,917,480 2,916,437
---------------
44,408,491
- ------------------------------------------------------------------------------------------------------------------------------------
Residential--0.6% Chase Mortgage Finance Corp.:
Nts., 6.75%, 2/25/25(9) 706,397 472,845
Nts., 6.75%, 3/25/25(9) 844,890 565,549
Sub. Mtg. Pass-Through Certificates, Series 1994-1:
Cl. B-10, 6.601%, 3/25/25(9) 1,075,853 739,986
Cl. B-8, 6.601%, 3/25/25(9) 2,151,707 1,500,816
Cl. B-9, 6.601%, 3/25/25(9) 2,151,707 1,492,747
-----------------------------------------------------------------------------------------------------------
CMC Security Corp. III, Collateralized Mtg. Obligation,
Series 1994-E, Cl. E-B3, 6.50%, 3/25/24(9) 4,932,128 3,160,030
-----------------------------------------------------------------------------------------------------------
GE Capital Mortgage Services, Inc., Sub. Bonds:
Series 1994-10, Cl. B3, 6.50%, 3/25/24(9) 4,738,823 3,145,394
Series 1994-11, Cl. B3, 6.50%, 4/25/24(9) 3,151,273 2,101,006
Series 1994-7, Cl. B3, 6%, 2/25/09 1,552,394 1,120,636
-----------------------------------------------------------------------------------------------------------
Prudential Home Mortgage Securities Corp., Sub. Fixed Rate Mtg.
Securities, Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1995-A, Cl. B2, 8.684%, 3/28/25(9) 5,437,000 5,340,153
-----------------------------------------------------------------------------------------------------------
SKW Real Estate L.P., Sec. Nt.,
Cl. D, 9.05%, 4/15/04(7)(9) 9,500,000 9,378,281
---------------
29,017,443
---------------
Total Mortgage-Backed Obligations (Cost $547,015,912) 547,990,846
==========================================================
==========================================================
================
U.S. Government Obligations--31.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury--31.5% U.S. Treasury Bonds:
7.125%, 2/15/23 100,000,000 95,656,189
7.50%, 11/15/24 21,000,000 21,072,175
7.875%, 2/15/21(10)(11) 222,500,000 229,939,708
8.125%, 8/15/19--8/15/21 134,157,000 142,654,573
8.75%, 8/15/00 143,500,000 153,948,506
10.375%, 5/15/95 122,500,000 123,112,500
11.50%, 11/15/95 51,150,000 52,748,438
11.625%, 11/15/02 138,279,000 173,885,843
13.375%, 8/15/01 72,000,000 94,612,456
7 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury (continued) U.S. Treasury Nts.:
8.875%, 11/15/97 $ 128,719,000 $ 134,752,703
9.375%, 4/15/96 67,100,000 68,966,249
10.50%, 8/15/95 101,695,000 103,283,984
11.25%, 5/15/95(10)(11) 68,000,000 68,403,708
---------------
Total U.S. Government Obligations (Cost $1,530,543,776) 1,463,037,032
==========================================================
==========================================================
================
Foreign Government Obligations--19.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina--0.9% Argentina (Republic of):
Bonos de Consolidacion de Deudas:
Bonds, Series I, 3.032%, 4/1/01(7)(12) ARA 298,090 100,450
Bonds, Series I, 6.062%, 4/1/01(7)(12) 8,265,641 4,350,745
Bonds, Series I, 6.062%, 4/1/07(7)(12) 873,796 328,586
Bonos del Tesoro:
Bonds, Series II, 6.188%, 9/1/97(7) 16,486,500 13,945,485
Bonds, Series I, 6.188%, 5/31/96(7) 4,578,000 4,237,108
Par Bonds, 4.25%, 3/31/23(13) 35,000,000 14,284,375
---------------
37,246,749
- ------------------------------------------------------------------------------------------------------------------------------------
Australia--2.7% First Australia National Mortgage Acceptance Corp. Ltd. Bonds,
Series 17, 15%, 7/15/02 AUD 2,370,000 1,907,099
-----------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp. Gtd.:
Bonds, 12%, 12/1/01 AUD 22,803,000 18,359,013
Exch. Bonds, 12%, 12/1/01 AUD 38,250,000 30,802,061
-----------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 78,780,000 52,425,377
-----------------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 12%, 8/1/01 AUD 30,010,000
24,079,143
---------------
127,572,693
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil--0.7% Brazil (Federal Republic of):
Interest Due and Unpaid Bonds, 7.813%, 1/1/01(7) 1,309,500 960,641
Nts., Banco Estado Minas Gerais:
10%, 1/15/96 14,870,000 13,717,575
7.875%, 2/10/99(9) 4,000,000 2,540,000
8.25%, 2/10/00 9,000,000 5,535,000
8.25%, 2/10/00(9) 2,000,000 1,362,500
-----------------------------------------------------------------------------------------------------------
Petroquimica do Nordeste Sr. Unsec. Unsub. Nts., 9.50%, 10/19/01 11,850,000 10,428,000
---------------
34,543,716
- ------------------------------------------------------------------------------------------------------------------------------------
Colombia--0.4% Colombia (Republic of) 1989--1990 Integrated Loan Facility Bonds:
6.75%, 7/1/01(7)(8) 16,131,048 13,953,358
7.937%, 10/26/03(7)(8) 8,089,264 6,835,428
---------------
20,788,786
- ------------------------------------------------------------------------------------------------------------------------------------
Denmark--0.9% Denmark (Kingdom of) Bonds, 9%, 11/15/00 DKK 215,000,000
40,265,801
- ------------------------------------------------------------------------------------------------------------------------------------
Ecuador--0.3% Ecuador (Republic of) Bonds, 7.25%, 2/28/25(7) 36,500,000 16,242,500
- ------------------------------------------------------------------------------------------------------------------------------------
Germany--0.9% Germany (Republic of) Gtd. Federal Government Debs., 9%, 10/20/00 DEM 52,000,000
41,892,828
- ------------------------------------------------------------------------------------------------------------------------------------
Great Britain--3.4% United Kingdom Treasury Nts.:
12%, 11/20/98 GBP 43,743,000 79,174,995
13%, 7/14/00 GBP 34,090,000 65,832,758
9%, 3/3/00 GBP 7,800,000 12,986,523
---------------
157,994,276
8 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Mexico--1.6% Banco Nacional de Comercio Exterior SNC International Finance
BV Gtd. Matador Bonds:
13%, 1/29/97 ESP 1,250,000,000 $ 9,461,801
12.65%, 6/21/98 ESP 3,028,000,000 19,886,260
-----------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria de la Federacion, Zero Coupon:
4/20/95 1,313,000 1,291,766
5/4/95 1,050,000 1,020,408
-----------------------------------------------------------------------------------------------------------
United Mexican States:
Banco Nacional de Comercio Exterior SNC International Finance
BV Gtd. Matador Bonds, 12.25%, 12/3/98 GBP 8,500,000 12,858,357
Combined Facility 2, Loan Participation Agreement, Tranche A,
7.625%, 3/20/99(7)(8) 1,083,614 612,242
Gtd. Matador Bonds, Bankpesca Restructured Sov. Loan,
7.562%, 10/26/06(7)(8) 5,237,680 2,789,065
Nacional Financiera SNC Nts., 13.60%, 4/2/98 ESP 1,395,000,000 9,881,245
Petacalco Topolobampo Trust Sr. Sec. Unsub. Nts.:
8.125%, 12/15/03 10,975,000 5,432,625
8.125%, 12/15/03(9) 1,950,000 965,250
Petroleos Mexicanos Gtd. Medium-Term Nts., 7.60%, 6/15/00 14,310,000 8,729,100
---------------
72,928,119
- ------------------------------------------------------------------------------------------------------------------------------------
Morocco--1.6% Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 7.375%, 1/1/09(7) 88,450,000 51,522,125
Tranche B, 7.375%, 1/1/04(7) 33,800,000 21,336,250
---------------
72,858,375
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand--2.9% International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 NZD 65,320,000 46,402,331
-----------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds:
10%, 7/15/97 NZD 108,531,000 73,358,277
8%, 11/15/95 NZD 22,700,000 14,744,339
---------------
134,504,947
- ------------------------------------------------------------------------------------------------------------------------------------
Poland--0.5% Poland (Republic of):
Disc. Bonds, 6.812%, 10/27/24(7) 10,500,000 6,772,500
Past Due Interest Bonds, 3.25%, 10/27/14(13) 39,250,000 15,650,938
---------------
22,423,438
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa--0.6% South Africa (Republic of) Loan Participation Agreements, Eskom:
7.375%, 4/15/98(7)(8) 2,421,839 2,246,256
7.875%, 2/9/00(7)(8) 9,590,909 9,087,387
7.875%, 9/15/99(7)(8) 7,721,056 7,180,582
8.625%, 1/5/98(7)(8) 7,500,000 7,087,500
---------------
25,601,725
- ------------------------------------------------------------------------------------------------------------------------------------
Spain--1.2% Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
10.25%, 11/30/98 ESP 7,319,000,000 55,211,953
- ------------------------------------------------------------------------------------------------------------------------------------
Supranational--0.0% Corporacion Andina de Fomento Sr. Unsec. Debs.:
6.625%, 10/14/98 1,250,000 1,143,750
7.25%, 4/30/98 1,030,000 952,750
---------------
2,096,500
9 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Venezuela--0.9% Bariven SA Sr. Nts., Gtd. by Petroleos de Venezuela, 9.50%, 12/10/96 $ 500,000
$483,125
-----------------------------------------------------------------------------------------------------------
Venezuela (Republic of):
Debs., 6.75%, 9/20/95 1,200,000 1,176,000
Debs., 8.313%, 12/29/95(7) 5,365,714 4,976,700
Debs., 9%, 5/27/96 23,025,000 21,758,623
Debs., 9.125%, 3/11/96 7,500,000 7,059,375
Debs., Banco Venezuela TCI, Zero Coupon, 12/13/98(8) 7,908,048 4,942,530
Unsub. Nts., 8.237%, 9/20/95(7) 2,500,000 2,418,750
---------------
42,815,103
---------------
Total Foreign Government Obligations (Cost $926,488,025) 904,987,509
==========================================================
==========================================================
================
Corporate Bonds and Notes--33.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industry--4.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.0% Carbide/Graphite Group, Inc., 11.50% Sr. Nts., 9/1/03 13,000,000
13,585,000
-----------------------------------------------------------------------------------------------------------
Georgia Gulf Corp., 15% Sr. Sub. Nts., 4/15/00 500,000 500,000
-----------------------------------------------------------------------------------------------------------
NL Industries, Inc.:
0%/13% Sr. Sec. Disc. Nts., 10/15/05(14) 13,450,000 8,809,750
11.75% Sr. Sec. Nts., 10/15/03 3,500,000 3,596,250
-----------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02(9) 3,900,000 3,783,000
-----------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 3,500,000 3,868,805
-----------------------------------------------------------------------------------------------------------
Sherritt, Inc., 11% Debs., 3/31/04 CAD 10,000,000 6,879,344
-----------------------------------------------------------------------------------------------------------
UCAR Global Enterprises, Inc., 12% Sr. Sub. Nts., 1/15/05(9) 4,000,000 4,215,000
---------------
45,237,149
- ------------------------------------------------------------------------------------------------------------------------------------
Containers--0.3% Calmar Spraying Systems, Inc., 14% Sr. Sub. Disc. Nts., 2/15/99 3,850,000
3,893,313
-----------------------------------------------------------------------------------------------------------
Calmar, Inc., 12% Sr. Sec. Nts., 12/15/97 7,000,000 7,105,000
-----------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc.:
10% Sr. Sub. Nts., 8/1/02 1,150,000 1,155,750
11% Sr. Debs., 12/1/03 750,000 804,375
---------------
12,958,438
- ------------------------------------------------------------------------------------------------------------------------------------
Metals/Mining--0.5% Horsehead Industries, Inc.:
14% Sub. Nts., 6/1/99 3,050,000 3,126,250
15.75% Sr. Sub. Nts., 6/1/97 4,566,000 4,725,810
-----------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp.:
12.75% Sr. Sub. Nts., 2/1/03 2,800,000 2,898,000
9.875% Sr. Nts., 2/15/02 14,775,000 13,888,500
---------------
24,638,560
- ------------------------------------------------------------------------------------------------------------------------------------
Paper--1.9% Domtar, Inc.:
10.85% Debs., 8/15/17 CAD 1,700,000 1,146,765
11.25% Debs., 9/15/17 1,325,000 1,393,734
11.75% Sr. Nts., 3/15/99 500,000 537,500
12% Nts., 4/15/01 1,050,000 1,160,250
-----------------------------------------------------------------------------------------------------------
Gaylord Container Corp.:
0%/12.75% Sr. Sub. Disc. Debs., 5/15/05(14) 9,250,000 8,810,625
11.50% Sr. Nts., 5/15/01 8,250,000 8,703,750
-----------------------------------------------------------------------------------------------------------
Malette, Inc., 12.25% Sr. Sec. Nts., 7/15/04 3,350,000 3,500,750
10 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Paper (continued) Noranda Forest, Inc., 11% Debs., 7/15/98 CAD $ 2,000,000 $ 1,511,317
-----------------------------------------------------------------------------------------------------------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 12,040,000 10,173,800
-----------------------------------------------------------------------------------------------------------
Rainy River Forest Products, 10.75% Sr. Sec. Nts., 10/15/01 1,500,000 1,541,250
-----------------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% Fst. Priority Sr. Sec. Nts., 2/1/02 1,000,000 945,000
-----------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.375% Sr. Sub. Nts., 6/30/04 3,600,000 3,699,000
10.75% Sr. Nts., 6/15/00 9,790,000 10,255,025
11.25% Sr. Sub. Nts., 6/15/02 3,904,000 4,128,480
-----------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 2,586,007 2,448,835
-----------------------------------------------------------------------------------------------------------
SD Warren Co., 12% Sr. Sub. Nts., 12/15/04(9) 2,000,000 2,130,000
-----------------------------------------------------------------------------------------------------------
Stone Consolidated Corp., 10.25% Sr. Sec. Nts., 12/15/00 4,800,000 4,878,000
-----------------------------------------------------------------------------------------------------------
Stone Container Corp.:
10.75% Fst. Mtg. Nts., 10/1/02 4,100,000 4,253,750
10.75% Sr. Sub. Nts., 6/15/97 900,000 931,500
9.875% Sr. Nts., 2/1/01 14,900,000 14,527,500
---------------
86,676,831
- ------------------------------------------------------------------------------------------------------------------------------------
Steel--0.4% AK Steel Corp., 10.75% Gtd. Sr. Nts., 4/1/04 3,000,000 3,030,000
-----------------------------------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 10.75% Sr. Nts., 3/1/00 5,975,000 5,736,000
-----------------------------------------------------------------------------------------------------------
Sheffield Steel Corp., 12% Sec. Fst. Mtg., 11/1/01 4,000,000 3,820,000
-----------------------------------------------------------------------------------------------------------
Wheel-Pittsburgh Corp., 9.375% Sr. Nts., 11/15/03 7,750,000 6,800,625
---------------
19,386,625
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Related--7.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Products--1.8% Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 10,886,000
10,886,000
-----------------------------------------------------------------------------------------------------------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02 24,750,000 27,101,250
-----------------------------------------------------------------------------------------------------------
International Semi-Tech Microelectronics, Inc., 0%/11.50%
Sr. Sec. Disc. Nts., 8/15/03(14) 19,560,000 8,704,200
-----------------------------------------------------------------------------------------------------------
Pace Industries, Inc., 10.625% Sr. Nts., Series B, 12/1/02 12,300,000 11,377,500
-----------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.375% Sr. Nts., 4/1/01 3,490,000 3,289,325
-----------------------------------------------------------------------------------------------------------
Revlon Worldwide Corp., Zero Coupon Sr. Sec. Disc. Nts., 3/15/98 4,000,000 2,390,000
-----------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 13,925,000 13,576,875
-----------------------------------------------------------------------------------------------------------
Williams (J. B.) Holdings, Inc., 12% Sr. Nts., 3/1/04 5,000,000 4,812,500
---------------
82,137,650
- ------------------------------------------------------------------------------------------------------------------------------------
Food/Beverages/
Tobacco--1.7% Consolidated Cigar Corp., 10.50% Sr. Sub. Nts., 3/1/03 4,400,000 4,180,000
-----------------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 8,680,000 7,421,400
-----------------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Co. of Texas, 10.25% Sr. Nts., 2/15/00 3,000,000 3,045,000
-----------------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Holdings, Inc., 0%/11.625% Sr. Disc. Nts., 2/15/03(14) 5,300,000 3,736,500
-----------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02(14) 4,118,000
3,582,660
-----------------------------------------------------------------------------------------------------------
Heileman Acquisition Corp., 9.625% Sr. Sub. Nts., 1/31/04 8,050,000 5,554,500
-----------------------------------------------------------------------------------------------------------
Pulsar Internacional, SA de C.V., 9% Nts., 9/19/95(8) 14,750,000 14,012,500
-----------------------------------------------------------------------------------------------------------
RJR Nabisco, Inc., 8.625% Medium-Term Nts., 12/1/02 20,000,000 19,653,638
-----------------------------------------------------------------------------------------------------------
Royal Crown Corp., 9.75% Sr. Sec. Nts., 8/1/00 13,650,000 12,831,000
-----------------------------------------------------------------------------------------------------------
Specialty Foods Acquisition Corp.:
10.25% Sr. Nts., 8/15/01 5,000,000 4,900,000
11.25% Sr. Sub. Nts., 8/15/03 1,500,000 1,462,500
---------------
80,379,698
11 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare--1.7% Abbey Healthcare Group, Inc., 9.50% Sr. Sub. Nts., 11/1/02 $ 3,850,000 $
3,984,750
-----------------------------------------------------------------------------------------------------------
AmeriSource Corp., 11.25% Sr. Debs., 7/15/05(12) 14,301,696 14,896,117
-----------------------------------------------------------------------------------------------------------
Capstone Capital Corp., 10.50% Cv. Sub. Debs., 4/1/02 1,000,000 1,007,500
-----------------------------------------------------------------------------------------------------------
Charter Medical Corp., 11.25% Sr. Sub. Nts., 4/15/04 3,900,000 4,114,500
-----------------------------------------------------------------------------------------------------------
Healthsouth Rehabilitation Corp., 9.50% Sr. Sub. Nts., 4/1/01 3,200,000 3,208,000
-----------------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc., 13% Sr. Sub. Nts., 7/15/02(9) 10,900,000 11,608,500
-----------------------------------------------------------------------------------------------------------
Mediq/PRN Life Support Services, Inc., 11.125% Sr. Sec. Nts., 7/1/99 3,000,000 2,767,500
-----------------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 6,290,000 7,107,700
-----------------------------------------------------------------------------------------------------------
National Medical Enterprises, Inc., 10.125% Sr. Sub. Nts., 3/1/05 13,900,000 14,351,750
-----------------------------------------------------------------------------------------------------------
Quorum Health Group, Inc., 11.875% Sr. Sub. Nts., 12/15/02 3,750,000 4,087,500
-----------------------------------------------------------------------------------------------------------
Surgical Health Corp., 11.50% Sr. Sub. Nts., 7/15/04 3,350,000 3,618,000
-----------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., Units 9,700,000 8,487,500
---------------
79,239,317
- ------------------------------------------------------------------------------------------------------------------------------------
Hotel/Gaming--1.4% Arizona Charlie's, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(8) 5,775,000
4,706,625
-----------------------------------------------------------------------------------------------------------
Aztar Corp., 13.75% Sr. Sub. Nts., 10/1/04 5,575,000 6,034,938
-----------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Promissory Nts. 31,000 --
-----------------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(8) 2,100,000 1,921,500
-----------------------------------------------------------------------------------------------------------
Casino Magic Finance Corp., 11.50% Fst. Mtg. Nts., 10/15/01 4,150,000 3,174,750
-----------------------------------------------------------------------------------------------------------
GB Property Funding Corp., 10.875% Fst. Mtg. Nts., 1/15/04 4,400,000 3,773,000
-----------------------------------------------------------------------------------------------------------
Hollywood Casino Corp.:
13.50% Fst. Mtg. Nts., 9/30/98 3,500,000 3,447,500
14% Sr. Sec. Nts., 4/1/98 3,900,000 4,173,000
-----------------------------------------------------------------------------------------------------------
Host Marriott Hospitality, Inc., 11% Sr. Nts., Series L, 5/1/07 3,880,000 3,938,200
-----------------------------------------------------------------------------------------------------------
Maritime Group Ltd., Units(9)(15) 3,042,347 1,916,679
-----------------------------------------------------------------------------------------------------------
MGM Grand Hotel Finance Corp.:
11.75% Fst. Mtg. Nts., Series A, 5/1/99 5,000,000 5,362,500
12% Fst. Mtg. Nts., 5/1/02 625,000 690,625
-----------------------------------------------------------------------------------------------------------
Pioneer Finance Corp., 13.50% Gtd. Fst. Mtg. Bonds, 12/1/98 18,205,000 14,290,924
-----------------------------------------------------------------------------------------------------------
Showboat, Inc., 13% Sr. Sub. Nts., 8/1/09 1,750,000 1,820,000
-----------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 3,750,000 3,318,750
-----------------------------------------------------------------------------------------------------------
Stratosphere Corp., 14.25% Gtd. Fst. Mtg. Nts., 5/15/02 1,000,000 1,025,000
-----------------------------------------------------------------------------------------------------------
Trump Plaza Funding, Inc., 10.875% Gtd. Mtg. Nts., 6/15/01 1,450,000 1,210,750
-----------------------------------------------------------------------------------------------------------
Trump Taj Mahal Funding, Inc., 11.35% Debs., Series A, 11/15/99 2,250,000 1,624,775
---------------
62,429,516
- ------------------------------------------------------------------------------------------------------------------------------------
Leisure--0.4% Coleman Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts., Series B, 5/27/98 17,450,000
12,345,875
-----------------------------------------------------------------------------------------------------------
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03 4,250,000 3,336,250
---------------
15,682,125
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurants--0.6% Family Restaurants, Inc.:
0%/10.875% Sr. Sub. Disc. Nts., 2/1/04(14) 4,850,000 1,818,750
9.75% Sr. Nts., 2/1/02 2,900,000 2,008,250
-----------------------------------------------------------------------------------------------------------
Flagstar Corp., 10.75% Sr. Nts., 9/15/01 9,800,000 9,432,500
-----------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 14.25% Sr. Sub. Nts., 5/15/98 15,000,000 15,487,500
---------------
28,747,000
12 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Textile/Apparel--0.2% PT Polysindo Eka Perkasa, Zero Coupon Promissory Nts., 10/23/96 IDR 20,000,000,000 $
6,188,560
-----------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 5,600,000 5,159,000
---------------
11,347,560
- ------------------------------------------------------------------------------------------------------------------------------------
Housing Related--2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Building Materials--1.2% Dal-Tile International, Inc., Zero Coupon Sr. Sec. Nts., 7/15/98 17,750,000
11,759,375
-----------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.875% Sr. Sub. Nts., 3/1/04 8,300,000 7,594,500
-----------------------------------------------------------------------------------------------------------
Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 14,370,000 13,507,800
-----------------------------------------------------------------------------------------------------------
Southdown, Inc., 14% Sr. Sub. Nts., Series B, 10/15/01 3,450,000 3,812,250
-----------------------------------------------------------------------------------------------------------
USG Corp.:
10.25% Sr. Sec. Nts., 12/15/02 10,967,000 11,117,796
9.25% Sr. Nts., Series B, 9/15/01 3,200,000 3,156,000
-----------------------------------------------------------------------------------------------------------
Walter Industries, Inc.:
14.625% Sr. Nts., Series B, 1/1/49(15) 742,000 1,398,670
17% Sub. Nts., 1/1/96(15) 4,250,000 2,698,750
---------------
55,045,141
- ------------------------------------------------------------------------------------------------------------------------------------
Homebuilders/
Real Estate--0.9% Baldwin Co., 10.375% Sr. Nts., Series B, 8/1/03 7,200,000 4,572,000
-----------------------------------------------------------------------------------------------------------
Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts., 5/1/99 4,500,000 4,680,000
-----------------------------------------------------------------------------------------------------------
Hovnanian K. Enterprises, Inc., 11.25% Gtd. Sub. Nts., 4/15/02 6,900,000 6,089,250
-----------------------------------------------------------------------------------------------------------
Olympia & York First Canadian Place Ltd., 11% Debs., Series 3,
11/4/49(16) CAD 5,150,000 2,276,243
-----------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 17,000,000 15,810,000
-----------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(9) 13,700,000 8,254,250
---------------
41,681,743
- ------------------------------------------------------------------------------------------------------------------------------------
Energy--1.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Argo Petroleum Corp., 16.50% Sub. Debs., 1/1/02(15) 3,000,000 --
-----------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 2,500,000 2,702,855
-----------------------------------------------------------------------------------------------------------
Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99 6,785,000 7,310,838
-----------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 9.25% Sr. Sub. Debs., 1/15/04 10,500,000 9,871,154
-----------------------------------------------------------------------------------------------------------
HS Resources, Inc., 9.875% Sr. Sub. Nts., 12/1/03 3,750,000 3,600,000
-----------------------------------------------------------------------------------------------------------
Maxus Energy Corp.:
11.50% Debs., 11/15/15 3,500,000 2,992,500
8.50% Debs., 4/1/08 1,000,000 835,000
9.375% Nts., 11/1/03 1,250,000 1,037,500
-----------------------------------------------------------------------------------------------------------
Mesa Capital Corp., 0%/12.75% Sec. Disc. Nts., 6/30/98(14) 8,908,000 8,596,220
-----------------------------------------------------------------------------------------------------------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02 13,000,000 14,365,000
-----------------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc.:
12.25% Sub. Debs., 2/1/05 3,625,000 3,788,125
9.375% Sub. Debs., 2/1/06 3,250,000 2,843,750
-----------------------------------------------------------------------------------------------------------
Presidio Oil Co., 13.30% Sr. Sub. Gas Indexed Nts., Series B, 7/15/02(7) 750,000 348,750
-----------------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 4,500,000 4,668,750
-----------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 125,000 134,777
-----------------------------------------------------------------------------------------------------------
Triton Energy Corp.:
0%/9.75% Sr. Sub. Disc. Nts., 12/15/00(14) 800,000 652,000
Zero Coupon Sr. Sub. Disc. Nts., 11/1/97 9,250,000 7,307,500
---------------
71,054,719
13 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services--1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified
Financial--1.1% Card Establishment Services, Inc., 10% Sr. Sub. Nts.,
Series B, 10/1/03 $ 17,275,000 $ 19,196,844
-----------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02(8) 1,293,590 1,422,950
-----------------------------------------------------------------------------------------------------------
GPA Delaware, Inc.:
8.75% Gtd. Nts., 12/15/98 5,955,000 4,704,450
9.75%, 12/10/01 2,000,000 1,320,000
-----------------------------------------------------------------------------------------------------------
GPA Holland BV:
8.50% Medium-Term Nts., 2/10/97(9) 10,500,000 9,187,500
8.625% Medium-Term Nts., Series C, 1/15/99(8) 4,750,000 3,544,687
8.94% Medium-Term Nts., Series C, 2/16/99 2,000,000 1,502,500
9.50% Medium-Term Nts., Series A, 12/15/01(8) 1,500,000 975,000
-----------------------------------------------------------------------------------------------------------
GPA Investment BV, 6.40% Nts., 11/19/98 2,000,000 1,375,000
-----------------------------------------------------------------------------------------------------------
GPA Netherlands BV, 8.50% Medium-Term Nts., 3/3/97(9) 6,500,000 5,703,750
---------------
48,932,681
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance--0.1% Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 2,500,000 2,737,500
-----------------------------------------------------------------------------------------------------------
Nacolah Holding Corp., 9.50% Sr. Nts., 12/1/03 2,100,000 1,932,000
---------------
4,669,500
- ------------------------------------------------------------------------------------------------------------------------------------
Media--6.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Broadcasting--1.5% Act III Broadcasting, Inc., 9.625% Sr. Sub. Nts., 12/15/03 4,930,000 4,794,425
-----------------------------------------------------------------------------------------------------------
Chancellor Broadcasting Co., 12.50% Sr. Sub. Nts., 10/1/04 7,000,000 7,070,000
-----------------------------------------------------------------------------------------------------------
Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., Series A, 6/30/02 12,800,000 13,504,000
-----------------------------------------------------------------------------------------------------------
New City Communications, Inc., 11.375% Sr. Sub. Nts., 11/1/03 17,975,000 16,447,125
-----------------------------------------------------------------------------------------------------------
New World Communications Group Holding Corp., Zero Coupon
Sr. Disc. Nts., Series B, 6/15/99 12,000,000 6,990,000
-----------------------------------------------------------------------------------------------------------
Outlet Broadcasting, Inc., 10.875% Sr. Sub. Nts., 7/15/03 2,000,000 2,010,000
-----------------------------------------------------------------------------------------------------------
SCI Television, Inc., 11% Sr. Nts., Series 1, 6/30/05 2,153,155 2,217,750
-----------------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc., 11.375% Sr. Sub. Nts., 10/1/00 3,000,000 3,060,000
-----------------------------------------------------------------------------------------------------------
Sinclair Broadcasting Group, Inc., 10% Sr. Sub. Nts., 12/15/03 8,975,000 8,660,875
-----------------------------------------------------------------------------------------------------------
Univision Television Group, Inc., 11.75% Sr. Sub. Nts., 1/15/01 5,500,000 5,857,500
---------------
70,611,675
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television--2.6% Adelphia Communications Corp., 12.50% Sr. Nts., 5/15/02 7,740,000
7,430,400
-----------------------------------------------------------------------------------------------------------
American Telecasting, Inc., 0%/12.50% Sr. Disc. Nts., 6/15/04(14) 20,150,000 10,175,750
-----------------------------------------------------------------------------------------------------------
Bell Cablemedia PLC, 0%/11.95% Sr. Disc. Nts., 7/15/04(14) 22,500,000 13,640,625
-----------------------------------------------------------------------------------------------------------
Cablevision Industries Corp.:
10.75% Sr. Nts., 1/30/02 900,000 951,750
9.25% Sr. Debs., Series B, 4/1/08 2,400,000 2,370,000
-----------------------------------------------------------------------------------------------------------
Cablevision Systems Corp.:
10.75% Sr. Sub. Debs., 4/1/04 6,025,000 6,281,063
9.875% Sr. Sub. Debs., 2/15/13 4,550,000 4,390,750
9.875% Sr. Sub. Debs., 4/1/23 1,100,000 1,040,875
-----------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc.:
11% Sr. Sub. Debs., 6/1/07 2,700,000 2,889,135
9.50% Sr. Debs., 8/1/13 12,255,000 11,826,075
-----------------------------------------------------------------------------------------------------------
Helicon Group LP/Helicon Capital Corp., 9% Sr. Sec. Nts., Series B,
11/1/03(7) 18,500,000 16,326,250
14 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television
(continued) Marcus Cable Operating Co. LP/Marcus Capital Corp., 0%/13.50%
Gtd. Sr. Sub. Disc. Nts., Series II, 8/1/04(14) $ 13,200,000 $ 7,606,500
-----------------------------------------------------------------------------------------------------------
Time Warner, Inc.:
9.125% Debs., 1/15/13 12,550,000 12,054,538
9.15% Debs., 2/1/23 4,500,000 4,284,516
-----------------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP:
10.15% Sr. Nts., 5/1/12 1,000,000 1,068,014
8.375% Sr. Debs., 3/15/23 12,804,000 11,520,552
-----------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 6,000,000 6,390,000
---------------
120,246,793
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Media--1.2% Ackerley Communications, Inc., 10.75% Sr. Sec. Nts., Series A, 10/1/03 8,850,000
8,938,500
-----------------------------------------------------------------------------------------------------------
Echostar Communications Corp., Units 19,220,000 8,745,100
-----------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% Fst. Mtg. Bonds, 6/24/10(9) 829,369 916,454
-----------------------------------------------------------------------------------------------------------
Lamar Advertising Co., 11% Sr. Sec. Nts., 5/15/03 12,000,000 11,730,000
-----------------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
10.125% Gtd. Sr. Debs., 10/15/12 3,300,000 3,572,257
12% Sr. Nts., 12/15/01 2,500,000 2,817,307
8.50% Sr. Nts., 2/15/05 6,000,000 6,041,147
8.625% Sr. Nts., 2/1/03 10,400,000 10,540,150
-----------------------------------------------------------------------------------------------------------
Rogers Communications, Inc., 10.875% Sr. Debs., 4/15/04 2,200,000 2,222,000
---------------
55,522,915
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment/Film--0.4% Imax Corp., 7% Sr. Nts., 3/1/01(13) 13,200,000 11,484,000
-----------------------------------------------------------------------------------------------------------
Marvel Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts., Series B, 4/15/98 11,000,000 7,095,000
---------------
18,579,000
- ------------------------------------------------------------------------------------------------------------------------------------
Publishing/
Printing--0.4% Bell & Howell Co., 10.75% Sr. Sub. Nts., Series B, 10/1/02 2,000,000 2,060,000
-----------------------------------------------------------------------------------------------------------
Bell & Howell Holdings Co., 0%/11.50% Sr. Disc. Debs., Series B, 3/1/05(14) 13,500,000
7,323,750
-----------------------------------------------------------------------------------------------------------
General Media, Inc., 10.625% Sr. Sec. Nts., 12/31/00 4,000,000 3,340,000
-----------------------------------------------------------------------------------------------------------
United States Banknote Corp., 11.625% Sr. Nts., Series B, 8/1/02 4,220,000 3,291,600
---------------
16,015,350
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation--0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Air Transportation--0.1% Northwest Airlines, Inc., 12.0916% Sr. Gtd. Nts., 12/31/00 4,969,886
5,075,491
- ------------------------------------------------------------------------------------------------------------------------------------
Railroads--0.2% Transtar Holdings LP/Transtar Capital Corp., 0%/13.375%
Sr. Disc. Nts., Series B, 12/15/03(14) 19,266,000 10,114,650
- ------------------------------------------------------------------------------------------------------------------------------------
Shipping--0.4% Sea Containers Ltd.:
12.50% Sr. Sub. Debs., Series A, 12/1/04 2,850,000 3,021,000
9.50% Sr. Sub. Debs., 7/1/03 4,750,000 4,465,000
-----------------------------------------------------------------------------------------------------------
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 11,900,000 11,483,500
---------------
18,969,500
- ------------------------------------------------------------------------------------------------------------------------------------
Trucking--0.1% Trism, Inc., 10.75% Sr. Sub. Nts., 12/15/00 1,250,000 1,212,500
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities--4.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--2.4% Beaver Valley II Funding Corp., 9% 2nd Lease Obligation Bonds, 6/1/17 24,189,000
18,667,618
-----------------------------------------------------------------------------------------------------------
C.A. La Electricidad de Caracas, 7.188% Exchange Eurobonds, 9/30/03(7) 3,691,162
1,421,098
15 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities
(continued) California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(14) $ 17,390,000 $
13,129,450
-----------------------------------------------------------------------------------------------------------
Del Norte Funding Corp.:
11.25% Debs., 1/2/14(15) 3,350,000 2,012,931
9.95% Debs., 1/2/98(15) 5,000,000 3,001,060
-----------------------------------------------------------------------------------------------------------
El Paso Electric Co.:
10.375% Lease Obligation Bonds, Series 1986A, 1/2/11(15) 12,750,000 7,774,706
10.75% Lease Obligation Bonds, 4/1/13(15) 11,900,000 7,268,793
9.20% Lease Obligation Bonds, Series 1986A, 7/2/97(15) 1,500,000 915,355
9.375% Lease Obligation Bonds, 10/1/96(15) 6,000,000 3,662,813
-----------------------------------------------------------------------------------------------------------
First PV Funding Corp.:
10.15% Lease Obligation Bonds, Series 1986B, 1/15/16 24,800,000 24,145,478
10.30% Lease Obligation Bonds, Series 1986A, 1/15/14 16,700,000 16,708,417
-----------------------------------------------------------------------------------------------------------
Subic Power Corp.:
9.50% Sinking Fund Debs., 12/28/08 7,434,350 6,040,409
9.50% Sinking Fund Debs., 12/28/08(9) 5,793,103 5,011,034
---------------
109,759,162
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications--2.4% Call-Net Enterprises, Inc., 0%/13.25% Sr. Disc. Nts., 12/1/04(14) 8,400,000
4,641,000
-----------------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04(9)(14) 12,600,000 8,461,646
-----------------------------------------------------------------------------------------------------------
Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03(14) 26,626,000 18,505,070
-----------------------------------------------------------------------------------------------------------
Comcast Cellular Corp., Zero Coupon Nts., Series B, 3/5/00 10,250,000 7,277,500
-----------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp., 0%/11.375%
Sr. Sub. Disc. Nts., 10/1/00(14) 21,402,000 16,265,520
-----------------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04(14) 13,400,000
8,609,500
-----------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.:
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(14) 33,700,000 22,157,750
9.75% Sr. Sec. Nts., 8/1/00 5,700,000 5,628,750
-----------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts., 11/15/01(14) 16,667,000 12,333,580
-----------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II:
14% Sr. Nts., 11/1/04 7,750,000 8,331,250
9.50% Sr. Nts., 2/1/04 1,850,000 1,600,250
---------------
113,811,816
- ------------------------------------------------------------------------------------------------------------------------------------
Other--1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Conglomerates--0.9% Acadia Partners LP, 13% Sub. Nts., 10/1/97(9) 25,000,000
25,750,000
-----------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Group, Inc., 12.25% Sub. Nts., 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
-----------------------------------------------------------------------------------------------------------
Talley Industries, Inc., 0%/12.25% Sr. Disc. Debs., 10/15/05(14) 16,946,000 9,616,855
---------------
41,818,368
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental--0.4% EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 13,135,000 11,493,125
-----------------------------------------------------------------------------------------------------------
Envirotest Systems Corp., 9.125% Sr. Nts., 3/15/01 10,250,000 7,738,750
---------------
19,231,875
16 Oppenheimer Strategic Income Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Services--0.4% Borg-Warner Security Corp., 9.125% Sr. Sub. Nts., 5/1/03 $ 11,760,000 $
9,702,000
-----------------------------------------------------------------------------------------------------------
Grupo Mexicano de Desarrollo SA:
8.25% Gtd. Nts., 2/17/01(9) 11,700,000 2,866,500
8.25% Gtd. Nts., 2/17/01 3,000,000 735,000
-----------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc., 12% Sr. Sub. Nts.,
Series B, 11/1/03 6,500,000 6,077,500
---------------
19,381,000
- ------------------------------------------------------------------------------------------------------------------------------------
Retail--1.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Department Stores--0.1% Parisian, Inc., 9.875% Sr. Sub. Nts., 7/15/03 4,000,000 2,800,000
-----------------------------------------------------------------------------------------------------------
Sears Canada, Inc., 11.75% Debs., 12/5/95 CAD 2,400,000 1,749,421
---------------
4,549,421
- ------------------------------------------------------------------------------------------------------------------------------------
Drug Stores--0.1% Duane Reade, 12% Sr. Nts., Series B, 9/15/02 2,250,000 1,676,250
-----------------------------------------------------------------------------------------------------------
Thrifty Payless, Inc., 11.75% Sr. Nts., 4/15/03 5,000,000 5,262,500
---------------
6,938,750
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty
Retailing--0.7% Caldor Corp., 15% Sr. Sub. Nts., 6/1/00 2,000,000 2,150,000
-----------------------------------------------------------------------------------------------------------
Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 13,300,000 12,768,000
-----------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 12% Sr. Nts., 10/1/03 7,000,000 5,460,000
-----------------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 6,870,000 6,423,450
-----------------------------------------------------------------------------------------------------------
Waban, Inc., 11% Sr. Sub. Nts., 5/15/04 2,950,000 3,001,625
-----------------------------------------------------------------------------------------------------------
Zale Delaware, Inc., 11% Gtd. 2nd Priority Sr. Sec. Nts., 7/30/00 2,000,000 2,005,000
---------------
31,808,075
- ------------------------------------------------------------------------------------------------------------------------------------
Supermarkets--0.5% Food 4 Less Supermarkets, Inc., 13.75% Sr. Sub. Nts., 6/15/01 1,500,000
1,605,000
-----------------------------------------------------------------------------------------------------------
Grand Union Co.:
11.25% Sr. Nts., 7/15/00(15) 2,700,000 2,824,875
11.75% Sr. Nts., 2/15/99(15) 4,650,000 4,719,750
12.25% Sr. Sub. Nts., 7/15/02(15) 5,070,000 1,698,450
-----------------------------------------------------------------------------------------------------------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99 9,000,000 7,740,000
-----------------------------------------------------------------------------------------------------------
Southland Corp., 4.50% 2nd Priority Sr. Sub. Debs., Series A, 6/15/04 4,850,000 3,140,375
---------------
21,728,450
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing--2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Electronics/
Computers--0.6% Berg Electronics Holdings Corp., 11.375% Sr. Sub. Debs., 5/1/03 4,450,000
4,594,625
-----------------------------------------------------------------------------------------------------------
Dell Computer Corp., 11% Sr. Nts., 8/15/00 9,500,000 10,212,500
-----------------------------------------------------------------------------------------------------------
Rohr, Inc., 11.625% Sr. Nts., 5/15/03 1,800,000 1,836,000
-----------------------------------------------------------------------------------------------------------
Unisys Corp.:
13.50% Credit Sensitive Nts., 7/1/97(7) 9,200,000 10,142,356
8.875% Nts., 7/15/97 1,000,000 993,230
9.75% Sr. Nts., 9/15/16 3,900,000 3,687,157
---------------
31,465,868
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive--1.1% Aftermarket Technology Corp., 12% Sr. Sub. Nts., 8/1/04 4,650,000
4,905,750
-----------------------------------------------------------------------------------------------------------
Chrysler Financial Corp., 13.25% Sr. Nts., 10/15/99 4,500,000 5,434,434
-----------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp.:
11.25% Sr. Nts., 10/1/02 4,800,000 4,728,000
9.50% Sr. Sec. Nts., 6/1/00 3,622,000 3,531,450
17 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive (continued) Foamex LP/JPS Automotive Corp., 0%/14% Sr. Disc. Nts.,
Series B, 7/1/04(14) $ 7,250,000 $ 3,987,500
-----------------------------------------------------------------------------------------------------------
JPS Automotive Products Corp., 11.125% Sr. Nts., 6/15/01 2,500,000 2,450,000
-----------------------------------------------------------------------------------------------------------
Navistar Financial Corp., 9.50% Medium-Term Nts., 6/1/96 6,075,000 6,133,623
-----------------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 11,500,000 10,378,750
-----------------------------------------------------------------------------------------------------------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 1,000,000 1,045,000
-----------------------------------------------------------------------------------------------------------
Terex Corp., 13% Sr. Nts., 8/1/96(9) 8,759,000 8,496,230
---------------
51,090,737
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Goods--0.3% Atlantis Group, Inc., 11% Sr. Nts., 2/15/03 9,000,000 8,955,000
-----------------------------------------------------------------------------------------------------------
Imo Industries, Inc., 12.25% Sr. Sub. Debs., 8/15/97 2,860,000 2,888,600
---------------
11,843,600
---------------
Total Corporate Bonds and Notes (Cost $1,627,067,998) 1,550,019,249
Shares
==========================================================
==========================================================
================
Common Stocks--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp.(9)(17) 159,220 716,490
-----------------------------------------------------------------------------------------------------------
Celcaribe SA(9)(17) 2,048,760 1,870,354
-----------------------------------------------------------------------------------------------------------
Dell Computer Corp.(17) 61,052 2,671,025
-----------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I.(8) 525 525,000
-----------------------------------------------------------------------------------------------------------
Equitable Bag, Inc.(17) 68,985 206,955
-----------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc.(17) 25,095 483,079
-----------------------------------------------------------------------------------------------------------
Ladish, Inc.(17) 806,000 201,500
-----------------------------------------------------------------------------------------------------------
New World Communications Group, Inc., Cl. A(17) 44,672 770,592
-----------------------------------------------------------------------------------------------------------
Thrifty Payless Holdings, Inc.(17) 38,000 152,000
-----------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc.(8)(17) 232,222 928,888
---------------
Total Common Stocks (Cost $8,919,466) 8,525,883
==========================================================
==========================================================
================
Preferred Stocks--1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AK Steel Holding Corp., 7% Cv. Stock Appreciation Income
Linked Securities 107,000 3,076,250
-----------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for Common Stock
of Lyondell Petrochemical Co., 9/15/97 48,500 1,212,500
-----------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp., $3.3438, Series E 86,772 2,386,230
-----------------------------------------------------------------------------------------------------------
California Federal Bank, 10.625% Non-Cum., Series B 63,475 6,474,450
-----------------------------------------------------------------------------------------------------------
First Nationwide Bank, 11.50% Non-Cum. 132,000 13,299,000
-----------------------------------------------------------------------------------------------------------
K-III Communications Corp.:
$11.625 Exch., Series B(12)(18) 56,388 5,469,652
Sr. Exch., Series A 80,000 2,130,000
-----------------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp.:
$.65 Cv., Series A 42,000 346,500
8.255% Provisionally Redeemable Income Debt Exchangeable for Stock 289,400 3,038,700
-----------------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 Cv., Series B 200,000 3,475,000
-----------------------------------------------------------------------------------------------------------
TGX Corp., Series A 692,000 1,211,000
-----------------------------------------------------------------------------------------------------------
Unisys Corp., $3.75 Cv., Series A 118,800 4,618,350
---------------
Total Preferred Stocks (Cost $48,094,903) 46,737,632
18 Oppenheimer Strategic Income Fund
<PAGE>
Market Value
Units See Note 1
==========================================================
==========================================================
================
Rights, Warrants and Certificates--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp. 6/99 100,750 $201,500
-----------------------------------------------------------------------------------------------------------
Ames Department Stores, Inc.:
Excess Cash Flow Payment Certificates, Series AG-7A 37,200 372
Litigation Trust 118,975 1,190
-----------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp. 11/00(8) 262,500 525,000
-----------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Wts., Exp. 2/99 69,024 172,560
-----------------------------------------------------------------------------------------------------------
Casino America, Inc. Wts., Exp. 11/96 9,789 2,447
-----------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc. Wts., Exp. 10/03 7,000 35,000
-----------------------------------------------------------------------------------------------------------
Foamex LP/JPS Automotive Corp. Wts., Exp. 7/99 7,250 108,750
-----------------------------------------------------------------------------------------------------------
General Media, Inc. Wts., Exp. 12/00(9) 4,000 45,000
-----------------------------------------------------------------------------------------------------------
Mexican Value Rights MXP 21,153,000 --
-----------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 11/03 182,000 819,000
-----------------------------------------------------------------------------------------------------------
Santa Fe Hotel, Inc. Wts., Exp. 12/96 100 69,000
-----------------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/96(9) 13,935 10,451
---------------
Total Rights, Warrants and Certificates (Cost $1,588,702) 1,990,270
Date/Price Shares
==========================================================
==========================================================
================
Put Options Purchased--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.50% Put Opt. Apr. 11/ 91,000 42,656
(Cost $234,609) 0.258
Face
Amount
==========================================================
==========================================================
================
Structured Instruments--2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina Local Market Securities Trust, Series 1994-II, 11.30%,
4/1/00(2)(9) $ 21,365,217 16,718,283
-----------------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch, 10% Italian Lira/Deutsche Mark
Linked Confidence Nts., Girozentrale Branch, 8/7/95(2) 14,600,000 2,708,300
-----------------------------------------------------------------------------------------------------------
Rabobank Certificate of Deposit:
British Pound Sterling Maximum Rate Linked Nts., 10%, 6/2/95(2)(8) 25,000,000 24,095,000
Japanese Yen Minimum Rate Linked Nts., 10%, 6/2/95(2)(8) 12,500,000 12,562,500
-----------------------------------------------------------------------------------------------------------
Repackaged Argentina Domestic Securities Trust I, 14.75%, 9/1/02(9) 11,500,000 6,583,750
-----------------------------------------------------------------------------------------------------------
Structured Product Asset Return Certificates, 9.40%, Series 94-2, 9/1/97(9) 8,285,714 7,109,275
-----------------------------------------------------------------------------------------------------------
Swiss Bank Corp. Investment Banking, Inc.:
10% CD Japanese Yen Rate Linked Nts., 6/5/95(2)(8) 12,500,000 12,500,000
10% CD Sterling Rate Linked Nts., 7/3/95(2) 23,530,000 23,153,520
---------------
Total Structured Instruments (Cost $129,268,690) 105,430,628
==========================================================
==========================================================
================
Repurchase
Agreements--0.1% Repurchase agreement with First Chicago Capital Markets,
6.25%, dated 3/31/95, to be repurchased at $4,402,292 on 4/3/95,
collateralized by U.S. Treasury Nts., 4.75%--8.875%, 5/15/96--10/31/99,
with a value of $653,436 (Cost $4,400,000) 4,400,000 4,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $4,901,533,334) 101.5% 4,711,212,915
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (1.5) (67,949,010)
--------------- ---------------
Net Assets 100.0% $ 4,643,263,905
===============
===============
</TABLE>
19 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
- ------------------------------------------------------------------------------
1. Face amount is reported in local currency. Foreign currency
abbreviations are as follows:
ARA--Argentine Austral
DEM--German Deutsche Mark
IDR--Indonesian Rupiah
AUD--Australian Dollar
DKK--Danish Krone
MXP--Mexican Peso
CAD--Canadian Dollar
ESP--Spanish Peseta
NZD--New Zealand Dollar
CLP--Chilean Peso
GBP--British Pound Sterling
USD--U.S. Dollar
2. Indexed instrument for which the principal amount and/or interest due at
maturity is affected by the relative value of a foreign currency.
3. Represents the current interest rate for a variable rate bond. Variable
rate bonds known as "inverse floaters" pay interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than the
price of a comparable fixed-rate security. Inverse floaters amount to
$14,457,157 or .31% of the Fund's net assets, at March 31, 1995.
4. 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's pass-throughs).
5. 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.
6. When-issued security to be delivered and settled after March 31, 1995.
7. Represents the current interest rate for a variable rate security.
8. Identifies issues considered to be illiquid--See Note 7 of Notes to
Financial Statements.
9. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $175,756,290 or 3.79% of the Fund's net
assets at March 31, 1995.
10. A sufficient amount of securities is segregated to collateralize
outstanding forward foreign currency exchange contracts. See Note 5 of Notes to
Financial Statements.
11. A sufficient amount of liquid assets has been designated to cover
outstanding call and put options, as follows:
<TABLE>
<CAPTION>
Face Subject Expiration Exercise Premium Market Value
To Call/Put Date Price Received See Note 1
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call Option on Australian Dollar 44,750,000 AUD 4/20/95 0.74 USD/AUD $ 77,418 $ 132,460
- -----------------------------------------------------------------------------------------------------------
Call Option on New South Wales Treasury
Corp. Gtd. Exch. Bonds, 12%, 12/1/01 24,300,000 AUD 4/28/95 109.056 AUD 164,844 213,887
- -----------------------------------------------------------------------------------------------------------
Call Option on Poland (Republic of) Disc.
Bonds, 6.812%, 7/15/97 10,500,000 4/21/95 64.875 105,000 93,492
- -----------------------------------------------------------------------------------------------------------
Call Option on Pound Sterling 45,025,000 GBP 5/8/95 1.60 USD/GBP 444,847 1,743,369
- -----------------------------------------------------------------------------------------------------------
Call Option on Spanish Peseta/Deutsche
Mark 2,800,000,000 ESP 5/4/95 89.00 ESP/DEM 156,180 91,957
- -----------------------------------------------------------------------------------------------------------
Put Option on Argentina (Republic of) Past
Due Interest Bonds, 6.50%, 3/31/05 30,000,000 11/2/95 62.00 405,000 4,128,000
- -----------------------------------------------------------------------------------------------------------
Put Option on Brazil (Republic of) Interest
Due and Unpaid Bonds, 7.813%, 1/1/01 19,000,000 11/2/95 95.00 313,500 942,400
- -----------------------------------------------------------------------------------------------------------
Put Option on Deutsche Mark 50,000,000 DEM 6/2/95 1.48 DEM/USD 297,500 162,162
Put Option on Deutsche Mark 47,750,000 DEM 6/6/95 1.46 DEM/USD 338,070 238,750
---------- ----------
$2,302,359 $7,746,477
</TABLE>
12. Interest or dividend is paid in kind.
13. Represents the current interest rate for an increasing rate security.
14. Represents a zero coupon bond that converts to a fixed rate of interest
at a designated future date.
15. Non-income producing--issuer is in default of interest payment.
16. Partial interest payment received.
17. Non-income producing security.
18. 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 period ended March 31, 1995.
The aggregate fair value of all securities of affiliated companies as of March
31, 1995 amounted to $5,469,652. Transactions during the period in which the
issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
Balance Balance
September 30, 1994 Gross Additions Gross Reductions March 31, 1995 Dividend
Shares Cost Shares Cost Shares Cost Shares Cost Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
K-III Communications
Corp., $11.625 Exch.,
Series B 53,249 $5,383,979 3,139 $302,089 -- -- 56,388 $5,686,068 $302,089
</TABLE>
See accompanying Notes to Financial Statements.
20 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Assets and Liabilities March 31, 1995 (Unaudited)
<TABLE>
==========================================================
==========================================================
===============
<S> <C> <C>
Assets Investments, at value (cost $4,901,533,334)--see accompanying statement $4,711,212,915
----------------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 112,681,886
Investments sold 81,300,604
Shares of beneficial interest sold 17,679,643
----------------------------------------------------------------------------------------------------------
Other 117,830
--------------
Total assets 4,922,992,878
==========================================================
==========================================================
===============
Liabilities Bank overdraft 621,894
----------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency exchange contracts--Note 5 122,643
----------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $2,302,359)--
see accompanying statement--Note 4 7,746,477
----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 235,990,249
Shares of beneficial interest redeemed 18,154,378
Dividends 14,019,735
Distribution and service plan fees--Note 6 2,804,791
Other 268,806
--------------
Total liabilities 279,728,973
==========================================================
==========================================================
===============
Net Assets $4,643,263,905
==============
==========================================================
==========================================================
===============
Composition of
Net Assets Paid-in capital $5,194,278,050
----------------------------------------------------------------------------------------------------------
Overdistributed net investment income (32,622,783)
----------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment, written option and foreign
currency transactions (323,248,765)
----------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, written options and translation of assets
and liabilities denominated in foreign currencies (195,142,597)
--------------
Net assets $4,643,263,905
==============
==========================================================
==========================================================
===============
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share (based on net assets
of $2,990,586,689 and 663,783,585 shares of beneficial interest outstanding) $4.51
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $4.73
----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $1,652,677,216 and 366,177,811 shares of beneficial interest outstanding) $4.51
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Strategic Income Fund
<PAGE>
Statement of Operations For the Six Months Ended March 31, 1995 (Unaudited)
<TABLE>
==========================================================
==========================================================
===============
<S> <C> <C>
Investment Income Interest (net of foreign withholding taxes of $849,421) $ 249,135,073
----------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies 1,927,618
Affiliated companies 302,089
--------------
Total income 251,364,780
==========================================================
==========================================================
===============
Expenses Management fees--Note 6 12,485,016
----------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 6 3,682,992
Class B--Note 6 7,986,106
----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 6 2,125,389
----------------------------------------------------------------------------------------------------------
Custodian fees and expenses 948,370
----------------------------------------------------------------------------------------------------------
Shareholder reports 469,706
----------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,414
Class B 63,741
----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 37,831
----------------------------------------------------------------------------------------------------------
Legal and auditing fees 35,635
----------------------------------------------------------------------------------------------------------
Other 25,645
--------------
Total expenses 27,861,845
==========================================================
==========================================================
===============
Net Investment Income 223,502,935
==========================================================
==========================================================
===============
Realized and Unrealized
Gain (Loss) on Investments,
Options Written and
Foreign Currency
Transactions Net realized loss from:
Investments and options written (294,935,347)
Closing and expiration of options written--Note 4 (14,875,135)
Foreign currency transactions (18,594,305)
--------------
Net realized loss (328,404,787)
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 57,857,416
Translation of assets and liabilities denominated in foreign currencies 15,996,354
--------------
Net change 73,853,770
--------------
Net realized and unrealized loss on investments, options written and
foreign currency transactions (254,551,017)
==========================================================
==========================================================
===============
Net Decrease in Net Assets Resulting From Operations $ (31,048,082)
==============
</TABLE>
See accompanying Notes to Financial Statements.
22 Oppenheimer Strategic Income Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1995 Year Ended
(Unaudited) Sept. 30, 1994
==========================================================
==========================================================
===============
<S> <C> <C> <C>
Operations Net investment income $ 223,502,935 $ 366,546,493
----------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (328,404,787) (17,210,118)
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated
in foreign currencies 73,853,770 (317,182,306)
--------------- --------------
Net increase (decrease) in net assets resulting from operations (31,048,082) 32,154,069
==========================================================
==========================================================
===============
Dividends and
Distributions to
Shareholders Dividends from net investment income:
Class A ($.2182 and $.4329 per share, respectively) (144,270,531) (236,741,649)
Class B ($.2008 and $.3938 per share, respectively) (69,583,464) (119,419,105)
----------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments, options written
and foreign currency transactions:
Class A ($.1179 per share) -- (57,628,697)
Class B ($.1179 per share) -- (29,069,526)
----------------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.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 8,602,927 685,155,178
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial interest
transactions--Note 2 150,368,645 1,019,463,146
==========================================================
==========================================================
===============
Net Assets Total increase (decrease) (85,930,505) 1,280,452,827
----------------------------------------------------------------------------------------------------------
Beginning of period 4,729,194,410 3,448,741,583
--------------- --------------
End of period (including overdistributed net investment income of
$32,622,783 and $2,882,064, respectively) $ 4,643,263,905 $4,729,194,410
===============
==============
</TABLE>
See accompanying Notes to Financial Statements.
23 Oppenheimer Strategic Income Fund
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------------------------- -------------------------------------
Six Months Ended Six Months Ended
March 31, 1995 Year Ended September 30, March 31, 1995 Year Ended Sept.
30,
(Unaudited) 1994 1993 1992 1991 1990(2) (Unaudited) 1994 1993(1)
==========================================================
==========================================================
================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value,
beginning of period $4.75 $5.21 $5.07 $5.01 $4.87 $5.00 $4.76 $5.22 $4.89
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .45 .48 .46 .56 .59 .21 .42 .36
Net realized and
unrealized gain (loss)
on investments, options
written and foreign
currency transactions (.25) (.35) .17 .14 .21 (.10) (.26) (.36) .34
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations (.02) .10 .65 .60 .77 .49 (.05) .06 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.22) (.43) (.50) (.46) (.57) (.57) (.20) (.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 (.22) (.56) (.51) (.54) (.63) (.62) (.20) (.52) (.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $4.51 $4.75 $5.21 $5.07 $5.01 $4.87 $4.51 $4.76 $5.22
======= ======= ======= ======= ======= =======
======= ======= =======
==========================================================
==========================================================
================
Total Return, at Net
Asset Value(3) (.42)% 1.85% 13.30% 12.56% 16.97% 10.20% (1.01)% 1.07%
13.58%
==========================================================
==========================================================
================
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $2,991 $3,143 $2,754 $1,736 $560 $177 $1,653 $1,586 $695
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in millions) $3,037 $3,082 $2,107 $1,084 $311 $93 $1,603 $1,236 $276
- ------------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding
at end of period (in
thousands) 663,784 661,897 528,587 342,034 111,739 36,418 366,178 333,489 133,235
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 9.88%(4) 8.72% 9.78% 9.39% 11.82% 12.79%(4) 9.10%(4) 7.90%
8.13%(4)
Expenses .94%(4) .95% 1.09% 1.16%(5) 1.27%(5) 1.36%(4) 1.69%(4) 1.71%
1.80%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 66.9% 119.0% 148.6% 208.2% 194.7% 424.6% 66.9% 119.0%
148.6%
</TABLE>
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. Total returns are not annualized for
periods of less than one full year.
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 six
months ended March 31, 1995 were $3,262,530,007 and $2,841,432,985,
respectively.
See accompanying Notes to Financial Statements.
24 Oppenheimer Strategic Income Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 the close of the
New York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or under consistently applied procedures established by the Board of
Trustees to determine fair value in good faith. Short-term "money market type"
debt securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to maturity of
any premium or discount. Forward contracts are valued based on the closing
prices of the forward currency contract rates in the London foreign exchange
markets on a daily basis as provided by a reliable bank or dealer. Options are
valued based upon the last sale price on the principal exchange on which the
option is traded or, in the absence of any transactions that day, the value is
based upon the last sale price on the prior trading date if it is within the
spread between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid or asked price closest to the last reported
sale price is used.
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 March 31, 1995, securities with an
aggregate market value of $42,169,075, representing .91% of the Fund's net
assets, were in default.
Foreign Currency Translation. The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the 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. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the 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.
25 Oppenheimer Strategic Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
1. Significant
Accounting Policies
(continued)
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 Taxes. The Fund intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
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.
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains (losses), and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of the distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund. Effective October 1,
1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. During the period ended March 31, 1995,
in accordance with Statement of Position 93-2, undistributed net investment
income and accumulated net realized loss were decreased by $39,389,659 due to
the recognition of certain foreign currency gains (losses) as ordinary income
(loss) for tax purposes.
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is amortized over the life of
the respective securities, in accordance with federal income tax requirements.
Realized gains and losses on investments and options written and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes. Dividends in kind are
recognized as income on the ex-dividend date, at the current market value of the
underlying security. Interest on payment-in- kind debt instruments is accrued as
income at the coupon rate and a market adjustment is made on the ex-date.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31, 1995 Year Ended September 30, 1994
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 73,931,762 $339,303,475 236,638,548 $1,198,107,502
Dividends and distributions reinvested 20,518,912 93,796,832 46,661,271 234,357,544
Redeemed (92,564,333) (424,497,380) (149,989,676) (747,309,868)
----------- ------------ ------------ --------------
Net increase 1,886,341 $8,602,927 133,310,143 $685,155,178
=========== ============ ============
==============
- --------------------------------------------------------------------------------------------------------
Class B:
Sold 54,907,870 $252,496,780 211,514,941 $1,074,296,304
Dividends and distributions reinvested 8,332,909 38,143,804 13,715,575 68,501,659
Redeemed (30,552,322) (140,271,939) (24,975,699) (123,334,817)
----------- ------------ ------------ --------------
Net increase 32,688,457 $150,368,645 200,254,817 $1,019,463,146
=========== ============ ============
==============
</TABLE>
26 Oppenheimer Strategic Income Fund
<PAGE>
3. Unrealized Gains
And Losses on
Investments and
Options Written
At March 31, 1995, net unrealized depreciation on investments and options
written of $195,764,537 was composed of gross appreciation of $74,502,296, and
gross depreciation of $270,266,833.
4. Option Activity
The Fund may buy and sell put and call options, or write covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
In this report, securities designated to cover outstanding call options are
noted in the Statement of Investments. Shares subject to call, expiration date,
exercise price, premium received and market value are detailed in a footnote to
the Statement of Investments. Options written are reported as a liability in the
Statement of Assets and Liabilities. Gains and losses are reported in the
Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
Written option activity for the six months ended March 31, 1995 was as
follows:
<TABLE>
<CAPTION>
Call Options Put Options
Number Amount Number Amount
of Options of Premiums of Options of Premiums
<S> <C> <C> <C> <C>
Options outstanding at September 30, 1994 428,512,533 $5,932,144 300,000 $609,375
Options written 319,249 1,714,679 66,538,263 1,354,070
Options canceled in closing purchase
transactions (428,650,783) (6,198,535) (300,000) (609,375)
Options expired prior to exercise (25,000) (500,000) -- --
Options outstanding at March 31, 1995 155,999 $948,288 66,538,263 $1,354,070
</TABLE>
5. Forward Contracts
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks.
They may also be used to tactically shift portfolio currency risk. The Fund
generally enters into forward contracts as a hedge upon the purchase or sale of
a security denominated in a foreign currency. In addition, the Fund may enter
into such contracts as a hedge against changes in foreign currency exchange
rates on portfolio positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on a daily basis
as provided by a reliable bank or dealer. The Fund will realize a gain or loss
upon the closing or settlement of the forward transaction.
In this report, securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statement of Investments where
applicable. Gains and losses on outstanding contracts (unreal ized appreciation
or depreciation on forward contracts) are reported in the Statement of Assets
and Liabilities. Realized gains and losses are reported with all other foreign
currency gains and losses in the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet the terms
of the contract and unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
27 Oppenheimer Strategic Income Fund
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
5. Forward
Contracts
(continued)
At March 31, 1995, the Fund had outstanding forward contracts to purchase
and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Contract Unrealized
Contracts to Amount Valuation as of Appreciation
Purchase Expiration Date (000's) March 31, 1995 (Depreciation)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche Mark 4/10/95--5/16/95 105,981 $77,518,657 $1,914,846
New Zealand Dollar 5/4/95 25,081 16,419,849 18,976
----------- -----------
$93,938,506 $1,933,822
=========== ===========
Contracts to Sell
- -----------------------------------------------------------------------------------------------------------
Argentine Austral 4/3/95--4/6/95 9,896 $9,898,685 $(2,435)
Australian Dollar 5/4/95 22,375 16,424,551 (23,678)
British Pound Sterling 4/4/95 871 1,418,967 (12,544)
Spanish Peseta 4/10/95--5/15/95 9,800,000 77,621,618 (2,017,808)
----------- -----------
$105,363,821 (2,056,465)
============ -----------
$(122,643)
===========
</TABLE>
6. 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 state
regulatory limit on Fund expenses.
For the six months ended March 31, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $8,005,768, of which $2,308,900
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares
totaled $9,478,623, of which $886,439 was paid to an affiliated broker/dealer.
During the six months ended March 31, 1995, OFDI received contingent deferred
sales charges of $2,947,531 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.
Under separate approved plans, each class may expend up to .25% of its net
assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions. In
addition, Class B shares are subject to an asset-based sales charge of .75% of
net assets annually, to reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing costs. In the event of
termination or discontinuance of the Class B plan, the Board of Trustees may
allow the Fund to continue payment of the asset-based sales charge to OFDI for
distribution expenses incurred on Class B shares sold prior to termination or
discontinuance of the plan. During the six months ended March 31, 1995, OFDI
paid $244,099 and $33,581, respectively, to an affiliated broker/dealer as
reimbursement for Class A and Class B personal service and maintenance expenses
and retained $6,953,364 as reimbursement for Class B sales commissions and
service fee advances, as well as financing costs.
28 Oppenheimer Strategic Income Fund
<PAGE>
7. Illiquid Securities
At March 31, 1995, investments in securities included issues that are
illiquid or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid and
restricted securities. The aggregate value of these securities subject to this
limitation at March 31, 1995 was $146,044,241, which represents 3.1% of the
Fund's net assets. Information concerning these securities is as follows:
<TABLE>
<CAPTION>
Valuation
Per Unit as of
Security Acquisition Date Cost Per Unit March 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Charlie's, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00 11/18/93-12/9/93 $100.00 $81.50
- ------------------------------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp. 11/00 11/18/93-12/9/93 $2.10 $2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Queen & Casino, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00 11/18/93-12/17/93 $87.89 $91.50
- ------------------------------------------------------------------------------------------------------------------------------------
Citicorp Mortgage Securities, Inc., Sub. Bonds, Series 1993-5,
Cl. B4, 7%, 4/25/23 4/29/93 $13.97 $14.00
- ------------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) 1989--1990 Integrated Loan Facility Bonds:
6.75%, 7/1/01 6/17/93-11/12/93 $91.78 $86.50
7.937%, 10/26/03 10/25/93-12/17/93 $89.77 $84.50
- ------------------------------------------------------------------------------------------------------------------------------------
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, Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25 8/10/94 $98.00 $98.09
Cl. 2-E, 8.70%, 9/25/25 8/10/94 $94.88 $94.66
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Holland BV, 8.625% Medium-Term Nts., Series C, 1/15/99 1/10/94 $78.13 $74.63
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Holland BV, 9.50% Medium-Term Nts., Series A, 12/15/01 1/27/94 $79.96 $65.00
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Agricultural Credit, Inc., Farmer Mac Agricultural Real
Estate Trust Sr. Sub. Mtg. Pass- Through Certificates, Series 1992-2:
Cl. B2, 8.961%, 1/15/03 8/18/92 $70.74 $75.92
Cl. B3, 9.294%, 4/15/09 8/18/92 $74.47 $74.63
- ------------------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional, SA de C.V., 9%, 9/19/95 9/16/94 $99.62 $95.00
- ------------------------------------------------------------------------------------------------------------------------------------
Rabobank Certificate of Deposit British Pound Sterling Maximum
Rate Linked Nts., 10%, 6/2/95 5/20/94 $100.00 $96.38
- ------------------------------------------------------------------------------------------------------------------------------------
Rabobank Certificate of Deposit Japanese Yen Minimum Rate
Linked Nts., 10%, 6/2/95 5/20/94 $100.00 $100.50
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Loan Participation Agreements, Eskom:
7.375%, 4/15/98 11/18/93 $94.75 $92.75
7.875%, 2/9/00 12/3/93 $90.50 $94.75
7.875%, 9/15/99 12/17/93 $89.75 $93.00
8.625%, 1/15/98 2/9/94 $95.25 $94.50
- ------------------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corp. Investment Banking, Inc., 10% CD Japanese
Yen Rate Linked Nts., 6/5/95 5/20/94 $100.00 $100.00
- ------------------------------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. 5/2/94 $9.50 $4.00
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States, Gtd. Matador Bonds, Bankpesca
Restructured Sov. Loan, 7.562%, 10/26/06 1/13/94 $91.75 $53.25
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States, Combined Facility 2, Loan
Participation Agreement, Tranche A, 7.625%, 3/20/99 10/25/94 $85.25 $56.50
- ------------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Debs., Banco Venezuela TCI, Zero
Coupon, 12/13/98 7/13/93-7/15/93 $72.64 $62.50
</TABLE>
Pursuant to guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included within
the 10% limitation specified above.
29 Oppenheimer Strategic Income Fund
<PAGE>
Oppenheimer Strategic Income Fund
A Series of Oppenheimer Strategic Funds Trust
==========================================================
=====================
Officers and Trustees James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee and President
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
David P. Negri, Vice President
Arthur P. Steinmetz, Vice President
George C. Bowen, Vice President, Secretary,
and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
==========================================================
=====================
Investment Advisor Oppenheimer Management Corporation
==========================================================
=====================
Distributor Oppenheimer Funds Distributor, Inc.
==========================================================
=====================
Transfer and Shareholder
Servicing Agent Oppenheimer Shareholder Services
==========================================================
=====================
Custodian of
Portfolio Securities The Bank of New York
==========================================================
=====================
Independent Auditors Deloitte & Touche LLP
==========================================================
=====================
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records
of the Fund without examination by the independent auditors. This is a copy of a
report to shareholders of Oppenheimer Strategic Income Fund. This report must be
preceded or accompanied by a Prospectus of Oppenheimer Strategic Income Fund.
For material information concerning the Fund, see the Prospectus.
30 Oppenheimer Strategic Income Fund
<PAGE>
OppenheimerFunds Family
OppenheimerFunds offers over 35 funds designed to fit virtually every
investment goal. Whether you're investing for retirement, your children's
education or tax-free income, we have the funds to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfortable knowing that you
are investing with a respected financial institution with over 30 years of
experience in helping people just like you reach their financial goals. And
you're investing with a leader in global, growth stock and flexible fixed income
investmentswith over 2.4 million shareholder accounts and more than $30 billion
under Oppenheimer's management and that of our affiliates.
At OppenheimerFunds, we don't charge a fee to exchange shares of eligible funds
of the same class. And you can exchange shares easily by mail or by telephone.
(1) For more information on OppenheimerFunds, please contact your financial
advisor or call us at 1-800-525-7048 for a prospectus. You may also write us at
the address shown on the back cover. As always, please read the prospectus
carefully before you invest.
Stock Funds
Discovery Fund Global Fund
Global Emerging Growth Fund(2) Oppenheimer Fund
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Global Growth & Income Fund
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Strategic Income & Growth Fund Mortgage Income Fund
Strategic Income Fund U.S. Government Trust
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New York Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4)
California Tax-Exempt Fund(4) Tax-Free Bond Fund
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Money Market Funds
Money Market Fund Cash Reserves
1. Exchange privileges are subject to change or termination.
2. Formerly Global Bio-Tech Fund.
3. Formerly Special Fund.
4. Available only to residents of certain states.
OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc.,
Two World Trade Center, New York, NY 10048-0203.
(c) Copyright 1995 Oppenheimer Management Corporation. All rights reserved.
31 Oppenheimer Strategic Income Fund
<PAGE>
"How may I help you?"
As an OppenheimerFunds shareholder, you have some special privileges.
Whether it's automatic investment plans, informative newsletters and hotlines,
or ready account access, you can benefit from services designed to make
investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your OppenheimerFunds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an indepen-dent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the OppenheimerFunds' transfer agent,
Oppenheimer Shareholder Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
Information
General Information
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
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24 hours a day, automated
information and transactions
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OppenheimerFunds
Information Hotline
24 hours a day, timely and insightful
messages on the economy and issues
that affect your investments
1-800-835-3104
RS0230.001.0595 May 31, 1995
[Oppenheimer Funds Logo]
Oppenheimer Funds Distributor, Inc.
P.O. Box 5270
Denver, CO 80217-5270
Bulk Rate
U.S. Postage
PAID
Permit No. 11
Philadelphia, PA
<PAGE>
Oppenheimer Strategic Diversified Income Fund
Semiannual Report March 31, 1995
[LOGO}
<PAGE>
Yield
- ---------------------------------
Standardized Yield
- ---------------------------------
For the 30 Days Ended 3/31/95:(1)
- ---------------------------------
8.15%
- ---------------------------------
This Fund is for people who want high income from an investment that's
strategically designed to lower risk.
- --------------------------------------------------------------------------------
How Your Fund Is Managed
- --------------------------------------------------------------------------------
Oppenheimer Strategic Diversified Income Fund seeks high current income by
strategically allocating its assets among three sectors: U.S. government issues,
foreign fixed income securities and higher-yielding, lower-rated corporate
bonds. Strategic investing gives the Fund's managers the flexibility to shift
assets among three fixed income sectors to capitalize on worldwide investment
opportunities. At the same time, allocating the Fund's assets among three
distinct fixed income sectors can provide the diversification necessary to lower
risk.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
Total return at net asset value for the 6 months ended 3/31/95 was -1.84%.(2)
Your Fund's average annual total returns at maximum offering price for the
1-year period ended 3/31/95 and since inception of the Fund on 2/1/94 were
- -1.04% and -1.06%, respectively.(3)
- --------------------------------------------------------------------------------
Outlook
- --------------------------------------------------------------------------------
"The outlook for the bond market is more positive today than it has been in some
time, both in terms of income and potential total returns. The Fund's ability to
shift assets strategically among bond-market sectors worldwide remains a major
advantage for shareholders in the current environment. It has allowed us to seek
high yields, while keeping portfolio risks under careful control."
David Negri and Art Steinmetz, Portfolio Managers
March 31, 1995
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
1. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 3/31/95, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
2. Based on the change in net asset value per share from 9/30/94 to 3/31/95,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
3. Returns show results of hypothetical investments on 4/1/94 and 2/1/94
(inception of Fund), with the 1% contingent deferred sales charge deducted for
the 1-year result.
2 Oppenheimer Strategic Diversified Income Fund
<PAGE>
James C. Swain
Chairman
Oppenheimer
Strategic Short-Term
Income Fund
Jon S. Fossel
President
Oppenheimer
Strategic Short-Term
Income Fund
Dear OppenheimerFunds Shareholder,
1994 was marked by one of the greatest tests the bond markets faced in more than
six decades. As the U.S. Federal Reserve undertook the most aggressive moves in
its history to raise interest rates, bond prices and bond mutual funds declined
across the board. Changing interest rates are a fact of life and they affect the
short-term performance of all bond markets. That is why we believe the best
measure of any fixed income mutual fund is its performance over the long term.
And we believe the long-term outlook for the bond markets is very positive.
To see how greatly the U.S. bond market has improved since last fall, we
need look no further than the market's reaction to the Fed's most recent
short-term rate increase in February. While the markets had already anticipated
this move, unlike previous rate increases, long-term interest rates continued to
decline and bonds rallied further. Although the Fed could raise rates again, we
believe that this positive environment will prove more than momentary as a
result of several factors.
First, concerns about the effects of inflation on bond prices are fading
fast. By most indicators, economic growth is slowing to a pace that can be
sustained without reigniting inflation or causing a recession. Second, at
current prices, intermediate and long-term bonds are producing some of the best
inflation-adjusted returns in years. With the actual inflation rate running just
over 3 percent today, many fixed income investors are clearly being rewarded.
Attracted by the strong, real returns intermediate and long-term bonds offer,
investors are returning to bonds in a significant way. This rising demand is
providing solid support for bond prices. Third, as the Fed concludes its
tightening efforts--and recent reports suggest that point is near--long-term
interest rates will likely stay within their current range, and could decline
further. Of course, rates could rise later this year if future reports indicate
that the economy isn't slowing as quickly as it seems to be today; however, we
believe that over the longer term, the downward trend of rates will continue.
Two uncertainties affecting the fixed income markets are foreign investors'
attitudes toward U.S. debt and the weakness of the U.S. dollar abroad relative
to other major currencies. But investors' attitudes overseas and the dollar's
decline, in our view, should prove temporary. Both have been driven by the
government's moves to support the Mexican peso, a widening trade deficit, and
Congress's apparent inability to limit the Federal budget deficit.
We believe the trade deficit will narrow with increasing U.S. exports as
European economies come out of recession and emerging world markets stabilize.
Additionally, the need to support the peso has begun to decline as Mexico's
tough domestic economic policy has gained credibility. Finally, we are confident
that Congress will be able to get the budget deficit issue dealt with because
Americans are demanding it.
Of course, no one can predict the future with perfect clarity. The bond
markets are always subject to fluctuations and, as we saw in 1994, the shifts
can sometimes be sharp. Overall, however, we believe the outlook for the bond
markets today appears positive.
Your portfolio manager discusses the outlook for your Fund on the following
pages. We appreciate your trust, and we'll continue to do our best to help you
meet your long-term investment objectives.
James C. Swain Jon S. Fossel
April 24, 1995
3 Oppenheimer Strategic Diversified Income Fund
<PAGE>
David Negri and Art Steinmetz
Portfolio Managers
Q+A
An interview with your Fund's managers.
Investments in emerging markets historically have played an important role in
the Fund's portfolio. Did the devaluation of the peso affect your strategy?
It certainly did with regard to Mexico itself, where we have drastically reduced
our positions. In other emerging markets, however, we think the perception of
risk has been exaggerated. We've reduced our emerging-market holdings as a
defensive measure, but for the most part we've redirected our investments among
emerging markets, to countries like Morocco and Poland, with stronger markets
and economies, and where we believe attractive yields compensate for perceived
risks.
These markets don't, of course, develop in straight lines. Foreign
investments are always subject to adverse market changes as a result of currency
fluctuations, and sometimes the shifts can be sharp. But over time, the
long-term returns more than compensate for temporary risks, especially when
these investments are part of a diversified portfolio.(1)
Have changes in interest rates and the economy affected your allocations among
fixed income sectors?
While where we allocate the Fund's assets among fixed income sectors is critical
to producing good returns, how we allocate assets within each sector is just as
important to meeting the Fund's objectives. For example, last year, when
interest rates were rising and the economy was gaining strength, our strategy
was to avoid interest rate risk by shortening Treasury maturities and investing
in corporate bonds with stronger prospects than their credit ratings suggested.
That strategy worked well for us, but today, as the economic expansion
and interest rates approach what we believe will be their peak, we're reversing
that strategy. With interest rates poised to fall and the economy slowing,
we're extending Treasury maturities and upgrading the quality of the high yield
portion of the portfolio.
Have you made any changes in the high yield sector of the portfolio?
While we think the expansion phase of the economic cycle is drawing to a close,
cyclical companies continue to do well, and we are still focusing on industrial
companies whose earnings benefit in the later stages of the economic cycle.
At the same time, however, there's little doubt that the Fed's efforts to
control inflation are slowing the economy. For high yield issuers, that means
earnings and cash flow may come under pressure, and we've been managing the
Fund's high yield sector more conservatively, focusing on issuers' financial
strength and orienting the portfolio toward higher quality.
Of course, investments in high yield bonds are subject to greater risk that
the issuer will default in principal or interest payments. Our focus on
quality, however, helps reduce that risk.
Has the recent weakness of the dollar affected the Fund?
It has to some extent. The dol-lar's decline was driven largely by the U.S.
government's attempt to support Mexico by buying peso-denominated securities.
The government pumped U.S. dollars into the system, and as the supply of dollars
rose, their value fell. But as investors sought stability, other markets and
currencies, notably Germany and the mark, benefitted--thus, currency declines
affecting one sector of the Fund were largely offset by currency gains in
Europe. //
1. The Fund's portfolio is subject to change.
4 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments March 31, 1995 (Unaudited)
<CAPTION>
Face Market Value
Amount (1) See Note 1
==========================================================
==========================================================
===============
<S> <C> <C> <C>
Certificates of Deposit -- 1.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Citibank CD:
10.50%, 7/14/95 (2) ARA $ 150,000 $ 150,037
10.75%, 11/20/95 (2) CLP 107,888,289 267,348
16%, 5/3/95 (2) CLP 129,000,000 319,663
16%, 8/17/95 (2) CLP 41,501,570 102,841
-----------------
Total Certificates of Deposit (Cost $822,407) 839,889
==========================================================
==========================================================
===============
Mortgage-Backed Obligations -- 8.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency -- 5.9%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored -- 4.4%
--------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Series 176, Cl. F, 8.95%,
3/15/20 78,000 79,390
--------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 10.50%, 11/25/20 355,000 402,478
Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl. 2,
7%, 2/25/24 (3) 3,820,482 1,398,058
Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl. 2,
7%, 9/25/23 (3) 313,428 113,520
Series 1994-83, Cl. Z, 7.50%, 6/25/24 169,228 142,929
-----------------
2,136,375
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed -- 1.5%
--------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 7.50%, 6/1/25 735,000 750,389
- -----------------------------------------------------------------------------------------------------------------------------------
Private -- 2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial -- 0.9%
--------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1992-CHF, Cl. D, 8.25%, 12/25/20 231,080 224,509
Series 1993-C1, Cl. D, 9.45%, 5/25/24 227,500 226,149
-----------------
450,658
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Family -- 1.2%
--------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M6, Cl. B4, 6.45%, 6/25/21 (4) 103,894 100,226
Series 1994-C2, Cl. E, 8%, 4/25/25 394,865 330,638
Series 1994-C2, Cl. G, 8%, 4/25/25 244,842 182,277
-----------------
613,141
-----------------
Total Mortgage-Backed Obligations (Cost $3,864,819) 3,950,563
==========================================================
==========================================================
===============
U.S. Government Obligations - 35.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury - 35.2%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
10.375%, 5/15/95 2,700,000 2,713,500
11.50%, 11/15/95 600,000 618,750
11.625%, 11/15/02 3,800,000 4,778,500
11.75%, 11/15/14 3,260,000 4,478,425
8.125%, 8/15/19 326,000 345,662
8.75%, 8/15/00 3,450,000 3,701,201
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
5 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued) Face Market Value
Amount (1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 9.375%, 4/15/96 $ 636,000 $ 653,689
-----------------
Total U.S. Government Obligations (Cost $17,127,464) 17,289,727
==========================================================
==========================================================
===============
Foreign Government Obligations -- 17.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Bonds, Bonos del Tesoro:
Series I, 6.188%, 5/31/96 (4) 56,000 51,830
Series II, 6.188%, 9/1/97 (4) 58,000 49,061
--------------------------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria de la Federacion, Zero Coupon, 5/4/95 50,000 48,591
--------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts., Banco Estado Minas Gerais:
10%, 1/15/96 50,000 46,125
8.25%, 2/10/00 500,000 307,500
--------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento Sr. Unsec. Debs., 7.25%, 4/30/98 150,000 138,750
--------------------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Bonds, 7.25%, 2/28/25 (4) 500,000 222,500
--------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 NZD 980,000 696,177
--------------------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 7.375%, 1/1/09 (4) 2,100,000 1,223,250
Tranche B, 7.375%, 1/1/04 (4) 50,000 31,563
--------------------------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 AUD 240,000
193,268
--------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds:
10%, 7/15/97 NZD 635,000 429,209
8%, 11/15/95 NZD 1,000,000 649,530
--------------------------------------------------------------------------------------------------------------------------
Petroquimica do Nordeste Sr. Unsec. Unsub. Nts., 9.50%,
10/19/01 100,000 88,000
--------------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Past Due Interest Bonds, 3.25%, 10/27/14 (5) 2,750,000 1,096,563
--------------------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 1,633,000 1,086,705
--------------------------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
10.25%, 11/30/98 ESP 98,000,000 739,277
--------------------------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts.:
12%, 11/20/98 GBP 306,000 553,861
12.25%, 3/26/99 GBP 240,000 440,631
13%, 7/14/00 GBP 210,000 405,541
--------------------------------------------------------------------------------------------------------------------------
United Mexican States:
Combined Facility 3, Loan Participation Agreement, Tranche A,
7.625%, 9/20/97 (4)(6) 190,476 107,619
Petroleos Mexicanos Gtd. Medium-Term Nts., 7.60%, 6/15/00 50,000 30,500
--------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Debs., 9%, 5/27/96 125,000 118,124
-----------------
Total Foreign Government Obligations (Cost $8,897,761) 8,754,175
==========================================================
==========================================================
===============
Corporate Bonds and Notes - 37.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Industry - 6.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 2.3%
--------------------------------------------------------------------------------------------------------------------------
Harris Chemical North America, Inc., 0%/10.25% Gtd. Sr. Sec. (7) 200,000 175,000
Disc. Nts., 7/15/01
--------------------------------------------------------------------------------------------------------------------------
NL Industries, Inc.:
0%/13% Sr. Sec. Disc. Nts., 10/15/05 (7) 400,000 262,000
11.75% Sr. Sec. Nts., 10/15/03 200,000 205,500
--------------------------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02 (8) 300,000 291,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued) Face Market Value
Amount (1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals (Continued)
--------------------------------------------------------------------------------------------------------------------------
UCAR Global Enterprises, Inc., 12% Sr. Sub. Nts., 1/15/05 (8) $ 200,000 $ 210,750
-----------------
1,144,250
- -----------------------------------------------------------------------------------------------------------------------------------
Metals/Mining -- 0.6%
--------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 9.875% Sr. Nts., 2/15/02 300,000 282,000
- -----------------------------------------------------------------------------------------------------------------------------------
Paper -- 3.0%
--------------------------------------------------------------------------------------------------------------------------
Gaylord Container Corp., 0%/12.75% Sr. Sub. Disc. Debs.,
5/15/05 (7) 550,000 523,875
--------------------------------------------------------------------------------------------------------------------------
Rainy River Forest Products, 10.75% Sr. Sec. Nts., 10/15/01 50,000 51,375
--------------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.75% Sr. Nts., 6/15/00 200,000 209,500
11.25% Sr. Sub. Nts., 6/15/02 100,000 105,750
--------------------------------------------------------------------------------------------------------------------------
SD Warren Co., 12% Sr. Sub. Nts., 12/15/04 (8) 100,000 106,500
--------------------------------------------------------------------------------------------------------------------------
Stone Consolidated Corp., 10.25% Sr. Sec. Nts., 12/15/00 250,000 254,063
--------------------------------------------------------------------------------------------------------------------------
Stone Container Corp.:
10.75% Fst. Mtg. Nts., 10/1/02 100,000 103,750
9.875% Sr. Nts., 2/1/01 100,000 97,500
---------------
1,452,313
- -----------------------------------------------------------------------------------------------------------------------------------
Steel -- 0.5%
--------------------------------------------------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 10.75% Sr. Nts., 3/1/00 100,000 96,000
--------------------------------------------------------------------------------------------------------------------------
Wheel-Pittsburgh Corp., 9.375% Sr. Nts., 11/15/03 200,000 175,500
-----------------
271,500
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Related -- 7.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Products -- 2.0%
--------------------------------------------------------------------------------------------------------------------------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02 200,000 219,000
--------------------------------------------------------------------------------------------------------------------------
International Semi-Tech Microelectronics, Inc., 0%/11.50% Sr.
Sec. Disc. Nts., 8/15/03 (7) 400,000 178,000
--------------------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.375% Sr. Nts., 4/1/01 100,000 94,250
--------------------------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 300,000 292,500
--------------------------------------------------------------------------------------------------------------------------
Williams (J. B.) Holdings, Inc., 12% Sr. Nts., 3/1/04 200,000 192,500
-----------------
976,250
- -----------------------------------------------------------------------------------------------------------------------------------
Food/Beverages/Tobacco -- 1.6%
--------------------------------------------------------------------------------------------------------------------------
Consolidated Cigar Corp., 10.50% Sr. Sub. Nts., 3/1/03 100,000 95,000
--------------------------------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 150,000 128,250
--------------------------------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Holdings, Inc., 0%/11.625% Sr. Disc.
Nts., 2/15/03 (7) 300,000 211,500
--------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional, SA de C.V., 9% Nts., 9/19/95 (6) 250,000 237,500
--------------------------------------------------------------------------------------------------------------------------
Royal Crown Corp., 9.75% Sr. Sec. Nts., 8/1/00 100,000 94,000
-----------------
766,250
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare -- 2.8%
--------------------------------------------------------------------------------------------------------------------------
Capstone Capital Corp., 10.50% Cv. Sub. Debs., 4/1/02 300,000 302,250
--------------------------------------------------------------------------------------------------------------------------
Healthsouth Rehabilitation Corp., 9.50% Sr. Sub. Nts., 4/1/01 100,000 100,250
--------------------------------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc., 13% Sr. Sub. Nts., 7/15/02 (8) 300,000 319,500
--------------------------------------------------------------------------------------------------------------------------
National Medical Enterprises, Inc., 10.125% Sr. Sub. Nts., 3/1/05 200,000 206,500
--------------------------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., Units (7) 500,000 437,500
-----------------
1,366,000
- -----------------------------------------------------------------------------------------------------------------------------------
Hotel/Gaming -- 0.0%
--------------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Promissory Nts. 2,500 --
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure -- 0.2%
--------------------------------------------------------------------------------------------------------------------------
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03 150,000 117,750
- -----------------------------------------------------------------------------------------------------------------------------------
Restaurants -- 0.4%
--------------------------------------------------------------------------------------------------------------------------
Flagstar Corp., 10.75% Sr. Nts., 9/15/01 200,000 192,500
</TABLE>
7 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued) Face Market Value
Amount (1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Textile/Apparel -- 0.5%
--------------------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa, Zero Coupon Promissory Nts., 10/23/96 IDR 500,000,000 $
154,714
--------------------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 100,000 92,125
-----------------
246,839
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., 12.25% Sub. Debs., 2/1/05 200,000 209,000
--------------------------------------------------------------------------------------------------------------------------
Triton Energy Corp., Zero Coupon Sr. Sub. Disc. Nts., 11/1/97 300,000 237,000
-----------------
446,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services -- 1.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial -- 1.1%
--------------------------------------------------------------------------------------------------------------------------
Card Establishment Services, Inc., 10% Sr. Sub. Nts., Series B,
10/1/03 300,000 333,375
--------------------------------------------------------------------------------------------------------------------------
GPA Delaware, Inc., 8.75% Gtd. Nts., 12/15/98 250,000 197,500
-----------------
530,875
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance -- 0.2%
--------------------------------------------------------------------------------------------------------------------------
Nacolah Holding Corp., 9.50% Sr. Nts., 12/1/03 100,000 92,000
- -----------------------------------------------------------------------------------------------------------------------------------
Housing Related -- 2.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Building Materials -- 2.0%
--------------------------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.875% Sr. Sub. Nts., 3/1/04 200,000 183,000
--------------------------------------------------------------------------------------------------------------------------
Triangle Pacific Corp., 10.50% Sr. Nts., 8/1/03 250,000 247,500
--------------------------------------------------------------------------------------------------------------------------
USG Corp., 9.25% Sr. Nts., Series B, 9/15/01 200,000 197,250
--------------------------------------------------------------------------------------------------------------------------
Walter Industries, Inc., 14.625% Sr. Nts., Series B, 1/1/49 (9) 200,000 377,000
-----------------
1,004,750
- -----------------------------------------------------------------------------------------------------------------------------------
Homebuilders/Real Estate -- 0.6%
--------------------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 300,000 279,000
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Electronics/Computers -- 1.3%
--------------------------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp., 11.375% Sr. Sub. Debs., 5/1/03 100,000 103,250
--------------------------------------------------------------------------------------------------------------------------
Rohr, Inc., 11.625% Sr. Nts., 5/15/03 300,000 306,000
--------------------------------------------------------------------------------------------------------------------------
Unisys Corp., 13.50% Credit Sensitive Nts., 7/1/97 (4) 200,000 220,486
-----------------
629,736
- -----------------------------------------------------------------------------------------------------------------------------------
Automotive -- 2.0%
--------------------------------------------------------------------------------------------------------------------------
Aftermarket Technology Corp., 12% Sr. Sub. Nts., 8/1/04 100,000 105,500
--------------------------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp.:
11.25% Sr. Nts., 10/1/02 300,000 295,500
9.50% Sr. Sec. Nts., 6/1/00 50,000 48,750
--------------------------------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 300,000 270,750
--------------------------------------------------------------------------------------------------------------------------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 50,000 52,250
--------------------------------------------------------------------------------------------------------------------------
Terex Corp., 13% Sr. Nts., 8/1/96 (8) 200,000 194,000
-----------------
966,750
- -----------------------------------------------------------------------------------------------------------------------------------
Media -- 6.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Broadcasting -- 2.0%
--------------------------------------------------------------------------------------------------------------------------
Act III Broadcasting, Inc., 9.625% Sr. Sub. Nts., 12/15/03 100,000 97,250
--------------------------------------------------------------------------------------------------------------------------
Chancellor Broadcasting Co., 12.50% Sr. Sub. Nts., 10/1/04 300,000 303,000
--------------------------------------------------------------------------------------------------------------------------
New City Communications, Inc., 11.375% Sr. Sub. Nts., 11/1/03 300,000 274,500
--------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcasting Group, Inc., 10% Sr. Sub. Nts., 12/15/03 300,000 289,500
-----------------
964,250
- -----------------------------------------------------------------------------------------------------------------------------------
Cable Television -- 3.4%
--------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc., 0%/12.50% Sr. Disc. Nts.,
6/15/04 (7) 300,000 151,500
--------------------------------------------------------------------------------------------------------------------------
Bell Cablemedia PLC, 0%/11.95% Sr. Disc. Nts., 7/15/04 (7) 400,000 242,500
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued) Face Market Value
Amount (1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cable Television (Continued)
--------------------------------------------------------------------------------------------------------------------------
Cablevision Industries Corp., 10.75% Sr. Nts., 1/30/02 $ 100,000 $ 105,750
--------------------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp.:
10.75% Sr. Sub. Debs., 4/1/04 300,000 312,750
9.875% Sr. Sub. Debs., 4/1/23 100,000 94,625
--------------------------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 11% Sr. Sub. Debs., 6/1/07 300,000 321,015
--------------------------------------------------------------------------------------------------------------------------
Marcus Cable Operating Co. LP/Marcus Capital Corp., 0%/13.50%
Gtd. Sr. Sub. Disc. Nts., Series II, 8/1/04 (7) 300,000 172,875
--------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.15% Debs., 2/1/23 100,000 95,211
--------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Sr.
Debs., 3/15/23 200,000 179,952
-----------------
1,676,178
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Media -- 0.6%
--------------------------------------------------------------------------------------------------------------------------
Ackerley Communications, Inc., 10.75% Sr. Sec. Nts.,
Series A, 10/1/03 200,000 202,000
--------------------------------------------------------------------------------------------------------------------------
Echostar Communications Corp., Units (7) 250,000 113,750
-----------------
315,750
- -----------------------------------------------------------------------------------------------------------------------------------
Entertainment/Film -- 0.1%
--------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7% Sr. Nts., 3/1/01 (5) 80,000 69,600
- -----------------------------------------------------------------------------------------------------------------------------------
Other -- 2.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Conglomerates -- 0.6%
--------------------------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Holdings, Inc., 13% Sub. Debs., 3/1/99 300,000 298,500
- -----------------------------------------------------------------------------------------------------------------------------------
Environmental -- 0.9%
--------------------------------------------------------------------------------------------------------------------------
EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 200,000 175,000
--------------------------------------------------------------------------------------------------------------------------
Envirotest Systems Corp., 9.125% Sr. Nts., 3/15/01 350,000 264,250
-----------------
439,250
- -----------------------------------------------------------------------------------------------------------------------------------
Services -- 0.7%
--------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corp., 9.125% Sr. Sub. Nts., 5/1/03 400,000 330,000
- -----------------------------------------------------------------------------------------------------------------------------------
Retail -- 0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retailing -- 0.1%
--------------------------------------------------------------------------------------------------------------------------
Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 50,000 48,000
- -----------------------------------------------------------------------------------------------------------------------------------
Supermarkets -- 0.4%
--------------------------------------------------------------------------------------------------------------------------
Grand Union Co., 11.75% Sr. Nts., 2/15/99 (9) 100,000 101,500
--------------------------------------------------------------------------------------------------------------------------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99 100,000 86,000
-----------------
187,500
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Shipping -- 0.8%
--------------------------------------------------------------------------------------------------------------------------
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 400,000 386,000
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 6.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities -- 2.0%
--------------------------------------------------------------------------------------------------------------------------
Beaver Valley II Funding Corp., 9% 2nd Lease Obligation
Bonds, 6/1/17 299,000 230,750
--------------------------------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04 (7) 300,000 226,500
--------------------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 10.375% Lease Obligation Bonds, Series (9) 210,000 128,054
1986A, 1/2/11
--------------------------------------------------------------------------------------------------------------------------
First PV Funding Corp., 10.15% Lease Obligation Bonds, Series 200,000 194,722
1986B, 1/15/16
--------------------------------------------------------------------------------------------------------------------------
Subic Power Corp., 9.50% Sinking Fund Debs., 12/28/08 241,375 196,117
-----------------
976,143
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 4.0%
--------------------------------------------------------------------------------------------------------------------------
Call-Net Enterprises, Inc., 0%/13.25% Sr. Disc. Nts.,
12/1/04 (7) 400,000 221,000
--------------------------------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04 (7)(8) 100,000 67,156
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
9 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued) Face Market Value
Amount (1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications (Continued)
--------------------------------------------------------------------------------------------------------------------------
Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03 (7) $ 280,000 $ 194,600
--------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00 (7) 500,000 380,000
--------------------------------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts.,
1/15/04 (7) 500,000 321,250
--------------------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr. Sub. Disc.
Nts., 8/1/03 (7) 500,000 328,750
--------------------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts.,
11/15/01 (7) 300,000 222,000
--------------------------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 14% Sr. Nts., 11/1/04 200,000 215,000
-----------------
1,949,756
-----------------
Total Corporate Bonds and Notes (Cost $18,471,685) 18,405,690
<CAPTION>
Shares
==========================================================
==========================================================
===============
<S> <C> <C> <C>
Common Stocks -- 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Celcaribe SA (8)(10) 16,260 14,844
--------------------------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc. (10) 5,019 96,616
-----------------
Total Common Stocks (Cost $93,380) 111,460
==========================================================
==========================================================
===============
Preferred Stocks -- 2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
AK Steel Holding Corp., 7% Cv. Stock Appreciation Income
Linked Securities 5,000 143,750
--------------------------------------------------------------------------------------------------------------------------
California Federal Bank, 10.625% Non-Cum., Series B 2,500 255,000
--------------------------------------------------------------------------------------------------------------------------
First Nationwide Bank, 11.50% Non-Cum. 3,000 302,250
--------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp., $.65 Cv., Series A 2,100 17,325
--------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp., 8.255% Provisionally Redeemable Income
Debt Exchangeable for Stock 10,000 105,000
--------------------------------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 Cv., Series B 8,000 139,000
-----------------
Total Preferred Stocks (Cost $1,036,704) 962,325
Units
==========================================================
==========================================================
===============
Rights, Warrants and Certificates -- 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp. 6/99 1,500 3,000
--------------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Wts., Exp. 2/99 5,062 12,655
--------------------------------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/96 (8) 6 5
-----------------
Total Rights, Warrants and Certificates (Cost $22,524) 15,660
Shares
==========================================================
==========================================================
===============
Put Options Purchased -- 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.50%, Exp. 4/95 (Cost $11,602) 4,500 2,109
Face
Amount (1)
==========================================================
==========================================================
===============
Structured Instruments -- 1.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina Local Market Securities Trust, Series 1994-II,
11.30%, 4/1/00 (2)(8) 273,913 214,337
--------------------------------------------------------------------------------------------------------------------------
Repackaged Argentina Domestic Securities Trust I, 14.75%,
9/1/02 (2)(8) 500,000 286,250
--------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corp. Investment Banking, Inc., 10% CD Sterling
Rate Linked Nts., 7/3/95 (2) 230,000 226,320
-----------------
Total Structured Instruments (Cost $1,002,096) 726,907
</TABLE>
10 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investments, at Value (Cost $51,350,442) 104.0% 51,058,505
--------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (4.0) (1,963,624)
========== ==============
Net Assets 100.0% $ 49,094,881
========== ==============
</TABLE>
1. Face amount is reported in local currency. Foreign currency abbreviations
are as follows:
ARA - Argentine Austral GBP - British Pound Sterling
AUD - Australian Dollar IDR - Indonesian Rupiah
CLP - Chilean Peso NZD - New Zealand Dollar
DEM - German Deutsche Mark USD - U.S. Dollar
ESP - Spanish Peseta
2. Indexed instrument for which the principal amount and/or interest due at
maturity is affected by the relative value of a foreign currency.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the notional amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs).
4. Represents the current interest rate for a variable rate security.
5. Represents the current interest rate for an increasing rate security.
6. Identifies issues considered to be illiquid -- See Note 7 of Notes to
Financial Statements.
7. Represents a zero coupon bond that converts to a fixed rate of interest at
a designated future date.
8. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $1,704,342 or 3.47% of the Fund's
net assets, at March 31, 1995.
9. Non-income producing--issuer is in default of interest payment.
10. Non-income producing security.
11. A sufficient amount of securities is segregated to collateralize
outstanding forward foreign currency exchange contracts. See Note 5 of
Notes to Financial Statements.
12. A sufficient amount of liquid assets has been designated to cover
outstanding call and put options, as follows:
<TABLE>
<CAPTION>
Face
Subject
to Expiration Exercise Premium Market Value
Call/Put Date Price Received See Note 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call Option on Australian Dollar 434,000 AUD 4/20/95 0.74 USD/AUD $ 751 $ 1,285
Call Option on New South Wales
Treasury Corp.
Gtd. Exch. Bonds, 12%, 12/1/01 100,000 AUD 4/28/95 109.056 AUD 678 880
Call Option on Pound Sterling 425,000 GBP 5/8/95 1.60 USD/DEM 4,199 16,456
Call Option on Spanish Peseta/
Deutsche Mark 2,500,000 ESP 5/4/95 89.00 ESP/DEM 1,395 821
Put Option on Deutsche Mark 200,000 DEM 6/6/95 1.46 DEM/USD 1,416 1,000
--------- ----------
$ 8,439 $ 20,442
========= ==========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities March 31, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets Investments, at value (cost $51,350,442) -- see accompanying statement $51,058,505
---------------------------------------------------------------------------------------------------------
Receivables:
Interest 1,234,738
Investment sold 993,781
Shares of beneficial interest sold 363,670
---------------------------------------------------------------------------------------------------------
Other 6,043
------------
Total assets 53,656,737
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities Bank overdraft 552,458
---------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $8,439) -- see
accompanying statement -- Note 4 20,442
---------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency
exchange contracts -- Note 5 965
---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 3,669,447
Shares of beneficial interest redeemed 147,446
Dividends 102,072
Service plan fees -- Note 6 28,578
Trustees' fees 1,482
Transfer and shareholder servicing agent fees -- Note 6 579
Other 38,387
------------
Total liabilities 4,561,856
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $49,094,881
=============
- ------------------------------------------------------------------------------------------------------------------------------------
Composition of Paid-in capital $52,546,681
Net Assets
---------------------------------------------------------------------------------------------------------
Undistributed net investment income 148,195
---------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transaction and
written option transactions (3,299,235)
---------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, options written and
translation of assets and liabilities denominated in foreign currencies (300,760)
--------------
Net assets $49,094,881
=============
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Net asset value, redemption price and offering price per share
Per Share (based on net assets of $49,094,881 and 10,832,351 shares of
beneficial interest outstanding) $4.53
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------
Statement of Operations For the Six Months Ended March 31, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income Interest (net of foreign withholding taxes of $4,777) $ 2,381,797
Dividends 55,370
------------
Total income 2,437,167
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses Management fees -- Note 6 171,570
---------------------------------------------------------------------------------------------------------
Service plan fees -- Note 6 228,602
---------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees -- Note 6 25,519
---------------------------------------------------------------------------------------------------------
Shareholder reports 24,759
---------------------------------------------------------------------------------------------------------
Custodian fees and expenses 21,982
---------------------------------------------------------------------------------------------------------
Legal and auditing fees 15,339
---------------------------------------------------------------------------------------------------------
Registration and filing fees 4,394
---------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 2,388
---------------------------------------------------------------------------------------------------------
Other 6,771
------------
Total expenses 501,324
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 1,935,843
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Net realized loss on:
Unrealized Gain (Loss) Investments (2,345,688)
On Investments, Expiration and closing of option contracts written -- Note 4 (63,983)
Options Written and Foreign currency transactions (428,672)
Foreign Currency ------------
Transactions Net realized loss (2,838,343)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 94,940
Translation of assets and liabilities denominated in foreign currencies 12,559
------------
Net change 107,499
------------
Net realized and unrealized gain (loss) on investments, options written
and foreign currency transactions (2,730,844)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting From Operations $ (795,001)
============
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
Six Months Ended Period Ended
March 31, September 30,
1995 (Unaudited) 994(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations Net investment income $ 1,935,843 $ 1,050,539
---------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (2,838,343) (460,892)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments, options written and translation of assets and
liabilities denominated in foreign currencies 107,499 (408,259)
------------- ------------
Net increase (decrease) in net assets resulting from
operations (795,001) 181,388
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends to Dividends from net investment income ($.181 and
Shareholders $.228 per share, respectively) (1,791,718) (1,046,469)
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase in net assets resulting from beneficial
Transactions interest transactions -- Note 2 8,793,859 43,752,822
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets Total increase 6,207,140 42,887,741
---------------------------------------------------------------------------------------------------------
Beginning of period 42,887,741 --
-------------- --------------
End of period (including undistributed net
investment income of $148,195 and $4,070,
respectively) $ 49,094,881 $42,887,741
=============
===========
1. For the period from February 1, 1994 (commencement
of operations) to September 30, 1994.
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Financial Highlights
Six Months Ended Period Ended
March 31, September 30,
1995 (Unaudited) 1994(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 4.80 $ 5.00
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .23
Net realized and unrealized loss on
investments, options written and foreign currency
transactions (.28) (.20)
------- --------
Total income from investment operations (.11) .03
- ---------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.18) (.23)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.53 $ 4.80
======== =======
- ---------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(2) (1.84)% .58%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $49,095 $42,888
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,916 $22,046
- ---------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 10,832 8,944
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets(3):
Net investment income 8.46% 7.19%
Expenses, before voluntary reimbursement by the Manager 2.19% 2.13%
Expenses net of voluntary reimbursement by the Manager N/A 1.71%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 79.7% 108.8%
</TABLE>
1. For the period from February 1, 1994 (commencement of operations) to
September 30, 1994.
2. Assumes a hypothetical initial investment on the business day before
commencement of operations, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net
asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not
annualized for periods of less than one full year.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the six months ended March 31, 1995 were
$44,097,093 and $34,051,060, respectively.
See accompanying Notes to Financial Statements.
15 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1. Significant Oppenheimer Strategic Diversified Income Fund (the Fund) is a separate series of Oppenheimer
Accounting Policies 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 the close of the New York Stock Exchange on
each trading day. Listed and unlisted securities for which such information is regularly reported are
valued at the last sale price of the day or, in the absence of sales, at values based on the closing
bid or asked price or the last sale price on the prior trading day. Long-term and short-term "non-
money market" debt securities are valued by a portfolio pricing service approved by the Board of
Trustees. Such securities which cannot be valued by the approved portfolio pricing service are valued
using dealer-supplied valuations provided the Manager is satisfied that the firm rendering the quotes
is reliable and that the quotes reflect current market value, or under consistently applied
procedures established by the Board of Trustees to determine fair value in good faith. Short-term
"money market type" debt securities having a remaining maturity of 60 days or less are valued at cost
(or last determined market value) adjusted for amortization to maturity of any premium or discount.
Forward contracts are valued based on the closing prices of the forward currency contract rates in
the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer.
Options are valued based upon the last sale price on the principal exchange on which the option is
traded or, in the absence of any transactions that day, the value is based upon the last sale price
on the prior trading date if it is within the spread between the closing bid and asked prices. If the
last sale price is outside the spread, the closing bid or asked price closest to the last reported
sale price is used.
------------------------------------------------------------------------------------------------------
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 March 31, 1995, securities with an aggregate market value of
$606,554, representing 1.24% of the Fund's net assets were in default.
------------------------------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained in U.S. dollars.
Prices of securities denominated in foreign currencies are translated into U.S. dollars at the
closing rates of exchange. Amounts related to the purchase and sale of securities and investment
income are translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments is separately identified from
the 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. The market value of the underlying
securities is required to be at least 102% of the resale price at the time of purchase. If the seller
of the 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.
</TABLE>
16 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1. Significant Federal Taxes. The Fund intends to continue to comply with provisions of the Internal Revenue Code
Accounting Policies applicable to regulated investment companies and to distribute all of its taxable income, including
(continued) any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise 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.
------------------------------------------------------------------------------------------------------
2. Shares of The Fund has authorized an unlimited number of no par value shares of beneficial interest.
Beneficial Interest Transactions in shares of beneficial interest were as follows:
<CAPTION>
Six Months Ended Period Ended
March 31, 1995 September 30, 1994(1)
---------------------------- ---------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 3,862,873 $17,871,337 9,579,653 $46,855,355
Dividends reinvested 227,402 1,044,924 132,003 640,038
Redeemed (2,201,624) (10,122,402) (767,956) (3,742,571)
----------- ------------ ---------- ------------
Net increase 1,888,651 $ 8,793,859 8,943,700 $43,752,822
=========== ============
========== ===========
1. For the period from February 1, 1994 (commencement of operations) to September 30, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
3. Unrealized Gains At March 31, 1995, net unrealized depreciation on investments and options written of $303,940
And Losses on was composed of gross appreciation of $928,540, and gross depreciation of $1,232,480.
Investments and
Options Written
- ------------------------------------------------------------------------------------------------------------------------------------
4. Option Activity The Fund may buy and sell put and call options, or write covered call options on portfolio securities
in order to produce incremental earnings or protect against changes in the value of portfolio
securities.
The Fund generally purchases put options or writes covered call options to hedge against adverse
movements in the value of portfolio holdings. When an option is written, the Fund receives a premium
and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of
the option.
Options are valued daily based upon the last sale price on the principal exchange on which the option
is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or
loss upon the expiration or closing of the option transaction. When an option is exercised, the
proceeds on sales for a written call option, the purchase cost for a written put option, or the cost
of the security for a purchased put or call option is adjusted by the amount of premium received or
paid.
</TABLE>
17 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
4. Option Activity In this report, securities designated to cover outstanding call options are noted in the Statement of
(continued) Investments. Shares subject to call, expiration date, exercise price, premium received and market
value are detailed in a footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement
of Operations.
The risk in writing a call option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Fund pays a premium whether or not the option is exercised.
The Fund also has the additional risk of not being able to enter into a closing transaction if a
liquid secondary market does not exist.
Written option activity for the six months ended March 31, 1995 was as follows:
<CAPTION>
Call Options Put Options
---------------------------- ---------------------------
Number of Amount of Number of Amount of
Options Premiums Options Premiums
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at
September 30, 1994 1,926,322 $ 24,421 -- $ --
Options written 2,984 15,263 136,986 1,416
Options expired prior
to exercise (1,928,031) (32,661) -- --
----------- --------- --------- -------
Options outstanding at
March 31, 1995 1,275 $ 7,023 136,986 $ 1,416
=========== ========= =========
=======
</TABLE>
18 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
5. Forward Contracts A forward foreign currency exchange contract (forward contract) is a commitment to purchase or
sell a
foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks. They may also be used
to
tactically shift portfolio currency risk. The Fund generally enters into forward contracts as a hedge
upon the purchase or sale of a security denominated in a foreign currency. In addition, the Fund may
enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio
positions.
Forward contracts are valued based on the closing prices of the forward currency contract rates in
the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The
Fund will realize a gain or loss upon the closing or settlement of the forward transaction.
In this report, securities held in segregated accounts to cover net exposure on outstanding forward
contracts are noted in the Statement of Investments where applicable. Gains and losses on outstanding
contracts (unrealized appreciation or depreciation on forward contracts) are reported in the
Statement of Assets and Liabilities. Realized gains and losses are reported with all other foreign
currency gains and losses in the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet the terms of the contract and
unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
At March 31, 1995, outstanding forward contracts to buy and sell currencies were as follows:
<CAPTION>
Contract Unrealized
Expiration Amount Valuation as of Appreciation
Contracts to Buy Date (000s) March 31, 1995 (Depreciation)
---------------- --------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Deutsche Mark 4/10/95-5/16/95 946 $ 692,132 $ 17,097
New Zealand Dollar 5/4/95 243 159,245 184
---------- -------
$ 851,377 $ 17,281
========== =======
Contracts to Sell
-----------------
Australian Dollar 5/4/95 217 $(159,291) $ (230)
Spanish Peseta 4/10/95-5/16/95 87,500 (693,050) (18,016)
---------- ---------
$(852,341) $(18,246)
========== =========
- ------------------------------------------------------------------------------------------------------------------------------------
6. Management Fees Management fees paid to the Manager were in accordance with the investment advisory
agreement with
And Other the Fund which provides for an annual fee of .75% on the first $200 million of net assets with
a
Transactions With reduction of .03% on each $200 million thereafter to $800 million, .60% on the next $200 million
and
Affiliates .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 state regulatory limit on Fund
expenses.
During the six months ended March 31, 1995, Oppenheimer Funds Distributor, Inc. (OFDI)
received
contingent deferred sales charges of $32,307 upon redemption of Fund shares, as reimbursement for
sales commissions advanced by OFDI at the time of sale of such shares.
</TABLE>
19 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
6. Management Fees Oppenheimer Shareholder Services (OSS), a division of the Manager, is the transfer and
shareholder
And Other servicing agent for the Fund, and for other registered investment companies. OSS's total costs
of
Transactions With providing such services are allocated ratably to these companies.
Affiliates
(continued)
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
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 six months ended March 31, 1995, OFDI paid $55 to an affiliated broker/dealer as
reimbursement for personal service and maintenance expenses and retained $227,583 as reimbursement
for sales commissions and service fee advances, as well as financing costs.
- ------------------------------------------------------------------------------------------------------------------------------------
7. Illiquid At March 31, 1995, investments in securities included issues that are illiquid or restricted. The
Securities securities are often purchased in private placement transactions, are not registered under the
Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods
approved by the Board of Trustees as reflecting fair value. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase) in illiquid or restricted securities. The
aggregate value of these securities subject to this limitation at March 31, 1995 was $395,119 which
represents .70% of the Fund's net assets. Information concerning these securities is as follows:
<CAPTION>
Valuation Per
Acquisition Cost Unit as of
Security Date Per Unit March 31, 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pulsar Internacional, SA de C.V. 9% Nts.,
9/19/95 9/16/94 $99.82 $95.00
United Mexican States, Combined Facility 3,
Loan Participation Agreement, Tranche A,
7.625%, 9/20/97 10/25/94 $89.77 $56.50
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are
determined to be liquid and are not included within the 10% limitation specified above.
</TABLE>
20 Oppenheimer Strategic Diversified Income Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Oppenheimer Strategic Diversified Income Fund
A Series of Oppenheimer Strategic Funds Trust
-----------------------------------------------------------------------------------------------------
Officers and Trustees James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee and President
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
David P. Negri, Vice President
Arthur P. Steinmetz, Vice President
George C. Bowen, Vice President, Secretary, and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
-----------------------------------------------------------------------------------------------------
Investment Advisor Oppenheimer Management Corporation
-----------------------------------------------------------------------------------------------------
Distributor Oppenheimer Funds Distributor, Inc.
-----------------------------------------------------------------------------------------------------
Transfer and Oppenheimer Shareholder Services
Shareholder Servicing
Agent
-----------------------------------------------------------------------------------------------------
Custodian of The Bank of New York
Portfolio Securities
-----------------------------------------------------------------------------------------------------
Independent Auditors Deloitte & Touche LLP
-----------------------------------------------------------------------------------------------------
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records of the Fund without
examination by the independent auditors.
This is a copy of a report to shareholders of Oppenheimer Strategic Diversified Income Fund. This
report must be preceded or accompanied by a Prospectus of Oppenheimer Strategic Diversified Income
Fund. For material information concerning the Fund, see the Prospectus.
</TABLE>
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to Article Ninth of Registrant's Agreement and
Declaration of Trust filed as Exhibit 24(b)(1) to Registrant's
Registration Statement and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust dated March 16, 1995:
Filed herewith.
(2) By-Laws as amended through 6/26/90: Filed with Post-Effective
Amendment No. 9, 1/31/95, and incorporated herein by reference.
(3) Not applicable.
(4) Agreement and Plan of Reorganization: See Exhibit A to Part
A of this Registration Statement.
(5) (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) OSIF Specimen Class C Share Certificate: Previously
filed with Registrant's Post-Effective Amendment No. 10, 3/26/95, and
incorporated herein by reference.
(6) (i) Investment Advisory Agreement for OSIF dated 10/22/90:
Filed with Registrant's Post-Effective Amendment No. 9, 1/31/95, and
incorporated herein by reference.
(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.
(7) (i) (a) General Distributor's Agreement for OSIF dated
10/13/92: Filed with Post-Effective Amendment No. 9, 1/31/95, and
incorporated herein by reference.
(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.
(8) Retirement Plan for Non-Interested Trustees or Directors
(adopted by Registrant - 6/7/90): Previously filed with Post-Effective
Amendment No. 97 of Oppenheimer Fund (Reg. No. 2-14586), 8/30/90, and
incorporated herein by reference.
(9) Custody Agreement dated 10/6/92: Filed with Post-Effective
Amendment No. 9, 1/31/95, and incorporate herein by reference.
(10) (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 and Service 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.
(iv) Form of Class C Distribution and Service Plan for
Oppenheimer Strategic Income Fund dated 2/__/95: Filed with Registrant's
Post-Effective Amendment No. 10, 3/26/95, and incorporated herein by
reference.
(11) (i) Opinion and Consent of Counsel for OSIF dated 8/30/89:
Previously filed with Registrant's Pre-Effective Amendment No. 9, 1/31/95,
and incorporated herein by reference.
(ii) Opinion and Consent of Counsel for OSDIF dated 1/31/94:
Filed with Registrant's Post-Effective Amendment No. 8, 2/1/94, and
incorporated herein by reference.
(12) Tax Opinion Relating to the Reorganization: Filed herewith.
(13) Not applicable.
(14) Consent of Deloitte & Touche LLP: Filed herewith.
(15) Not applicable.
(16) Not applicable
(17) Declaration of Registrant under Rule 24f-2: Previously filed
with Registrant's N-14 on 5/3/95.
(18) Powers of Attorney: Filed with Registrant's Post-Effective
Amendment No. 7, 2/1/94, and incorporated herein by reference.
Item 17. Undertakings
(1) Not applicable.
(2) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant 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 2nd day of June, 1995.
OPPENHEIMER STRATEGIC FUNDS TRUST
By: /s/ James C. Swain*
----------------------------------
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 of the
- ------------------ Board of Trustees June 2, 1995
James C. Swain
/s/ Jon S. Fossel* Chief Executive
- -------------------- Officer and June 2, 1995
Jon S. Fossel Trustee
/s/ George C. Bowen* Chief Financial
- ------------------- and Accounting June 2, 1995
George C. Bowen Officer
/s/ Robert G. Avis* Trustee June 2, 1995
- ------------------
Robert G. Avis
/s/ William A. Baker* Trustee June 2, 1995
- --------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee June 2, 1995
- -----------------------
Charles Conrad, Jr.
/s/ Raymond J. Kalinowski* Trustee June 2, 1995
- -------------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee June 2, 1995
- ------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee June 2, 1995
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee June 2, 1995
- ----------------
Ned M. Steel
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
EXHIBIT INDEX
Exhibit Description
- ------- -----------
16(1) Amended Declaration of Trust
16(12) Tax Opinion in Draft Form
16(14) Independent Auditors' Consent
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Registration Statement No. 33-28598 of Oppenheimer
Strategic Funds Trust on Form N-14 of our report dated October 21, 1994,
appearing in the Annual Report of Oppenheimer Strategic Diversified Income
Fund for the year ended September 30, 1994 and our report dated October
21, 1994, appearing in the Annual Report of Oppenheimer Strategic Income
Fund for the year ended September 30, 1994 and to the references to us
under the headings "Tax Consequences of the Reorganization" and "Tax
Aspects of the Reorganization" appearing in the Prospectus, which is part
of such Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
June 1, 1995
MERGE\230CON2
DRAFT
[Letterhead of Deloitte & Touche LLP]
(Date)
Oppenheimer Strategic Income Fund
Two World Trade Center 34th floor
New York, New York 10048-0203
Dear Sirs:
We have reviewed the Agreement and Plan of Reorganization between
Oppenheimer Strategic Diversified Income Fund (Diversified) and
Oppenheimer Strategic Income Fund (Income) which is attached as Exhibit
A of Oppenheimer Strategic Funds Trust's Registration Statement under the
Securities Act of 1933 on form N-14 filed with the Securities and Exchange
Commission on May 3, 1995 (the Agreement), concerning the acquisition by
Income of substantially all of the assets of Diversified solely for voting
shares of beneficial interest in Income, followed by the distribution of
such shares in exchange for all of the outstanding shares of Diversified.
Section 368(a)(1)(C), IRC provides that, when determining whether the
exchange is solely for stock, the assumption by Income of a liability of
Diversified shall be disregarded.
The management of Diversified has represented to us that there is no plan
or intention by any shareholder of Diversified who owns 5% or more of the
outstanding shares of Diversified, and, to the best of their knowledge,
there is no plan or intention on the part of the remaining shareholders
of Diversified to redeem, sell, exchange, or otherwise dispose of a number
of Income shares received in the transaction that would reduce the
shareholders' ownership of Income shares to a number of shares having a
value, as of the Exchange Date, of less than 50 percent of the value of
all of the formerly outstanding shares of Diversified as of the same date.
Management of each fund has further represented to us that, as of the date
of the exchange, both Diversified and Income will qualify as regulated
investment companies or will meet the diversification test of Section
368(a)(2)(F)(ii), IRC.
In our opinion, the federal tax consequences of the transaction, if
carried out in the manner outlined in the Agreement and in accordance with
the above representations, will be as follows:
1. The transactions contemplated by the Agreement will qualify as a tax-
free "reorganization" within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended, and under the regulations
promulgated thereunder.
2. Diversified and Income will each qualify as a "party to a
reorganization" within the meaning of Section 368(b)(2).
3. No gain or loss will be recognized by the shareholders of Diversified
upon the distribution of shares of beneficial interest in Income to
the shareholders of Diversified pursuant to Section 354.
4. Under Section 361(a) no gain or loss will be recognized by
Diversified by reason of the transfer of its assets solely in
exchange for shares of Income.
5. Under Section 1032 no gain or loss will be recognized by reason of
the transfer of Diversified's assets solely in exchange for shares
of Income.
6. The stockholders of Diversified will have the same tax basis and
holding period for the shares of beneficial interest in Income that
they receive as they had for the stock of Diversified that they
previously held, pursuant to Sections 358(a) and 1223(1),
respectively.
7. The securities transferred by Diversified to Income will have the
same tax basis and holding period in the hands of Income as they had
for Diversified, pursuant to Sections 362(b) and 1223(1),
respectively.
Very truly yours
MERGE\230OPIN2
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
OF
OPPENHEIMER STRATEGIC FUNDS TRUST
AMENDED AND RESTATED DECLARATION OF TRUST, is made as of March 16,
1995, by and among the individuals executing this Amended and Restated
Declaration of Trust, as the Trustees.
WHEREAS, the Trustees established Oppenheimer Strategic Funds Trust,
initially named "Oppenheimer Total Income Fund" (the "Trust"), a trust
fund under the laws of the Commonwealth of Massachusetts, for the
investment and reinvestment of funds contributed thereto, under a
Declaration of Trust dated May 1, 1989, as amended pursuant to an Amended
Declaration of Trust dated August 9, 1989, and further amended May 19,
1992, November 30, 1992, November 26, 1993 and December 14, 1993;
WHEREAS, pursuant to Section 2 of Article Fourth the Trustees of the
Trust have authorized the issuance of a third class of shares, pursuant
to Section 2 of Article Fourth of the Series, Oppenheimer Strategic
Income Fund, which shall be designated Class C; and
WHEREAS, the Trustees desire to make permitted changes to said
Declaration of Trust pursuant to Section 3 of Article Fourth.
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall henceforth be held and
managed under this Amended and Restated Declaration of Trust IN TRUST as
herein set forth below.
FIRST: This Trust shall be known as OPPENHEIMER STRATEGIC FUNDS
TRUST (formerly, "Oppenheimer Strategic Income Fund"). As of the date of
this Amended and Restated Declaration of Trust, the principal address of
Oppenheimer Strategic Funds Trust is 3410 S. Galena Street, Denver,
Colorado 80231, and its resident agent in the Commonwealth of
Massachusetts is Massachusetts Mutual Life Insurance Company, Attention:
Legal Department, 1295 State Street, Springfield, Massachusetts 01111.
SECOND: Whenever used herein, unless otherwise required by the
context or specifically provided:
1. All terms used in this Declaration of Trust that are defined in
the 1940 Act (defined below) shall have the meanings given to them in the
1940 Act.
2. "Board" or "Board of Trustees" or the "Trustees" means the Board
of Trustees of the Trust.
3. "By-Laws" means the By-Laws of the Trust as amended from time
to time.
4. "Class" means a class of a series of shares established and
designated under or in accordance with the provisions of Article FOURTH.
5. "Commission" means the Securities and Exchange Commission.
6. "Declaration of Trust" shall mean this Amended and Restated
Declaration of Trust as it may be amended or restated from time to time.
7. The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations of the Commission thereunder, all as amended
from time to time.
8. "Series" refers to series of shares established and designated
under or in accordance with the provisions of Article FOURTH.
9. "Shareholder" means a record owner of Shares of the Trust.
10. "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust or any Series or Class of the Trust
(as the context may require) shall be divided from time to time and
includes fractions of Shares as well as whole Shares.
11. The "Trust" refers to the Massachusetts business trust created
by this Declaration of Trust, as amended or restated from time to time.
12. "Trustees" refers to the individual trustees in their capacity
as trustees hereunder of the Trust and their successor or successors for
the time being in office as such trustees.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are
as follows:
1. To hold, invest or reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise, sell, sell short,
assign, negotiate, transfer, exchange or otherwise dispose of or turn to
account or realize upon, securities (which term "securities" shall for the
purposes of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares, bonds,
financial futures contracts, indexes, debentures, notes, mortgages or
other obligations, and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests therein,
or in any property or assets) created or issued by any issuer (which term
"issuer" shall for the purposes of this Declaration of Trust, without
limitation of the generality thereof be deemed to include any persons,
firms, associations, corporations, syndicates, business trusts,
partnerships, investment companies, combinations, organizations,
governments, or subdivisions thereof) and in financial instruments
(whether they are considered as securities or commodities); and to
exercise, as owner or holder of any securities or financial instruments,
all rights, powers and privileges in respect thereof; and to do any and
all acts and things for the preservation, protection, improvement and
enhancement in value of any or all such securities or financial
instruments.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and
by the Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such Series and Classes and
amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the Commonwealth of
Massachusetts and by this Declaration of Trust, as the Trustees may
determine.
4. To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel its Shares, or to classify or reclassify any
unissued Shares or any Shares previously issued and reacquired of any
Series or Class into one or more Series or Classes that may have been
established and designated from time to time, all without the vote or
consent of the Shareholders of the Trust, in any manner and to the extent
now or hereafter permitted by this Declaration of Trust.
5. To conduct its business in all its branches at one or more
offices in New York, Colorado and elsewhere in any part of the world,
without restriction or limit as to extent.
6. To carry out all or any of the foregoing objects and purposes
as principal or agent, and alone or with associates or to the extent now
or hereafter permitted by the laws of Massachusetts, as a member of, or
as the owner or holder of any stock of, or share or interest in, any
issuer, and in connection therewith or make or enter into such deeds or
contracts with any issuers and to do such acts and things and to exercise
such powers, as a natural person could lawfully make, enter into, do or
exercise.
7. To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out
or attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to,
or inference from, the terms of any other clause of this or any other
Article of this Declaration of Trust, and shall each be regarded as
independent and construed as powers as well as objects and purposes, and
the enumeration of specific purposes, objects and powers shall not be
construed to limit or restrict in any manner the meaning of general terms
or the general powers of the Trust now or hereafter conferred by the laws
of the Commonwealth of Massachusetts nor shall the expression of one thing
be deemed to exclude another, though it be of a similar or dissimilar
nature, not expressed; provided, however, that the Trust shall not carry
on any business, or exercise any powers, in any state, territory, district
or country except to the extent that the same may lawfully be carried on
or exercised under the laws thereof.
FOURTH:
1. The beneficial interests in the Trust shall be divided into
Shares, all without par value, but the Trustees shall have the authority
from time to time, without obtaining shareholder approval, to create one
or more Series of Shares in addition to the Series specifically
established and designated in part 3 of this Article FOURTH, and to divide
the shares of any Series into two or more Classes pursuant to Part 2 of
this Article FOURTH, all as they deem necessary or desirable, to establish
and designate such Series and Classes, and to fix and determine the
relative rights and preferences as between the different Series of Shares
or Classes as to right of redemption and the price, terms and manner of
redemption, liabilities and expenses to be borne by any Series or Class,
special and relative rights as to dividends and other distributions and
on liquidation, sinking or purchase fund provisions, conversion on
liquidation, conversion rights, and conditions under which the several
Series or Classes shall have individual voting rights or no voting rights.
Except as aforesaid, all Shares of the different Series shall be
identical.
(a) The number of authorized Shares and the number of Shares
of each Series and each Class of a Series that may be issued is unlimited,
and the Trustees may issue Shares of any Series or Class of any Series for
such consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without
action or approval of the Shareholders. All Shares when so issued on the
terms determined by the Trustees shall be fully paid and non-assessable.
The Trustees may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Series into one or more Series or
Classes of Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Shares
of any Series reacquired by the Trust.
(b) The establishment and designation of any Series or any
Class of any Series in addition to that established and designated in part
3 of this Article FOURTH shall be effective upon the execution by a
majority of the Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such Series or
such Class of such Series or as otherwise provided in such instrument.
At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the
establishment and designation thereof. Each instrument referred to in
this paragraph shall be an amendment to this Declaration of Trust, and the
Trustees may make any such amendment without shareholder approval.
(c) Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire, own, hold
and dispose of Shares of any Series or Class of any Series of the Trust
to the same extent as if such person were not a Trustee, officer or other
agent of the Trust; and the Trust may issue and sell or cause to be issued
and sold and may purchase Shares of any Series or Class of any Series from
any such person or any such organization subject only to the general
limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or Class generally.
2. The Trustees shall have the authority from time to time, without
obtaining shareholder approval, to divide the Shares of any Series into
two or more Classes as they deem necessary or desirable, and to establish
and designate such Classes. In such event, each Class of a Series shall
represent interests in the designated Series of the Trust and have such
voting, dividend, liquidation and other rights as may be established and
designated by the Trustees. Expenses related directly or indirectly to
the Shares of a Class of a Series may be borne solely by such Class (as
shall be determined by the Trustees) and, as provided in Article FIFTH,
a Class of a Series may have exclusive voting rights with respect to
matters relating solely to such Class. The bearing of expenses solely by
a Class of Shares of a Series shall be appropriately reflected (in the
manner determined by the Trustees) in the net asset value, dividend and
liquidation rights of the Shares of such Class of a Series. The division
of the Shares of a Series into Classes and the terms and conditions
pursuant to which the Shares of the Classes of a Series will be issued
must be made in compliance with the 1940 Act. No division of Shares of
a Series into Classes shall result in the creation of a Class of Shares
having a preference as to dividends or distributions or a preference in
the event of any liquidation, termination or winding up of the Trust, to
the extent such a preference is prohibited by Section 18 of the 1940 Act
as to the Trust.
(a) The relative rights and preferences of Shares of different
Classes of Shares of the same Series shall be the same in all respects
except that, and unless and until the Board of Trustees shall determine
otherwise: (i) when a vote of Shareholders is required under this
Declaration of Trust or when a meeting of Shareholders is called by the
Board of Trustees, the Shares of a Class shall vote exclusively on matters
that affect that Class only; (ii) the liability and expenses related to
a Class shall be borne solely by such Class (as determined and allocated
to such Class by the Trustees from time to time in a manner consistent
with parts 2 and 3 of Article FOURTH); and (iii) pursuant to paragraph 10
of Article NINTH, the Shares of each Class shall have such other rights
and preferences as are set forth from time to time in the then effective
prospectus and/or statement of additional information relating to the
Shares. Dividends and distributions on Shares of different Classes of the
same Series may differ and the net asset values of Shares of different
Classes of the same Series may differ.
3. Without limiting the authority of the Trustees set forth in part
1 of this Article FOURTH to establish and designate any further Series,
the Trust has two Series of Shares: "Oppenheimer Strategic Income Fund,"
established by the Declaration of Trust dated May 1, 1989; and
"Oppenheimer Strategic Diversified Income Fund" established by an Amended
and Restated Declaration of Trust dated November 26, 1993 and December 14,
1993. The Shares of Oppenheimer Strategic Income Fund are divided into
three classes, which are designated as follows: (i) the Shares of the
Class outstanding since the inception of the Trust are designated Class
A shares; (ii) the Shares of the Trust initially issued upon the division
of the Shares of that Series into two Classes on November 30, 1992 are
designated Class B shares; and (iii) the Shares of the Class initially
issued upon the division of the Shares of that Series into three Classes
pursuant to this Amended and Restated Declaration of Trust are designated
Class C Shares. The Shares of Oppenheimer Strategic Diversified Income
Fund consist of one class, which is designated Class C. The Shares of
these Series and any Shares of any further Series or Classes that may from
time to time be established and designated by the Trustees shall (unless
the Trustees otherwise determine with respect to some further Series or
Classes at the time of establishing and designating the same) have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that Series
for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds,
in whatever form the same may be, together with any General Items
allocated to that Series as provided in the following sentence, are
herein referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Items"), the
Trustees shall allocate such General Items to and among any one or more
of the Series established and designated from time to time in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a particular Series shall
belong to that Series. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all Series for all
purposes.
(b) (1) Liabilities Belonging to Series. The liabilities,
expenses, costs, charges and reserves attributable to each Series shall
be charged and allocated to the assets belonging to each particular
Series. Any general liabilities, expenses, costs, charges and reserves
of the Trust which are not identifiable as belong to any particular Series
shall be allocated and charged by the Trustees to and among any one or
more of the Series established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to each Series are herein referred to
as "liabilities belonging to" that Series. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall
be conclusive and binding upon the shareholders of all Series for all
purposes.
(2) Liabilities Belonging to a Class. If a Series is
divided into more than one Class, the liabilities, expenses, costs,
charges and reserves attributable to a Class shall be charged and
allocated to the Class to which such liabilities, expenses, costs, charges
or reserves are attributable. Any general liabilities, expenses, costs,
charges or reserves belonging to the Series which are not identifiable as
belonging to any particular Class shall be allocated and charged by the
Trustees to and among any one or more of the Classes established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
allocations in the two preceding sentences shall be subject to the 1940
Act or any release, rule, regulation, interpretation or order thereunder,
relating to such allocations. The liabilities, expenses, costs, charges
and reserves allocated and so charged to each Class are herein referred
to as "liabilities belonging to" that Class. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall
be conclusive and binding upon the holders of all Classes for all
purposes.
(c) Dividends. Dividends and distributions on Shares of a
particular Series or Class may be paid to the holders of Shares of that
Series or Class, with such frequency as the Trustees may determine, which
may be daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine,
from such of the income, capital gains accrued or realized, and capital
and surplus, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging
to such Series or Class. All dividends and distributions on Shares of a
particular Series or Class shall be distributed pro rata to the holders
of such Series or Class in proportion to the number of Shares of such
Series or Class held by such holders at the date and time of record
established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure
the Trustees may determine that no dividend or distribution shall be
payable on Shares as to which the Shareholder's purchase order and/or
payment have not been received by the time or times established by the
Trustees under such program or procedure. Such dividends and
distributions may be made in cash or Shares or a combination thereof as
determined by the Trustees or pursuant to any program that the Trustees
may have in effect at the time for the election by each Shareholder of the
mode of the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at the net
asset value thereof as determined in accordance with paragraph 13 of
Article SEVENTH.
(d) Liquidation. In the event of the liquidation or
dissolution of the Trust, the Shareholders of each Series and all Classes
of each Series that has been established and designated shall be entitled
to receive, as a Series or Class, when and as declared by the Trustees,
the excess of the assets belonging to that Series over the liabilities
belonging to that Series or Class. The assets so distributable to the
Shareholders of any particular Class and Series shall be distributed among
such Shareholders in proportion to the number of Shares of such Class of
that Series held by them and recorded on the books of the Trust.
(e) Transfer. All Shares of each particular Series or Class
shall be transferable, but transfers of Shares of a particular Class and
Series will be recorded on the Share transfer records of the Trust
applicable to such Series or Class of that Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares
of such Series or Class of that Series and at such other times as may be
permitted by the Trustees.
(f) Equality. All Shares of each Series shall represent an
equal proportionate interest in the assets belonging to that Series
(subject to the liabilities belonging to such Series or any Class of that
Series), and each Share of any particular Series shall be equal to each
other Share of that Series; but the provisions of this sentence shall not
restrict any distinctions permissible under this Article FOURTH that may
exist with respect to Shares of the different Classes of a Series. The
Trustees may from time to time divide or combine the Shares of any
particular Class or Series into a greater or lesser number of Shares of
that Class or Series without thereby changing the proportionate beneficial
interest in the assets belonging to that Class or Series or in any way
affecting the rights of Shares of any other Class or Series and Shares of
each Class of a Series shall be equal to each other Share of such Class.
(g) Fractions. Any fractional Share of any Class and Series,
if any such fractional Share is outstanding, shall carry proportionately
all the rights and obligations of a whole Share of that Class and Series,
including those rights and obligations with respect to voting, receipt of
dividends and distributions, redemption of Shares, and liquidation of the
Trust.
(h) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to
provide (i) whether holders of Shares of any Series shall have the right
to exchange said Shares into Shares of one or more other Series of Shares,
(ii) whether holders of shares of any Class shall have the right to
exchange said Shares into Shares of one or more other Classes of the same
or a different Series, and/or (iii) that the Trust shall have the right
to carry out the aforesaid exchanges, in each case in accordance with such
requirements and procedures as may be established by the Trustees.
(i) Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for
the Trust, which books shall be maintained separately for the Shares of
each Class and Series that has been established and designated. No
certification certifying the ownership of Shares need be issued except as
the Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the issuance of Share
certificates, the use of facsimile signatures, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as
to who are the Shareholders and as to the number of Shares of each Class
and Series held from time to time by each such Shareholder.
(j) Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as
they from time to time authorize. The Trustees may authorize any
distributor, principal underwriter, custodian, transfer agent or other
person to accept orders for the purchase or sale of Shares that conform
to such authorized terms and to reject any purchase or sale orders for
Shares whether or not conforming to such authorized terms.
FIFTH: The following provisions are hereby adopted with respect to
voting Shares of the Trust and certain other rights:
1. The Shareholders shall have the power to vote (a) for the
election of Trustees when that issue is submitted to them, (b) with
respect to the amendment of this Declaration of Trust except where the
Trustees are given authority to amend the Declaration of Trust without
shareholder approval, (c) to the same extent as the shareholders of a
Massachusetts business corporation, as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a
Class action on behalf of the Trust or the Shareholders, and (d) with
respect to those matters relating to the Trust as may be required by the
1940 Act or required by law, by this Declaration of Trust, or the By-Laws
of the Trust or any registration statement of the Trust filed with the
Commission or any State, or as the Trustees may consider desirable.
2. The Trust will not hold shareholder meetings unless required by
the 1940 Act, the provisions of this Declaration of Trust, or any other
applicable law, or unless the Trustees determine to call a meeting of
shareholders.
3. At all meetings of Shareholders, each Shareholder shall be
entitled to one vote on each matter submitted to a vote of the
Shareholders of the affected Series for each Share standing in his name
on the books of the Trust on the date, fixed in accordance with the By-
Laws, for determination of Shareholders of the affected Series entitled
to vote at such meeting (except, if the Board so determines, for Shares
redeemed prior to the meeting), and each such Series shall vote separately
("Individual Series Voting"); a Series shall be deemed to be affected when
a vote of the holders of that Series on a matter is required by the 1940
Act; provided, however, that as to any matter with respect to which a vote
of Shareholders is required by the 1940 Act or by any applicable law that
must be complied with, such requirements as to a vote by Shareholders
shall apply in lieu of Individual Series Voting as described above. If
the shares of a Series shall be divided into Classes as provided in
Article FOURTH, the shares of each Class shall have identical voting
rights except that the Trustees, in their discretion, may provide a Class
of a Series with exclusive voting rights with respect to matters which
relate solely to such Classes. If the Shares of any Series shall be
divided into Classes with a Class having exclusive voting rights with
respect to certain matters, the quorum and voting requirements described
below with respect to action to be taken by the Shareholders of the Class
of such Series on such matters shall be applicable only to the Shares of
such Class. Any fractional Share shall carry proportionately all the
rights of a whole Share, including the right to vote and the right to
receive dividends. The presence in person or by proxy of the holders of
one-third of the Shares, or of the Shares of any Series or Class of any
Series, outstanding and entitled to vote thereat shall constitute a
quorum at any meeting of the Shareholders or of that Series or Class,
respectively; provided however, that if any action to be taken by the
Shareholders or by a Series or Class at a meeting requires an affirmative
vote of a majority, or more than a majority, of the shares outstanding and
entitled to vote, then in such event the presence in person or by proxy
of the holders of a majority of the shares outstanding and entitled to
vote at such a meeting shall constitute a quorum for all purposes. At a
meeting at which is a quorum is present, a vote of a majority of the
quorum shall be sufficient to transact all business at the meeting. If
at any meeting of the Shareholders there shall be less than a quorum
present, the Shareholders or the Trustees present at such meeting may,
without further notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any such adjourned
meeting except such as might have been lawfully transacted had the meeting
not been adjourned.
4. Each Shareholder, upon request to the Trust in proper form
determined by the Trust, shall be entitled to require the Trust to redeem
from the net assets of that Series all or part of the Shares of such
Series and Class standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net asset value
shall be computed and the time within which the Trust shall make payment
therefor, shall be determined as hereinafter provided in Article SEVENTH
of this Declaration of Trust. Notwithstanding the foregoing, the
Trustees, when permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem Shares.
5. No Shareholder shall, as such holder, have any right to purchase
or subscribe for any Shares of the Trust which it may issue or sell, other
than such right, if any, as the Trustees, in their discretion, may
determine.
6. All persons who shall acquire Shares shall acquire the same
subject to the provisions of the Declaration of Trust.
7. Cumulative voting for the election of Trustees shall not be
allowed.
SIXTH:
1. The persons who shall act as initial Trustees until the first
meeting or until their successors are duly chosen and qualify are the
initial trustees executing the original Declaration of Trust dated May 1,
1989 or any counterpart thereof. However, the By-Laws of the Trust may
fix the number of Trustees at a number greater or lesser than the number
of initial Trustees and may authorize the Trustees to increase or decrease
the number of Trustees, to fill any vacancies on the Board which may occur
for any reason including any vacancies created by any such increase in the
number of Trustees, to set and alter the terms of office of the Trustees
and to lengthen or lessen their own terms of office or make their terms
of office of indefinite duration, all subject to the 1940 Act. Unless
otherwise provided by the By-Laws of the Trust, the Trustees need not be
Shareholders.
2. A Trustee at any time may be removed either with or without
cause by resolution duly adopted by the affirmative vote of the holders
of two-thirds of the outstanding Shares, present in person or by proxy at
any meeting of Shareholders called for such purpose; such a meeting shall
be called by the Trustees when requested in writing to do so by the record
holders of not less than ten per centum of the outstanding Shares. A
Trustee may also be removed by the Board of Trustees as provided in the
By-Laws of the Trust.
3. The Trustees shall make available a list of names and addresses
of all Shareholders as recorded on the books of the Trust, upon receipt
of the request in writing signed by not less than ten Shareholders (who
have been shareholders for at least six months) holding in the aggregate
shares of the Trust valued at not less than $25,000 at current offering
price (as defined in the then effective prospectus and\or statement of
additional information relating to the Shares under the Securities Act of
1933, as amended from time to time) or holding not less than 1% in amount
of the entire amount of Shares issued and outstanding; such request must
state that such Shareholders wish to communicate with other Shareholders
with a view to obtaining signatures to a request for a meeting to take
action pursuant to part 2 of this Article SIXTH and be accompanied by a
form of communication to the Shareholders. The Trustees may, in their
discretion, satisfy their obligation under this part 3 by either making
available the Shareholder list to such Shareholders at the principal
offices of the Trust, or at the offices of the Trust's transfer agent,
during regular business hours, or by mailing a copy of such communication
and form of request, at the expense of such requesting Shareholders, to
all other Shareholders, and the Trustees may also take such other action
as may be permitted under Section 16(c) of the 1940 Act.
4. The Trust may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section
16(c) of the 1940 Act and, if an exemptive order or orders are issued by
the Commission, such order or orders shall be deemed part of said Section
16(c) for the purposes of parts 2 and 3 of this Article SIXTH.
SEVENTH: The following provisions are hereby adopted for the purpose
of defining, limiting and regulating the powers of the Trust, the Trustees
and the Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or
the Trustees and shall have accepted this Trust, the Trust estate shall
vest in the new Trustee or Trustees, together with the continuing
Trustees, without any further act or conveyance, and he shall be deemed
a Trustee hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them shall not operate to annul
or terminate the Trust but the Trust shall continue in full force and
effect pursuant to the terms of this Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets
of the Trust shall at all times be considered as vested in the Trustees.
No Shareholder shall have, as a holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact business for
or on behalf of the Trust, or on behalf of the Trustees, in connection
with the property or assets of the Trust, or in any part thereof.
4. The Trustees in all instances shall act as principals, and are
and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute, and to authorize the officers and agents of the Trust to make and
execute, any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust.
The Trustees shall not in any way be bound or limited by present or future
laws or customs in regard to Trust investments, but shall have full
authority and power to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the purpose of
this Trust. Subject to any applicable limitation in this Declaration of
Trust or by the By-Laws of the Trust, the Trustees shall have power and
authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and terminate
such officers as they consider appropriate with or without cause, and to
appoint and designate from among the Trustees such committees as the
Trustees may determine, and to terminate any such committee and remove any
member of such committee;
(c) to employ as custodian of any assets of the Trust a bank
or trust company or any other entity qualified and eligible to act as a
custodian, subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(d) to retain a transfer agent and shareholder servicing agent,
or both;
(e) to provide for the distribution of Shares either through
a principal underwriter or the Trust itself or both;
(f) to set record dates in the manner provided for in the By-
Laws of the Trust;
(g) to delegate such authority as they consider desirable to
any officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property held in
Trust hereunder; and to execute and deliver powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to securities
or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form,
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern,
and to pay calls or subscriptions with respect to any security held in the
Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but
not limited to, claims for taxes;
(m) to make, in the manner provided in the By-Laws,
distributions of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted
by the 1940 Act and the Trust's fundamental policy thereunder as to
borrowing;
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons;
(p) to change the name of the Trust or any Class or Series of
the Trust as they consider appropriate without prior shareholder approval;
and
(q) to establish officers' and Trustees' fees or compensation
and fees or compensation for committees of the Trustees to be paid by the
Trust or each Series thereof in such manner and amount as the Trustees may
determine.
5. No one dealing with the Trustees shall be under any obligation
to make any inquiry concerning the authority of the Trustees, or to see
to the application of any payments made or property transferred to the
Trustees or upon their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription to any Shares or
otherwise. This paragraph shall not limit the right of the Trustees to
assert claims against any shareholder based upon the acts or omissions of
such shareholder or for any other reason. There is hereby expressly
disclaimed shareholder and Trustee liability for the acts and obligations
of the Trust. Every note, bond, contract or other undertaking issued by
or on behalf of the Trust or the Trustees relating to the Trust shall
include a notice and provision limiting the obligation represented thereby
to the Trust and its assets (but the omission of such notice and provision
shall not operate to impose any liability or obligation on any Shareholder
or Trustee).
(b) Whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a quorum of
Trustees as set forth from time to time in the By-Laws of the Trust or as
required by the 1940 Act.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein
contained such as may be necessary or convenient in the conduct of any
business or enterprise of the Trust, to do and perform anything necessary,
suitable, or proper for the accomplishment of any of the purposes, or the
attainment of any one or more of the objects, herein enumerated, or which
shall at any time appear conducive to or expedient for the protection or
benefit of the Trust, and to do and perform all other acts and things
necessary or incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power, to the extent not
inconsistent with the 1940 Act, to determine conclusively whether any
moneys, securities, or other properties of the Trust are, for the purposes
of this Trust, to be considered as capital or income and in what manner
any expenses or disbursements are to be borne as between capital and
income whether or not in the absence of this provision such moneys,
securities, or other properties would be regarded as capital or income and
whether or not in the absence of this provision such expenses or
disbursements would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees into Classes
and prescribe the tenure of office of the several Classes, but no Class
of Trustee shall be elected for a period shorter than that from the time
of the election following the division into Classes until the next meeting
and thereafter for a period shorter than the interval between meetings or
for a period longer than five years, and the term of office of at least
one Class shall expire each year.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable
regulations of the Trustees, not contrary to Massachusetts law, as to
whether and to what extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any officer elected or appointed by the Trustees or by the
Shareholders or otherwise, may be removed at any time, with or without
cause, in such lawful manner as may be provided in the By-Laws of the
Trust.
10. The Trustees shall have power to hold their meetings, to have
an office or offices and, subject to the provisions of the laws of
Massachusetts, to keep the books of the Trust outside of said Commonwealth
at such places as may from time to time be designated by them. Action may
be taken by the Trustees without a meeting by unanimous written consent
or by telephone or similar method of communication.
11. Securities held by the Trust shall be voted in person or by
proxy by the President or a Vice-President, or such officer or officers
of the Trust as the Trustees shall designate for the purpose, or by a
proxy or proxies thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of the Shares
outstanding and entitled to vote in respect thereto.
12. (a) Subject to the provisions of the 1940 Act, any Trustee,
officer or employee, individually, or any partnership of which any
Trustee, officer or employee may be a member, or any corporation or
association of which any Trustee, officer or employee may be an officer,
partner, director, trustee, employee or stockholder, or otherwise may have
an interest, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Trust, and in the
absence of fraud no contract or other transaction shall be thereby
affected or invalidated; provided that in such case a Trustee, officer or
employee or a partnership, corporation or association of which a Trustee,
officer or employee is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed or shall have
been known to the Trustees including those Trustees who are not so
interested and who are neither "interested" nor "affiliated" persons as
those terms are defined in the 1940 Act, or a majority thereof; and any
Trustee who is so interested, or who is also a director, officer, partner,
trustee, employee or stockholder of such other corporation or a member of
such partnership or association which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Trustees which
shall authorize any such contract or transaction, and may vote thereat to
authorize any such contract or transaction, with like force and effect as
if he were not so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Trust and/or
principal underwriter of the Shares of the Trust or any subsidiary or
affiliate of any such manager or investment adviser and/or principal
underwriter and may permit any such firm or corporation to enter into any
contracts or other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Trustees of the Trust may
be composed in part of partners, directors, officers or employees of any
such firm or corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of any such firm
or corporation, and in the absence of fraud the Trust and any such firm
or corporation may deal freely with each other, and no such contract or
transaction between the Trust and any such firm or corporation shall be
invalidated or in any way affected thereby, nor shall any Trustee or
officer of the Trust be liable to the Trust or to any Shareholder or
creditor thereof or to any other person for any loss incurred by it or him
solely because of the existence of any such contract or transaction;
provided that nothing herein shall protect any director or officer of the
Trust against any liability to the trust or to its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) As used in this paragraph the following terms shall have
the meanings set forth below:
(i) the term "indemnitee" shall mean any present or
former Trustee, officer or employee of the Trust, any present or former
Trustee, partner, Director or officer of another trust, partnership,
corporation or association whose securities are or were owned by the Trust
or of which the Trust is or was a creditor and who served or serves in
such capacity at the request of the Trust, and the heirs, executors,
administrators, successors and assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred to, the conduct shall be
that of the original indemnitee rather than that of the heir, executor,
administrator, successor or assignee;
(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which an indemnitee
is or was a party or is threatened to be made a party by reason of the
fact or facts under which he or it is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office in question;
(iv) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by an indemnitee in connection
with a covered proceeding; and
(v) the term "adjudication of liability" shall mean,
as to any covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent.
(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an
adjudication of liability against such indemnitee expressly based on a
finding of disabling conduct.
(e) Except as set forth in paragraph (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any covered
proceeding, whether or not there is an adjudication of liability as to
such indemnitee, such indemnification by the Trust to be to the fullest
extent now or hereafter permitted by any applicable law unless the By-laws
limit or restrict the indemnification to which any indemnitee may be
entitled. The Board of Trustees may adopt bylaw provisions to implement
sub-paragraphs (c), (d) and (e) hereof.
(f) Nothing herein shall be deemed to affect the right of
the Trust and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnities to the extent permitted by applicable law
or to affect any other indemnification rights to which any indemnitee may
be entitled to the extent permitted by applicable law. Such rights to
indemnification shall not, except as otherwise provided by law, be deemed
exclusive of any other rights to which such indemnitee may be entitled
under any statute now or hereafter enacted, By-Law, contract or otherwise.
13. The Trustees are empowered, in their absolute discretion, to
establish bases or times, or both, for determining the net asset value per
Share of any Class and Series in accordance with the 1940 Act and to
authorize the voluntary purchase by any Class and Series, either directly
or through an agent, of Shares of any Class and Series upon such terms and
conditions and for such consideration as the Trustees shall deem advisable
in accordance with the 1940 Act.
14. Payment of the net asset value per Share of any Class and
Series properly surrendered to it for redemption shall be made by the
Trust within seven days, or as specified in any applicable law or
regulation, after tender of such stock or request for redemption to the
Trust for such purpose together with any additional documentation that may
be reasonably required by the Trust or its transfer agent to evidence the
authority of the tenderor to make such request, plus any period of time
during which the right of the holders of the shares of such Class of that
Series to require the Trust to redeem such shares has been suspended. Any
such payment may be made in portfolio securities of that Series and/or in
cash, as the Trustees shall deem advisable, and no Shareholder shall have
a right, other than as determined by the Trustees, to have Shares redeemed
in kind.
15. The Trust shall have the right, at any time and without prior
notice to the Shareholder, to redeem Shares of the Class and Series held
by such Shareholder held in any account registered in the name of such
Shareholder for its current net asset value, if and to the extent that
such redemption is necessary to reimburse either that Series or Class of
the Trust or the distributor (i.e., principal underwriter) of the Shares
for any loss either has sustained by reason of the failure of such
Shareholder to make timely and good payment for Shares purchased or
subscribed for by such Shareholder, regardless of whether such Shareholder
was a Shareholder at the time of such purchase or subscription; subject
to and upon such terms and conditions as the Trustees may from time to
time prescribe.
EIGHTH: The name "Oppenheimer" included in the name of the Trust
and of any Series shall be used pursuant to a royalty-free, non-exclusive
license from Oppenheimer Management Corporation ("OMC"), incidental to and
as part of any one or more advisory, management or supervisory contracts
which may be entered into by the Trust with OMC. Such license shall allow
OMC to inspect and subject to the control of the Board of Trustees to
control the nature and quality of services offered by the Trust under such
name. The license may be terminated by OMC upon termination of such
advisory, management or supervisory contracts or without cause upon 60
days' written notice, in which case neither the Trust nor any Series or
Class shall have any further right to use the name "Oppenheimer" in its
name or otherwise and the Trust, the Shareholders and its officers and
Trustees shall promptly take whatever action may be necessary to change
its name and the names of any Series or Classes accordingly.
NINTH:
1. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his being or having been a
Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or the Shareholders, heirs,
executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the Trust estate to be held harmless
from and indemnified against all loss and expense arising from such
liability. The Trust shall, upon request by the Shareholder, assume the
defense of any such claim made against any Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a
partnership is created hereby. No individual Trustee hereunder shall have
any power to bind the Trust, the Trust's officers or any Shareholder. All
persons extending credit to, doing business with, contracting with or
having or asserting any claim against the Trust or the Trustees shall look
only to the assets of the Trust for payment under any such credit,
transaction, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall
be personally liable therefor; notice of such disclaimer shall be given
in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. Nothing in this Declaration of Trust shall
protect a Trustee
against any liability to which such Trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee
hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances
then prevailing, shall be binding upon everyone interested. Subject to
the provisions of paragraph 2 of this Article NINTH, the Trustees shall
not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the
meaning and operations of this Declaration of Trust, applicable laws,
contracts, obligations, transactions or any other business the Trust may
enter into, and subject to the provisions of paragraph 2 of this Article
NINTH, shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall
not be required to give any bond as such, nor any surety if a bond is
required.
4. This Trust shall continue without limitation of time but
subject to the provisions of sub-sections (a), (b), (c) and (d) of this
paragraph 4.
(a) The Trustees, with the favorable vote of the holders of
a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may sell and convey the
assets of that Series (which sale may be subject to the retention of
assets for the payment of liabilities and expenses) to another issuer for
a consideration which may be or include securities of such issuer. Upon
making provision for the payment of liabilities, by assumption by such
issuer or otherwise, the Trustees shall distribute the remaining proceeds
ratably among the holders of the outstanding Shares of the Series the
assets of which have been so transferred.
(b) The Trustees, with the favorable vote of the holders
of a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may at any time sell and
convert into money all the assets of that Series. Upon making provisions
for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of that Series, the Trustees shall
distribute the remaining assets of that Series ratably among the holders
of the outstanding Shares of that Series.
(c) The Trustees, with the favorable vote of the holders of
a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may otherwise alter,
convert or transfer the assets of that Series or those Series.
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in sub-sections (a) and (b),
and in subsection (c) where applicable, the Series the assets of which
have been so transferred shall terminate, and if all the assets of the
Trust have been so transferred, the Trust shall terminate and the Trustees
shall be discharged of any and all further liabilities and duties
hereunder and the right, title and interest of all parties shall be
canceled and discharged.
5. The original or a copy of this instrument and of each
restated declaration of trust or instrument supplemental hereto shall be
kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each supplemental or
restated declaration of trust shall be filed with the Secretary of the
Commonwealth of Massachusetts, as well as any other governmental office
where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such supplemental or restated declarations of trust
have been made and as to any matters in connection with the Trust
hereunder, and, with the same effect as if it were the original, may rely
on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such supplemental or restated declaration of trust.
In this instrument or in any such supplemental or restated declaration of
trust, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as
amended or affected by any such supplemental or restated declaration of
trust. This instrument may be executed in any number of counterparts,
each of which shall be deemed as an original.
6. The Trust set forth in this instrument is created under and
is to be governed by and construed and administered according to the laws
of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
7. The Board of Trustees is empowered to cause the redemption
of the Shares held in any account if the aggregate net asset value of such
Shares has been reduced to $200 or less upon such notice to the
shareholder in question, with such permission to increase the investment
in question and upon such other terms and conditions as may be fixed by
the Board of Trustees in accordance with the 1940 Act.
8. In the event that any person advances the organizational
expenses of the Trust, such advances shall become an obligation of the
Trust subject to such terms and conditions as may be fixed by, and on a
date fixed by, or determined with criteria fixed by the Board of Trustees,
to be amortized over a period or periods to be fixed by the Board.
9. Whenever any action is taken under this Declaration of Trust
including action which is required or permitted by the 1940 Act or any
other applicable law, such action shall be deemed to have been properly
taken if such action is in accordance with the construction of the 1940
Act or such other applicable law then in effect as expressed in "no
action" letters of the staff of the Commission or any release, rule,
regulation or order under the 1940 Act or any decision of a court of
competent jurisdiction, notwithstanding that any of the foregoing shall
later be found to be invalid or otherwise reversed or modified by any of
the foregoing.
10. Any action which may be taken by the Board of Trustees under
this Declaration of Trust or its By-Laws may be taken by the description
thereof in the then effective prospectus and/or statement of additional
information relating to the Shares under the Securities Act of 1933 or in
any proxy statement of the Trust rather than by formal resolution of the
Board.
11. Whenever under this Declaration of Trust, the Board of
Trustees is permitted or required to place a value on assets of the Trust,
such action may be delegated by the Board, and/or determined in accordance
with a formula determined by the Board, to the extent permitted by the
1940 Act.
12. If authorized by vote of the Trustees and the favorable vote
of the holders of a majority of the outstanding voting securities, as
defined in the 1940 Act, entitled to vote, or by any larger vote which may
be required by applicable law in any particular case, the Trustees may
amend or otherwise supplement this instrument, by making a Restated
Declaration of Trust or a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof; any such Supplemental or Restated
Declaration of Trust may be executed by and on behalf of the Trust and the
Trustees by an officer or officers of the Trust.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the 16th day of March, 1995.
/s/ William A. Baker /s/ Charles Conrad, Jr.
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William A. Baker, Trustee Charles Conrad, Jr., Trustee
197 Desert Lakes Drive 19411 Merion Court
Palm Springs, California 92264 Huntington Beach, California 92648
/s/ Ned M. Steel /s/ Robert M. Kirchner
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Ned M. Steel, Trustee Robert M. Kirchner, Trustee
3236 S. Steele Street 2800 S. University Boulevard
Denver, Colorado Denver, Colorado 80210
/s/ Raymond J. Kalinowski /s/ C. Howard Kast
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Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee
44 Portland Drive 2552 East Alameda
St. Louis, Missouri Denver, Colorado 80209
/s/ James C. Swain /s/ Jon S. Fossel
- ------------------------- ------------------------
James C. Swain, Trustee Jon S. Fossel, Trustee
23554 Wayne's Way Box 44 - Mead Street
Golden, California 80401 Waccabuc, New York 10597
/s/ Robert G. Avis
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Robert G. Avis, Trustee
1706 Warson Estates Drive
St. Louis, Missouri 63124
ORGZN\230#6
