<PAGE>
OPPENHEIMER STRATEGIC INCOME FUND
Supplement dated January 25, 1996 to the
Prospectus dated January 25, 1996
The Prospectus is changed as follows:
In addition to paying dealers the regular commission for (1)
sales of Class A shares stated in the sales charge table in "Buying
Class A Shares" on page 30, (2) sales of Class B shares described
in the third paragraph in "Distribution and Service Plan for Class
B Shares" on page 36, or (3) sales of Class C shares described in
the third paragraph in "Distribution and Service Plan for Class C
Shares" on page 37, the Distributor will pay additional commission
to each participating broker, dealer and financial institution that
has a sales agreement with the Distributor (these are referred to
as "participating firms") for Class A, B and C shares of the Fund
sold in "qualifying transactions" (the "promotion"). The
additional commission will be .75% of the offering price of shares
of the Fund sold by a registered representative or sales
representative of a participating firm during the promotion. If
the additional commission is paid on the sale of Class A shares of
$1 million or more and those shares are redeemed within 13 months
from the end of the month in which they were purchased, the
participating firm will be required to return the additional
commission.
"Qualifying transactions" are sales of Class A, Class B and/or
Class C shares of any one or more of the Oppenheimer funds (except
money market funds and tax-exempt funds) for (1) new Individual
Retirement Accounts ("IRAs"), using the OppenheimerFunds prototype
IRA agreement, including rollover IRAs, SEP IRAs and SAR-SEP IRAs,
where the IRA is established and the purchase payment is received
during the period from January 1, 1996 through April 15, 1996 (the
"promotion period") or, (2) IRAs using the A.G. Edwards & Sons,
Inc. prototype IRA agreement, including rollover IRAs, SEP IRAs and
SAR-SEP IRAs, where the purchase payment is received during the
promotion period. "Qualifying transactions" also include
purchases of shares of Oppenheimer funds for existing
OppenheimerFunds or A.G. Edwards & Sons, Inc. prototype IRAs,
rollover IRAs, SEP IRAs and SAR-SEP IRAs effected through a
rollover from an investor, or through a direct rollover or trustee-
to-trustee transfer from another retirement plan trustee, of IRA
assets or other employee benefit plan assets from an account or
investment other than an account or investment in the Oppenheimer
funds. To qualify, the payment for the shares purchased for a
rollover to an OppenheimerFunds prototype IRA or for a rollover,
direct rollover or trustee-to-trustee transfer to an A.G. Edwards
& Sons, Inc. prototype IRA must be received during the promotion
period, or the acceptance of a direct rollover or trustee-to-
trustee transfer to an OppenheimerFunds prototype IRA must be
acknowledged by the trustee of the OppenheimerFunds prototype IRA
during the promotion period. "Qualifying transactions" do not
include (1) purchases of Class A shares intended but not yet made
under a Letter of Intent, and (2) purchases of Class A, Class B
and/or Class C shares with the redemption proceeds from an existing
OppenheimerFunds account.
January 25, 1996 PS0230.009
<PAGE>
OPPENHEIMER
Strategic Income Fund
Prospectus dated January 25, 1996
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 "Investment Policies and Strategies" for
more information about the types of securities the Fund invests in
and the risks of investing in the Fund.
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 January 25, 1996, Statement of Additional Information.
For a free copy, call OppenheimerFunds Services, the Fund's
Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent
at the address on the back cover. The Statement of Additional
Information has been filed with the Securities and Exchange
Commission ("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
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Description of Ratings Categories
Appendix B: Special Sales Charge Arrangements for Certain
Persons
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other
services and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset value per share. All
shareholders therefore pay those expenses indirectly. Shareholders
pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will bear
indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1995.
-- Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages 27 through 48 for an explanation of how and
when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
on Purchases (as a %
of offering price)
- ----------------------------------------------------------------------
Sales Charge on None None None
Reinvested Dividends
- ----------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the first 1.0% if
(as a % of the lower of year, declining shares are
the original purchase to 1% in the redeemed
price or redemption sixth year and within 12
proceeds) eliminated months of
thereafter(2) purchase(2)
- ----------------------------------------------------------------------
Exchange Fee None None None
- ----------------------------------------------------------------------
Redemption Fee None(3) None(3) None(3)
</TABLE>
(1)If you invest $1 million or more ($500,000 or more for purchases
by OppenheimerFunds prototype 401(k) plans) in Class A shares, you
may have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month in
which you purchased those shares. See "How to Buy Shares - Buying
Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares" below, 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
transfer through AccountLink, or for which Checkwriting privileges
are used. See "How to Sell Shares", below.
-- Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (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 Plan Fees
(the maximum fee is 0.25% of average annual net assets of that
class), and for Class B and Class C shares, are the 12b-1
Distribution and Service Plan Fees (the maximum service fee 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 before May 26, 1995. Therefore, the Annual Fund
Operating Expenses for Class C shares are estimates based on
expenses for the period from the inception date until September 30,
1995.
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------
Management Fees 0.54% 0.54% 0.54%
- -------------------------------------------------------
12b-1 Distribution 0.25% 1.00% 1.00%
Plan Fees
- -------------------------------------------------------
Other Expenses 0.20% 0.21% 0.48%
- -------------------------------------------------------
Total Fund 0.99% 1.75% 2.02%
Operating 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 $78 $100 $163
- -----------------------------------------------------------
Class B Shares $68 $85 $115 $168
- -----------------------------------------------------------
Class C Shares $31 $63 $109 $235
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 $78 $100 $163
- -----------------------------------------------------------
Class B Shares $18 $55 $95 $168
- -----------------------------------------------------------
Class C Shares $21 $63 $109 $235
*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 more than the
maximum front-end sales charge allowed under applicable
regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the
likelihood that this will occur. Please refer to "How to Buy
Shares-Buying Class B Shares" for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing. 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
10.
-- Who Manages the Fund? The Fund's investment advisor (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996,
OppenheimerFunds, Inc. was known as Oppenheimer Management
Corporation. The Manager (including a subsidiary) advises
investment company portfolios having over $40 billion in assets.
The Manager is paid an advisory fee by the Fund, based on its
assets. The Fund's portfolio managers, who are employed by the
Manager, are primarily responsible for the selection of the Fund's
securities. They are David Negri and Arthur Steinmetz. 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 20 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 Oppenheimer funds spectrum, the Fund is generally not
as risky as aggressive growth funds, but is more aggressive than
investment grade bond funds. While the Manager tries to reduce
risks by diversifying investments, by carefully researching
securities before they are purchased for the portfolio, and in some
cases by using hedging techniques, there is no guarantee of success
in achieving the Fund's objectives and your shares may be worth
more or less than their original cost when you redeem them. Please
refer to "Investment Objective and Policies" starting on page 10
for a more complete discussion of the Fund's investment risks.
-- 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 27 for more details.
-- Will I Pay a Sales Charge to Buy Shares? The Fund offers
the individual investor three classes of shares. All classes have
the same investment portfolio but different expenses. Class A
shares are offered with a front-end sales charge, starting at
4.75%, and reduced for larger purchases. Class B 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 27 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,
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 41. The Fund also offers exchange privileges to other
Oppenheimer funds, described in "How to Exchange Shares" on page
44.
-- 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 yields and returns (over similar periods) of
other funds. Of course, other funds may have different objectives,
investments, and levels of risk. The Fund's performance can also
be compared to broad market indices, which we have done on page 22.
Please remember that past performance does not guarantee future
results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense
ratios and other data based on the Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose report on the Fund's financial
statements for the fiscal year ended September 30, 1995, is
included in the Statement of Additional Information. Class C
shares were publicly offered only during a portion of that period,
commencing May 26, 1995.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <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
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .41 .45 .48 .46 .56 .59
Net realized and unrealized gain (loss)
on investments, options written
and foreign currency transactions (.03) (.35) .17 .14 .21 (.10)
- -----------------------------------------------------------------------------------------------------------------------
Total income from
investment operations .38 .10 .65 .60 .77 .49
- -----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.41) (.43) (.50) (.46) (.57) (.57)
Distributions from net realized gain
on investments, options written
and foreign currency transactions (.01) -- (.01) (.08) (.06) (.05)
Distributions in excess of net
realized gain on investments,
options written and foreign
currency transactions -- (.12) -- -- -- --
Tax return of capital (.03) (.01) -- -- -- --
------- ------- ------- ------- ------- -----
Total dividends and distributions
to shareholders (.45) (.56) (.51) (.54) (.63) (.62)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.75 $5.21 $5.07 $5.01 $4.87
------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 8.62% 1.85% 13.30% 12.56% 16.97% 10.20%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) $3,219 $3,143 $2,754 $1,736 $560 177
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,085 $3,082 $2,107 $1,084 $311 $93
- -----------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 687,546 661,897 528,587 342,034 111,739 36,418
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 9.63% 8.72% 9.78% 9.39% 11.82% 12.79%(5)
Expenses .99% .95% 1.09% 1.16%(6) 1.27%(6) 1.36%(5)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 141.5% 119.0% 148.6% 208.2% 194.7% 424.6%
<CAPTION>
Class B Class C
-------------------------------------- -------
Year
Ended
Year Ended Sept, 30, Sept, 30,
1995 1994 1993(2) 1995(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA: $4.76 $5.22 $4.89 $4.68
Net asset value, beginning of period
- ------------------------------------------------------------------------------------------
Income (loss) from investment
operations: .37 .42 .36 .13
Net investment income
Net realized and unrealized gain (loss)
on investments, options written (.03) (.36) .34 .01
and foreign currency transactions
------- ------- ------- -------
Total income from .34 .06 .70 .14
investment operations
- -------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders: (.37) (.39) (.36) (.12)
Dividends from net investment income
Distributions from net realized gain
on investments, options written (.01) -- (.01) (.01)
and foreign currency transactions
Distributions in excess of net
realized gain on investments,
options written and foreign -- (.12) -- --
currency transactions (.03) (.01) -- (.01)
Tax return of capital
Total dividends and distributions
to shareholders (.41) (.52) (.37) (.14)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $4.69 $4.76 $5.22 $4.68
------- ------- ------- -------
------- ------- ------- -------
- ------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 7.79% 1.07% 13.58% 3.09
- ------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) 1,947 $1,586 $695 $67
- ------------------------------------------------------------------------------------------
Average net assets (in millions) 1,711 $1,236 $276 $24
- ------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 415,200 333,489 133,235 14,314
- ------------------------------------------------------------------------------------------
Ratios to average net assets
Net investment income 8.83% 7.90% 8.13%(5) 8.28
Expenses 1.75% 1.71% 1.80%(5) 2.02
- ------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 141.5% 119.0% 148.6% 141.5%
</TABLE>
1. For the period from May 26, 1995
(inception of offering) to September 30,
1995.
2. For the period from November 30, 1992
(inception of offering) to September 30,
1993.
3. For the period from October 16, 1989
(inception of offering) to September 30,
1990.
4. 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.
5. Annualized.
6. 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.
7. The lesser of purchases or sales of
portfolio securities for a period, divided
by the monthly average of the market value
of portfolio securities owned during the
period. Securities with a maturity or
expiration date at the time of acquisition
of one year or less are excluded from the
calculation. Purchases and sales of
investment securities (excluding short-term
securities) for the period ended September
30, 1995 were $7,299,319,937 and
$6,307,228,611, 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 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-Grade Securities. In seeking high
current income, the Fund may invest in higher-yielding, lower-grade
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-grade" debt
securities are those rated below "investment grade," which means
they have a rating lower than "Baa" by Moody s Investors Service,
Inc., or lower than "BBB" by Standard & Poor s Corporation or
similar ratings by other rating organizations. The Fund may invest
in securities rated as low as "C" or "D" or which may be in default
at the time the Fund buys them. While securities rated "Baa" by
Moody s or "BBB" by S&P are investment grade and are not regarded
as "junk bonds," those securities may be subject to greater market
fluctuations and risks of loss of income and principal than higher-
grade securities and may be considered to have certain speculative
characteristics.
The 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, 1995, the Fund's portfolio included corporate bonds
in the following S&P rating categories or if unrated, determined by
the Manager to be comparable to the category indicated (the amounts
shown are dollar-weighted average values of the bonds in each
category measured as a percentage of the Fund's total assets): AAA,
0.44%; AA, 0%; A, 0.15%; BBB, 1.28%; BB, 3.81%; B, 16.22%; CCC,
3.99%; CC, 0.09%; C, 0%; D, 0.35%. Appendix A 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.
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.
- Special Risks of Emerging Market Countries. Investments in
emerging market countries may involve further risks in addition to
those identified above for investments in foreign securities.
Securities issued by emerging market countries and by companies
located in those countries may be subject to extended settlement
periods, whereby the Fund might not receive principal and/or income
on a timely basis and its net asset value could be affected. There
may be a lack of liquidity for emerging market securities; interest
rates and foreign currency exchange rates may be more volatile;
sovereign limitations on foreign investments may be more likely to
be imposed; there may be significant balance of payment deficits;
and their economies and markets may respond in a more volatile
manner to economic changes than those of developed countries.
-- 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 or other buyers that provide for future delivery of the
mortgage-backed securities in which the Fund may invest. The Fund
would be required to identify cash, U.S. Government securities or
other high-grade securities to its custodian bank in an amount
equal to its purchase payment 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, 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 net assets to brokers, dealers and other
financial institutions, subject to certain conditions described in
the Statement of Additional Information. The Fund must receive
collateral for a loan. 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 in the coming year.
-- 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. As described below, 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. In general, a "derivative
investment" is a specially designed investment. Its performance is
linked to the performance of another investment or security, such
as an option, future, index, currency or commodity. The Fund may
not purchase or sell physical commodities or commodity contracts;
however this shall not prevent the Fund from buying or selling
options and futures contracts of from investing in securities or
other instruments backed by physical commodities. For hedging
purposes, the Fund may purchase and sell foreign currency.
Derivative investments used by the Fund are used in some cases
for hedging purposes and in other cases for "non-hedging"
investment purposes to seek income or total return. In the
broadest sense, exchange-traded options and futures contracts
(discussed in "Hedging," above) may be considered "derivative
investment."
The Fund may invest in different types of derivatives.
"Index-linked" or "commodity-linked" notes are debt securities of
companies that call for interest payments and/or payment on the
maturity of the note in different terms than the typical note where
the borrower agrees to make fixed interest payments and to pay a
fixed sum on the maturity of the note. Principal and/or interest
payments on an index-linked note depend on the performance of one
or more market indices, such as the S&P 500 Index or a weighted
index of commodity futures, such as crude oil, gasoline and natural
gas. The Fund may invest in "debt exchangeable for common stock"
of an issuer or "equity-linked" debt securities of an issuer. At
maturity, the principal amount of the debt security is exchanged
for common stock of the issuer or is payable in an amount based on
the issuer s common stock price at the time of maturity. In either
case there is a risk that the amount payable at maturity will be
less than the expected principal amount of the debt.
The Fund may also invest in currency-indexed securities.
Typically, these are short-term or intermediate-term debt
securities having a value at maturity, and/or an interest rate,
determined by reference to one or more foreign currencies. The
currency-indexed securities purchased by the Fund may make payments
based on a formula. The payment of principal or periodic interest
may be calculated as a multiple of the movement of one currency
against another currency, or against an index. These investments
may entail increased risk to principal and increased price
volatility.
- Derivatives may entail special risks. The company issuing
the instrument may fail to pay the amount due on the maturity of
the instrument. Also, the underlying investment or security might
not perform the way the Manager expected it to perform. Markets,
underlying securities and indices may move in a direction not
anticipated by the Manager. Performance of derivative investments
may also be influenced by interest rate and stock market changes in
the U.S. and abroad. All of this can mean that the Fund will
realize less principal or income from the investment than expected.
Certain derivative investments held by the Fund may be illiquid.
Please refer to "Illiquid and Restricted Securities."
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these
fundamental policies, the Fund cannot do any of the following:
- 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);
- 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;
- 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
- 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 restrictions 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. In January 1996,
the Trust was renamed Oppenheimer Strategic Income Fund. The Trust
is an open-end, diversified management investment company, with an
unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year
to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and 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 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. All classes
invest in the same investment portfolio. Each class has its own
dividends and distributions and pays certain expenses which may be
different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only
shares of a particular class vote as a class on matters that affect
that class alone. Shares are freely transferrable.
The Manager and its Affiliates. The Fund is managed by the
Manager, OppenheimerFunds, Inc., which is responsible for selecting
the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The 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 Oppenheimer funds, in excess of $40
billion as of December 31, 1995, held in more than 2.8 million
shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
-- Portfolio 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 Oppenheimer
funds.
-- Fees and Expenses. Under the Investment Advisory
Agreement, the Fund pays the Manager the following annual fees,
which decline on additional assets as the Fund grows: 0.75% 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, Class B shares and Class C 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, brokers and other financial institutions that have a sales
agreement with OppenheimerFunds Distributor, Inc., a subsidiary of
the Manager that acts as the Distributor. The Distributor also
distributes shares of the other Oppenheimer funds and is sub-
distributor for funds managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for the other
Oppenheimer funds. Shareholders should direct inquiries about
their 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, normally
they include the payment of the current maximum initial sales
charge. When total returns are shown for Class B shares, they
include the effect of the contingent deferred sales charge that
applies to the period for which total return is shown. When total
returns are shown for a one-year period or less for Class C shares,
they include 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, 1995, followed by a graphical comparison of the
Fund's performance to an appropriate broad-based market index.
-- Management's Discussion of Performance. During the Fund's
fiscal year ended September 30, 1995, the Fund's performance was
affected positively by the overall improvement in the U.S. fixed-
income markets. However to seek better yield opportunities, the
Manager shifted the Fund's focus for new investments to foreign
bonds in markets that lagged the U.S. market. For example,
investments were made in Australia, Canada, Europe, East Asia and
some emerging markets. Within the domestic portion of the Fund's
investments, the Manager sought to shorten the average portfolio
maturity and increased investments in mortgage-backed obligations.
The Fund's performance was also enhanced by the sale of U.S.
corporate bonds that had appreciated in value.
-- 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 and Class C shares of the Fund from the
inception of each respective Class held through September 30, 1995,
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, the maximum 5%
contingent deferred sales charge for Class B shares and the 1%
contingent deferred sales charge for Class C shares.
Because the Fund invests in a variety of debt securities in
domestic and foreign markets, the Fund's performance is compared to
the performance of The Lehman Brothers Aggregate Bond Index and The
Salomon Brothers World Government Bond Index. The Lehman Brothers
Aggregate Bond Index is a broad-based, unmanaged index of U.S.
corporate bond issues, U.S. government securities and mortgage-
backed securities widely regarded as a measure of the performance
of the domestic debt securities market. The Salomon Brothers World
Government Bond Index is an unmanaged index of fixed-rate bonds
having a maturity of one year or more, widely regarded as a
benchmark of fixed income performance on a world-wide basis. Index
performance reflects the reinvestment of income, but not capital
gains or transaction costs, and none of the data below shows the
effect of taxes. Also, the Fund's performance data reflects the
effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not
limited to the securities in any one index. Moreover, the index
data does not reflect any assessment of the risk of the investments
included in the index.
Oppenheimer Strategic Income Fund
Comparison of Change in Value
of $10,000 Hypothetical Investment to
Lehman Brothers Aggregate Bond Index and
Salomon Brothers World Government Bond Index
[Graph]
Past Performance is not predictive of future performance.
Oppenheimer Strategic Income Fund
Average Annual Total Returns at 9/30/95
1 Year Life of Class*
Class A: 3.46% 9.72%
Class B: 2.87% 7.38%
Class C 2.09%
- -------------
*Class A shares were first publicly offered on 10/16/89.
Class B shares were first publicly offered on 11/30/92.
Class C shares were first publicly offered on 5/26/95.
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 may pay an
initial sales charge on investments up to $1 million (up to
$500,000 for purchases by OppenheimerFunds prototype 401(k) plans).
If you purchase Class A shares as part of an investment of at least
$1 million ($500,000 for OppenheimerFunds prototype 401(k) plans)
in shares of one or more Oppenheimer funds, you will not pay an
initial sales charge but if you sell any of those shares within 18
months of buying them, you may pay a contingent deferred sales
charge. The amount of that sales charge will vary depending on the
amount you invested. Sales charges are described in "Buying Class
A Shares" below.
-- Class B Shares. If you buy Class B shares, you pay no
sales charge at the time of purchase, but if you sell your shares
within six years of buying them, you will normally pay a contingent
deferred sales charge. That sales charge varies depending on how
long you own your shares. Sales charges are described in "Buying
Class B Shares" below.
-- Class C Shares. If you buy Class C shares, you pay no
sales charge at the time of purchase, but if you sell your shares
within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%. Sales charges are described in
"Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decision as to which
class of shares is better suited to your needs depends on a number
of factors which you should discuss with your financial advisor.
The Fund's operating costs that apply to a class of shares and the
effect of the different types of sales charges on your investment
will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long
you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider
another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We used the sales charge rates that apply to 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
of shares you invest in. The factors discussed below are not
intended to be investment advice or recommendations, because each
investor's financial considerations are different. The discussion
below of the factors to consider in purchasing a particular class
of shares assumes that you will purchase only one class of shares
and not a combination of shares of different classes.
-- How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. Because of the effect
of class-based expenses, your choice will also depend on how much
you plan to invest. For example, the reduced sales charges
available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your
investment (which reduces the amount of your investment dollars
used to buy shares for your account), compared to the effect over
time of higher class-based expenses on Class B or Class C shares
for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there
is no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales
charge available for larger purchases of Class A shares. For
example, Class A shares might be more advantageous than Class C (as
well as Class B) shares for investments of more than $100,000
expected to be held for 5 or 6 years (or more). For investments
over $250,000 expected to be held 4 to 6 years (or more), Class A
shares may become more advantageous than Class C (and Class B)
shares. If investing $500,000 or more, Class A shares may be more
advantageous as your investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most
cases Class A shares will be the most advantageous choice, no
matter how long you intend to hold your shares. For that reason,
the Distributor normally will not accept purchase orders of
$500,000 or $1 million or more of Class B or Class C shares
respectively from a single investor.
- Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or C shares, as discussed above, because of the effect of
the expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A
shares under the Fund's Right of Accumulation. Of course, these
examples are based on approximations of the effect of current sales
charges and expenses on a hypothetical investment over time, using
the assumed annual performance return stated above, and therefore
should not be relied on as rigid guidelines.
-- Are There Differences in Account Features That Matter to
You? Because some account features (such as Checkwriting) may not
be available to Class B 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. For example, share
certificates are not available for Class B or Class C shares and if
you are considering using you shares as collateral for a loan, that
may be a factor to consider. Also, Checkwriting privileges are not
available for Class B or Class C shares. Additionally, 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.
- How Does It Affect Payments to My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class 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. Subsequent
purchases of at least $25 can be made by telephone through
AccountLink.
Under pension and profit-sharing plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of
as little as $250 (if your IRA is established under an Asset
Builder Plan, the $25 minimum applies), and subsequent investments
may be as little as $25.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
-- How Are Shares Purchased? You can buy shares several ways
- -- through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the OppenheimerFunds AccountLink service.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure it is appropriate for
you.
-- Buying Shares Through OppenheimerFunds AccountLink. You
can use AccountLink to link your Fund account with an account at a
U.S. bank or other financial institution that is an
Automated Clearing House (ACH) member. You can then transmit funds
electronically to purchase shares, to 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 Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are on the Application
and in the Statement of Additional Information.
-- At What Prices Are Shares Sold? Shares are sold at the
public offering price based on the net asset value (and any initial
sales charge that applies) that is next determined after the
Distributor receives the purchase order in Denver, Colorado. In
most cases, to enable you to receive that day's offering price, the
Distributor must receive your order by the time of day The New York
Stock Exchange closes, which is normally 4:00 P.M., New York time,
but may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each
class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange, on a
regular business day and transmit it to the Distributor so that it
is received before the Distributor's close of business that day,
which is normally 5:00 P.M. The Distributor may reject any purchase
order for the Fund's shares, in its sole discretion.
-- Special Sales Charge Arrangements for Certain Persons.
Appendix B to this Prospectus sets forth conditions for the waiver
of, or exemption from, sales charges or the special sales charge
rates that apply to purchases of shares of the Fund (including
purchases by exchange) by a person who was a shareholder of one of
the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales
charge. However, in some cases, described below, purchases are not
subject to an initial sales charge, and the offering price will be
the net asset value. In some cases, reduced sales charges may be
available, as described below. Out of the amount you invest, the
Fund receives the net asset value to invest for your account. The
sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and
allocated to your dealer as commission. The current sales charge
rates and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge As Sales Charge As Commission as
a Percentage of a Percentage of Percentage of
Amount of Purchase Amount Invested Offering Price Offering Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- ---------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
- ---------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
- ----------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
</TABLE>
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
-- Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds in the following cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan that:
(1) buys shares costing $500,000 or more or (2) has, at the time of
purchase, 100 or more eligible participants, or (3) certifies that
it projects to have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one
class of shares that has no class designation are considered "Class
A shares" for this purpose. The Distributor pays dealers of record
commissions on those purchases in an amount equal to the sum of
1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of purchases over $5 million. That commission
will be paid only on the amount of those purchases in excess of $1
million ($500,000 for purchases by OppenheimerFunds 401(k)
prototype plans) that were not previously subject to a front-end
sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") will be deducted from the redemption proceeds. That sales
charge may be equal to 1.0% of either (1) the aggregate net asset
value of the redeemed shares (not including shares purchased by
reinvestment of dividends or capital gain distributions) or (2) the
original cost of the shares, whichever is less. The Class A
contingent deferred sales charge will not exceed the aggregate
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class
A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of
dividends and capital gains, and then will redeem other shares in
the order that you purchased them. The Class A contingent deferred
sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients. Dealers whose sales of Class A
shares of Oppenheimer funds (other than money market funds) under
OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5
million per year (calculated per quarter), will receive monthly
one-half of the Distributor's retained commissions on those sales,
and if those sales exceed $10 million per year, those dealers will
receive the Distributor's entire retained commission on those
sales.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
-- Right of Accumulation. To qualify for the lower sales
charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly, or for trust or
custodial accounts on behalf of your children who are minors. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds with
Class A shares of Oppenheimer funds to reduce the sales charge rate
that applies to current purchases of Class A shares. You can also
count Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred
sales charge to reduce the sales charge rate for current purchases
of Class A shares, provided that you still hold your investment in
one of the Oppenheimer funds. The value of those shares will be
based on the greater of the amount you paid for the shares or their
current value (at offering price). The Oppenheimer funds are
listed in "Reduced Sales Charges" in the Statement of Additional
Information, or a list can be obtained from the Distributor. The
reduced sales charge will apply only to current purchases and must
be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, if you
purchase Class A shares or Class A shares and Class B shares of the
Fund and other Oppenheimer funds during a 13-month period, you can
reduce the sales charge rate that applies to your purchase of Class
A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge
rate for the Class A shares purchased during that period. This can
include purchases made up to 90 days before the date of the Letter.
More information is contained in the Application and in "Reduced
Sales Charges" in the Statement of Additional Information.
-- Waivers of Class A Sales Charges. The Class A sales
charges are not imposed in the circumstances described below. There
is an explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the
Fund, the Manager and its affiliates, and retirement plans
established by them for their employees;
- registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses)
of dealers or brokers described above or financial institutions
that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor (1) providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients (those clients
may be charged a transaction fee by their dealer, broker or adviser
for the purchase or sale of Fund shares) or (2) 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;
- directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
- accounts for which Oppenheimer Capital is the investment
adviser (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts;
- any unit investment trust that has entered into an
appropriate agreement with the Distributor;
- a TRAC-2000 401(k) plan (sponsored by the former Quest for
Value Advisors) whose Class B or Class C shares of a Former Quest
for Value Fund were exchanged for Class A shares of that Fund due
to the termination of the Class B and C TRAC-2000 program on
November 24, 1995; or
- qualified retirement plans that had agreed with the former
Quest for Value Advisors to purchase shares of any of the Former
Quest for Value Funds at net asset value, with such shares to be
held through DCXchange, a sub-transfer agency mutual fund
clearinghouse, provided that such arrangements are consummated and
share purchases commence by March 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party, or
- shares purchased by the reinvestment of loan repayments by
a participant in a retirement plan for which the Manager or its
affiliates acts as sponsor,
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor, or
- shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
does not apply to purchases of Class A shares at net asset value
without sales charge as described in the two sections above. It is
also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans, including
OppenheimerFunds prototype 401(k) plans (these are all referred to
as "Retirement Plans"); or
- to return excess contributions made to Retirement Plans; or
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
- purchased with the proceeds of maturing principal of units
of any Qualified Unit Investment Liquid Trust Series; or
- if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k)
plans for any of the following cases or purposes: (1) following the
death or disability (as defined in the Internal Revenue Code) of
the participant or beneficiary (the death or disability must occur
after the participant's account was established); (2) hardship
withdrawals, as defined in the plan; (3) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (4) to
meet the minimum distribution requirements of the Internal Revenue
Code; (5) to establish "substantially equal periodic payments" as
described in Section 72(t) of the Internal Revenue Code, or (6)
separation from service.
-- Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer
or its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B
shares are redeemed within 6 years of their purchase, a contingent
deferred sales charge will be deducted from the redemption
proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The
charge will be assessed on the lesser of the net asset value of the
shares at the time of redemption or the original purchase price.
The contingent deferred sales charge is not imposed on the amount
of your account value represented by the increase in net asset
value over the initial purchase price. The Class B contingent
deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 6 years, and (3)
shares held the longest during the 6-year period.
The 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.
-- 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 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 services for accounts that hold Class B shares.
Those services are similar to those provided under the Class A
Service Plan, described above. The asset-based sales charge and
service fees increase Class B expenses by 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 (and the first year's service fee) 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, 1995, the end of the Plan year, the Distributor had
incurred unreimbursed expenses under the Plan of $73,988,456 (equal
to 3.80% 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.
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C
shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is
not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price
(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.
-- 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 Fund also pays the Distributor 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 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.
-- Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to Class B and Class C shares redeemed in certain
circumstances as described below. The reasons for this policy are
in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions of shares in Certain Cases. The Class
B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases, if the Transfer Agent
is notified that these conditions apply to the redemption:
- distributions to participants or beneficiaries from
Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2,
as long as the payments are no more than 10% of the account value
annually (measured from the date the Transfer Agent receives the
request), or (b) following the death or disability (as defined in
the Internal Revenue Code) of the participant or beneficiary (the
death or disability must have occurred after the account was
established);
- redemptions from accounts other than Retirement Plans
following the death or disability of the last surviving shareholder
(the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a
determination of disability by the Social Security Administration);
- returns of excess contributions to Retirement Plans;
- distributions from IRAs (including SEP-IRAs and SAR/SEP
accounts) before the participant is age 59-1/2, and distributions
from 403(b)(7) custodial plans or pension or profit sharing plans
before the participant is age 59-1/2 but only after the participant
has separated from service, if the distributions are made in
substantially equal periodic payments over the life (or life
expectancy) of the participant or the joint lives (or joint life
and last survivor expectancy) of the participant and the
participant's designated beneficiary (and the distributions must
comply with other requirements for such distributions under the
Internal Revenue Code and may not exceed 10% of the account value
annually, measured from the date the Transfer Agent receives the
request);
- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
- distributions from OppenheimerFunds prototype 401(k) plans
(1) for hardship withdrawals; (2) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (3) to
meet minimum distribution requirements as defined in the Internal
Revenue Code; (4) to make "substantially equal periodic payments"
as described in Section 72(t) of the Internal Revenue Code; or (5)
for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; and
- shares issued in plans of reorganization to which the Fund
is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please refer to the Application for details or
call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application
you use to buy shares, or on your dealer's settlement instructions
if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent.
AccountLink privileges will apply to each shareholder listed in the
registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those
privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-
guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer funds
account you have already established by calling the special
PhoneLink number. Please refer to "How to Exchange Shares," below,
for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer funds 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 Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer funds account is
$25. These exchanges are subject to the terms of the Exchange
Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or
other Oppenheimer funds without paying a sales charge. This
privilege applies to Class A shares that you purchased subject to
an initial sales charge and to Class A or Class B shares on which
you paid a contingent deferred sales charge when you redeemed them.
It does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. Please
consult the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for
your retirement plans. If you participate in a plan sponsored by
your employer, the plan trustee or administrator must make the
purchase of shares for your retirement plan account. The
Distributor offers a number of different retirement plans that can
be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-
exempt organizations, such as schools, hospitals and charitable
organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small
business owners or people with income from self-employment,
including SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons
and other employers
- 401(k) prototype retirement plans for business
Please call the Distributor for the OppenheimerFunds plan
documents, which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, 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 account statement
- Shares are being transferred to a Fund account with a
different owner or name
- Shares are redeemed by someone other than the owners (such
as an Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business, or as a fiduciary,
you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling
- The signatures of all registered owners exactly as the
account is registered, and
- Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for Send courier or Express Mail
requests by mail to: request to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270, 102 E. Girard Ave., Building D
Denver, Colorado 80217 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 transfer to your bank is initiated on the business day
after the redemption. You do not receive dividends on the proceeds
of the shares you redeemed while they are waiting to be
transferred.
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. If
you previously signed a signature card to establish Checkwriting in
one of the other Oppenheimer funds, you may call 1-800-525-7048 to
request Checkwriting for an account in this Fund that has the same
registration as that other fund account.
- Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts
holding Class B shares or Class C shares or Class A shares that are
subject to a contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
- You may not write a check that would require the Fund to
redeem shares that were purchased by check or Asset Builder Plan
payments within the prior 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
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
- Shares of the fund selected for exchange must be available
for sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day
- You must meet the minimum purchase requirements for the fund
you purchase by exchange
- Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class may be exchanged only for shares
of the same class in the other OppenheimerFunds. For example, you
can exchange Class A shares of this Fund only for Class A shares of
another fund. At present, Oppenheimer Money Market Fund, Inc.
Offers only one class of shares, which are considered to be Class
A shares for this purpose. In some cases, sales charges may be
imposed on exchange transactions. Please refer to "How to Exchange
Shares" in the Statement of Additional Information for more
details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
-- Telephone Exchange Requests. Telephone exchange requests
may be made either by calling a service representative at 1-800-
852-8457 or by using PhoneLink for automated exchanges, by calling
1-800-533-3310. Telephone exchanges may be made only between
accounts that are registered with the same name(s) and address.
Shares held under certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M. but may be earlier
on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to seven days if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple
exchange requests from a dealer in a "market-timing" strategy might
require the sale 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 day
the exchange is opened, by dividing the value of the Fund's net
assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has
established procedures to value the Fund's securities to determine
net asset value. In general, securities values are based on market
value. There are special procedures for valuing illiquid and
restricted securities and obligations for which market values
cannot be readily obtained. These procedures are described more
completely in the Statement of Additional Information.
-- The offering of shares may be suspended during any period
in which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
-- The Transfer Agent will record any telephone calls to
verify data concerning transactions and has adopted other
procedures to confirm that telephone instructions are genuine, by
requiring callers to provide tax identification numbers and other
account data or by using PINs, and by confirming such transactions
in writing. If the Transfer Agent does not use reasonable
procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund
will be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine. If you are unable
to reach the Transfer Agent during periods of unusual market
activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
-- Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
-- Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously 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. 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 taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
-- The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales 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.
-- Transfer Agent and Shareholder Servicing Agent. The
transfer agent and shareholder servicing agent is OppenheimerFunds
Services. Unified Management Corporation (1-800-346-4601) is the
shareholder servicing agent for former shareholders of the AMA
Family of Funds and clients of AMA Investment Advisers, L.P. who
owned shares of the Former Quest For Value Fund when it merged into
the Fund on November 24, 1995.
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, 1995, 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 Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. If your account is not a tax-deferred retirement account,
you should be aware of the following tax implications of investing
in the Fund. Long-term capital gains are taxable as long-term
capital gains when distributed to shareholders. It does not matter
how long you held your shares. Dividends paid from short-term
capital gains and net investment income are taxable as ordinary
income. Distributions are subject to federal income tax and may be
subject to state or local taxes. Your distributions are taxable
when paid, whether you reinvest them in additional shares or take
them in cash. Every year the Fund will send you and the IRS a
statement showing the amount of each taxable distribution you
received in the previous year.
-- "Buying a Dividend": When a fund goes ex-dividend, its
share price is reduced by the amount of the distribution. If you
buy shares on or just before the ex-dividend date, or just before
the Fund declares a capital gains distribution, you will pay the
full price for the shares and then receive a portion of the price
back as a taxable dividend or capital gain.
-- Taxes on Transactions: Share redemptions, including
redemptions for exchanges, are subject to capital gains tax.
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.
<PAGE>
Appendix A
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 B
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere
in this Prospectus are modified as described below for those
shareholders of (i) Quest for Value Fund, Inc., Quest for Value
Growth and Income Fund, Quest for Value Opportunity Fund, Quest for
Value Small Capitalization Fund and Quest for Value Global Equity
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became
the investment adviser to those funds, and (ii) Quest for Value \
U.S. Government Income Fund, Quest for Value Investment Quality
Income Fund, Quest for Global Income Fund, Quest for Value New York
Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund and Quest
for Value California Tax-Exempt Fund when those funds merged into
various Oppenheimer funds on November 24, 1995. The funds listed
above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i)
acquired by such shareholder pursuant to an exchange of shares of
one of the Oppenheimer funds that was one of the Former Quest for
Value Funds or (ii) received by such shareholder pursuant to the
merger of any of the Former Quest for Value Funds into an
Oppenheimer fund on November 24, 1995.
Class A Sales Charges
-- Reduced Class A Initial Sales Charge Rates for Certain
Former Quest Shareholders
- Purchases by Groups, Associations and Certain Qualified
Retirement Plans. The following table sets forth the initial sales
charge rates for Class A shares purchased by a "Qualified
Retirement Plan" through a single broker, dealer or financial
institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement
Plan or that Association purchased shares of any of the Former
Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995. For this
purpose only, a "Qualified Retirement Plan" includes any 401(k)
plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a
single employer.
Front-End Front-End
Sales Sales Commission
Charge Charge as
Number of as a as a Percentage
Eligible Percentage Percentage of
Employees of Offering of Amount Offering
or Members Price Invested Price
- -------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- -------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations
having 50 or more eligible employees or members, there is no
initial sales charge on purchases of Class A shares, but those
shares are subject to the Class A contingent deferred sales charge
described on pages 31 and 32 of this Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of eligible
employees in a Qualified Retirement Plan or members of an
Association or the sales charge rate that applies under the Rights
of Accumulation described above in the Prospectus. In addition,
purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they
qualified to purchase shares of any of the Former Quest For Value
Funds by virtue of projected contributions or investments of $1
million or more each year. Individuals who qualify under this
arrangement for reduced sales charge rates as members of
Associations, or as eligible employees in Qualified Retirement
Plans also may purchase shares for their individual or custodial
accounts at these reduced sales charge rates, upon request to the
Fund's Distributor.
-- Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of
other Oppenheimer funds that were acquired as a result of the
merger of Former Quest for Value Funds into those Oppenheimer
funds, and which shares were subject to a Class A contingent
deferred sales charge prior to November 24, 1995 will be subject to
a contingent deferred sales charge at the following rates: if they
are redeemed within 18 months of the end of the calendar month in
which they were purchased, at a rate equal to 1.0% if the
redemption occurs within 12 months of their initial purchase and at
a rate of 0.50 of 1.0% if the redemption occurs in the subsequent
six months. Class A shares of any of the Former Quest for Value
Funds purchased without an initial sales charge on or before
November 22, 1995 will continue to be subject to the applicable
contingent deferred sales charge in effect as of that date as set
forth in the then-current prospectus for such fund.
-- Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following
investors are not subject to any Class A initial or contingent
deferred sales charges:
- Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
of the Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
- Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
-- Waiver of Class A Contingent Deferred Sales Charge in
Certain Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the
following investors who were shareholders of any Former Quest for
Value Fund:
- Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
- Participants in Qualified Retirement Plans that purchased
shares of any of the Former Quest For Value Funds pursuant to a
special "strategic alliance" with the distributor of those funds.
The Fund's Distributor will pay a commission to the dealer for
purchases of Fund shares as described above in "Class A Contingent
Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
-- Waivers for Redemptions of Shares Purchased Prior to March
6, 1995
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995: in connection with
(i) distributions to participants or beneficiaries of plans
qualified under Section 401(a) of the Internal Revenue Code or from
custodial accounts under Section 403(b)(7) of the Code, Individual
Retirement Accounts, deferred compensation plans under Section 457
of the Code, and other employee benefit plans, and returns of
excess contributions made to each type of plan, (ii) withdrawals
under an automatic withdrawal plan holding only either Class B or
C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and (iii) liquidation of a
shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum value of such
accounts.
-- Waivers for Redemptions of Shares Purchased on or After
March 6, 1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest For Value Fund or into which such fund merged, if those
shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) distributions to participants or
beneficiaries from Individual Retirement Accounts under
Section 408(a) of the Internal Revenue Code or retirement plans
under Section 401(a), 401(k), 403(b) and 457 of the Code, if those
distributions are made either (a) to an individual participant as
a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or
beneficiary; (2) returns of excess contributions to such retirement
plans; (3) redemptions other than from retirement plans following
the death or disability of the shareholder(s) (as evidenced by a
determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan
(but only for Class B or C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and
(5) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum account value. A shareholder's account will be credited
with the amount of any contingent deferred sales charge paid on the
redemption of any Class A, B or C shares of the Fund described in
this section if within 90 days after that redemption, the proceeds
are invested in the same Class of shares in this Fund or another
Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value
Fund to Quest for Value prototype 401(k) plans that were maintained
on the TRAC-2000 recordkeeping system and that were transferred to
an OppenheimerFunds prototype 401(k) plan shall be eligible for an
additional one-time payment by the Distributor of 1% of the value
of the plan assets transferred, but that payment may not exceed
$5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value
Fund to Quest for Value prototype 401(k) plans that were maintained
on the TRAC-2000 recordkeeping system and (i) the shares held by
those plans were exchanged for Class A shares, or (ii) the plan
assets were transferred to an OppenheimerFunds prototype 401(k)
plan, shall be eligible for an additional one-time payment by the
Distributor of 1% of the value of the plan assets transferred, but
that payment may not exceed $5,000.
<PAGE>
APPENDIX C 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 Class C shares (May 26,
1995) 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."
Salomon
Brothers
Oppenheimer Lehman Bros. World
Fiscal Year Strategic Aggregate Government
(Period) Ended Income Fund A Bond Index Bond Index
- -------------- ------------- ------------ ----------
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
09/30/95 $17,376 $16,638 $18,735
Salomon
Brothers
Oppenheimer Lehman Bros. World
Fiscal Year Strategic Aggregate Government
(Period) Ended Income Fund B Bond Index Bond Index
- -------------- ------------- ------------ ----------
11/30/92(2) $10,000 $10,000 $10,000
09/30/93 $11,468 $11,141 $11,509
09/30/94 $11,222 $10,782 $11,606
09/30/95 $12,234 $12,299 $13,484
Salomon
Brothers
Oppenheimer Lehman Bros. World
Fiscal Year Strategic Aggregate Government
(Period) Ended Income Fund C Bond Index Bond Index
- -------------- ------------- ------------ ----------
09/30/95(3) $10,209 $10,271 $9,953
- -------------
(1) The Fund commenced operations on October 16, 1989.
(2) Class B shares of the Fund were first publicly offered on
November 30, 1992.
(3) Class C shares of the Fund were first publicly offered on May
26, 1995
<PAGE>
Oppenheimer Strategic Income Fund
3410 South Galena Street
Denver, CO 80231
Telephone: 1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been
authorized to give any information or to make any representations
other than those contained in this Prospectus or the Statement of
Additional Information, and if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, OppenheimerFunds, Inc., OppenheimerFunds Distributor,
Inc., or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby in any state to any person to
whom it is unlawful to make such offer in such state.
PR0230.001.0196* 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 January 25, 1996
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated January 25, 1996.
It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling
the Transfer Agent at the toll-free number shown above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
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 of the Fund . . . . . . . . . . 26
The Manager and Its Affiliates. . . . . . . . . . . . 30
Brokerage Policies of the Fund . . . . . . . . . . . . . . 32
Performance of the Fund. . . . . . . . . . . . . . . . . . 34
Distribution and Service Plans . . . . . . . . . . . . . . 38
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . 41
How To Sell Shares . . . . . . . . . . . . . . . . . . . . 47
How To Exchange Shares . . . . . . . . . . . . . . . . . . 51
Dividends, Capital Gains and Taxes . . . . . . . . . . . . 52
Additional Information About the Fund. . . . . . . . . . . 54
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . . 55
Financial Statements . . . . . . . . . . . . . . . . . . . 56
Appendix: Corporate Industry Classifications . . . . . . . A-1
</TABLE>
<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, OppenheimerFunds, Inc. (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 where required 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 "Hedging With Options and Futures
Contracts," 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. The interest rate is effectively "locked in"
and there is no risk of having to reinvest periodic interest
payments prior to maturity of the zero coupon security 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 identify to its
Custodian cash, U.S. Government Securities or other high-grade debt
securities 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
borrower. 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 or are to be delivered at a later
date. 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 identify to its Custodian 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/Variable
Rate Notes. Some of the notes the Fund may purchase may have variable
or floating interest rates. Variable rates are adjustable at
stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments,
such as the percentage of the prime rate of a bank, or the 91-day
U.S. Treasury Bill rate. Such obligations may be secured by bank
letters of credit or other credit support arrangements.
-- 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. 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 is required to
operate within certain guidelines and restrictions with respect to
its use of Futures and options on Futures established by the
Commodity Futures Trading Commission ("CFTC"). In particular, the
Fund is exempted from registration with the CFTC as a "commodity
pool operator" if the Fund complies with the requirements of the
Rule adopted by the CFTC. The Rule does not limit the percentage
of the Fund's assets that may be used for Futures margin and
related options premiums for a bona fide hedging position. However,
under the Rule the Fund must limit its aggregate Futures margin and
related options premiums to no more than 5% of the Fund's net
assets for hedging strategies that are not considered bona fide
hedging strategies under the Rule.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number
of options which may be written or held by a single investor or
group of investors acting in concert, regardless of whether the
options were written or purchased on the same or different
exchanges or are held in one or more accounts or through one or
more 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 do any of
the following:
- The Fund cannot 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;
- The Fund cannot buy securities on margin, except that the
Fund may make margin deposits in connection with any of the Hedging
Instruments which it may use;
- The Fund cannot 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;
- The Fund cannot 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;
- The Fund cannot invest in oil, gas, or other mineral
exploration or development programs;
- The Fund cannot buy the securities of any company for the
purpose of exercising management control;
- The Fund cannot 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";
- The Fund cannot 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
- The Fund cannot 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 as
described in the Prospectus, the Fund has adopted the corporate
industry classifications set forth in Appendix A 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'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
and occupations 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 Income Fund,
Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Income
& Growth Fund, Oppenheimer International Bond 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-based Oppenheimer
funds") except for Mr. Fossel and Ms. Macaskill, who are Trustees,
Directors or Managing General Partners of all the Denver-based
Oppenheimer funds except Oppenheimer Bond Fund and Oppenheimer
Strategic Income Fund. All of the Fund's officers except Messrs.
Steinmetz and Negri are officers of the Denver-based Oppenheimer
funds. Ms. Macaskill is President and Mr. Swain is Chairman of the
Denver Oppenheimer funds. As of January 5, 1996, 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 three officers of
the Fund, Jon S. Fossel, Bridget A. Macaskill 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 64
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 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Raymond J. Kalinowski, Trustee; Age 66
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 74
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Trustee; Age 74
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; Age 80
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 62
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.
Bridget A. Macaskill, President; Age 47
President, CEO and a Director of the Manager; Chairman and a
Director of SSI, Vice President and a Director of OAC, HarbourView
and Oppenheimer Partnership Holdings, Inc., a holding company
subsidiary of the Manager; formerly Executive Vice President of the
Manager.
Andrew J. Donohue, Vice President; Age 45
Executive Vice President and General Counsel of OppenheimerFunds,
Inc. (the "Manager") and OppenheimerFunds Distributor, Inc. (the
"Distributor"); President and a director of Centennial; an officer
of other Oppenheimer funds; formerly Senior Vice President and
Associate General Counsel of the Manager and the Distributor;
Partner in, Kraft & McManimon (a law firm); an officer of First
Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser);
director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age 59
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and
SFSI; an officer of other Oppenheimer funds.
Arthur P. Steinmetz, Vice President and Portfolio Manager; Age 37
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other
Oppenheimer funds.
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 Oppenheimer
funds.
Robert G. Zack, Assistant Secretary; Age 47
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
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; 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 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an
officer of other Oppenheimer funds; 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.
[FN]
- -------------------
*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 (Mr. Swain, who is both an officer
and a Trustee) receive no salary or fee from the Fund. The
Trustees of the Fund (excluding Mr. Swain) received the total
amounts shown below (i) from the Fund during its fiscal year ended
September 30, 1995, and (ii) from all 21 of the Denver-based
Oppenheimer funds (including the Fund) listed in the first
paragraph of this section, for services in the positions shown (and
from Oppenheimer Tax-Exempt Cash Reserves, Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term
Income Fund, which ceased operation following the acquisition of
their assets by certain other Oppenheimer funds):
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
Robert G. Avis $10,304.19 $53,000.00
Trustee
William A. Baker $14,242.07 $73,254.66
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $12,502.90 $64,309.17
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $12,637.21 $65,000.00
Trustee
C. Howard Kast $12,637.21 $65,000.00
Trustee
Robert M. Kirchner $13,277.24 $68,292.00
Audit and Review
Committee Member
and Trustee
Ned M. Steel $10,304.19 $53,000.00
Trustee
- ------------------
1 For the 1995 calendar year.
Major Shareholders. As of January 5, 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, Class B or Class C shares.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled
by Massachusetts Mutual Life Insurance Company. OAC is also owned
in part by certain of the Manager's directors and officers, some of
whom also serve as officers of the Fund, and one of whom (Mr.
Swain) serves 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, 1993, 1994 and 1995 the management fees
paid by the Fund to the Manager were $14,044,913, $23,416,082 and
$25,850,869, 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 to the extent necessary (other than
extraordinary non-recurring expenses) to enable the Fund to pay a
targeted dividend of $0.438 per share per annum. That targeted
dividend rate may be changed at any time. 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, 1993, 1994 and 1995, the aggregate amount of sales
charges on sales of the Fund's Class A shares was $39,326,104,
$31,059,937, and $16,024,553 respectively, of which the Distributor
and an affiliated broker-dealer retained in the aggregate
$9,834,389, $8,686,206 and $4,566,642 in those respective years.
During the Fund's fiscal period November 30, 1992 through September
30, 1993 and the fiscal years ended September 30, 1994 and 1995,
the contingent deferred sales charges collected on the Fund's Class
B shares totalled $281,835, $2,731,436 and $5,144,993 respectively,
all of which the Distributor retained. During the Fund's fiscal
period May 26, 1995 through September 30, 1995, the contingent
deferred sales charges collected on the Fund's Class C shares
totalled $5,409, 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. OppenheimerFunds 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, the procedures and
rules described above, allocations of brokerage are made by
portfolio managers of the Manager 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 or
for certain fixed-income agency transactions in the secondary
market, 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. Where possible, concurrent
orders to purchase or sell the same security by more than one of
the accounts managed by the Manager or its affiliates are combined.
The transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase
or sale orders actually placed for each account. 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. For those
transactions, instead of using a broker the Fund normally deals
directly with the selling or purchasing principal or market maker
unless it is determined that a better price or execution can be
obtained by 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 price. 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 for the commissions of
these 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 has also permitted the Manager to
use stated commissions on secondary fixed-income agency trades to
obtain research where the broker has represented to Manager that:
(i) the trade is not from or for the broker's own inventory, (ii)
the trade was executed by the broker of an agency basis at the
stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope
and supplement the research activities of the Manager, by making
available additional views for consideration and comparisons, and
enabling the Manager to obtain market information for the valuation
of securities held in the Fund's portfolio or being considered for
purchase. The Board of Trustees, including the independent
Trustees of the Fund, annually reviews information furnished by the
Manager as to the commissions paid to brokers furnishing such
services in an effort to ascertain that the amount of such
commissions was reasonably related to the value or benefit of such
services.
During the Fund's fiscal years ended September 30, 1993, 1994
and 1995, total brokerage commissions paid by the Fund (not
including spreads or concessions on principal transactions on a net
trade basis) were $4,663, $46,217 and $1,029,940, respectively.
During the Fund's fiscal year ended September 30, 1995, $2,070 was
paid to brokers as commissions in return for research services; the
aggregate amount of those transactions was $355,409.
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, 1995.
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,
1995, the standardized yields for the Fund's Class A, Class B and
Class C shares were 8.52%, 8.16% and 8.10%, 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, 1995, were 9.47% and 9.94% 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, 1995, was 9.15% when calculated at net
asset value. The dividend yield on Class C shares for the 30-day
period ended September 30, 1995, was 9.12% 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:
1/n
(ERV)
(---) -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. For the Class C shares, the payment of the 1.0% contingent
deferred sales charge is applied to the investment result for the
one-year period (or less). 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). For Class C shares, the payment
of the 1.0% contingent deferred sales charge is applied to the
investment result for the one-year period (or less). 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, 1995 and for the period from
October 16, 1989 (commencement of operations) to September 30,
1995, were 3.46% and 9.72%, respectively. The cumulative "total
return" on Class A shares for the latter period was 73.76%. For
the fiscal year ended September 30, 1995 and the period from
November 30, 1992 through September 30, 1995, the average annual
total return on an investment in Class B shares of the Fund were
2.87% and 7.38%, 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, 1995 was 22.34%. For the period
from May 26, 1995 through September 30, 1995, the cumulative total
return on an investment in Class C shares of the Fund was 2.09%.
- 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, 1995, and for the period from October 16, 1989 to
September 30, 1995 were 8.62% and 82.42%, respectively. The
cumulative total return at net asset value on the Fund's Class B
shares for the fiscal year ended September 30, 1995 and for the
period from November 30, 1992 through September 30, 1995 was 7.79%
and 25.22%, respectively. The cumulative total return at net asset
value on the Fund's Class C shares for the period from May 26, 1995
through September 30, 1995 was 3.09%
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. The
performance of the Fund s Class A, Class B or Class C shares may
also be compared in publications to (i) the performance of various
market indices or to other investments for which reliable
performance data is available, and (ii) to averages, performance
rankings or other benchmarks prepared by recognized mutual fund
statistical services.
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 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 payments under the 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 must
provide separate written reports to the Fund's Board of Trustees at
least quarterly describing the amount of payments made pursuant to
each Plan and the purposes for which the payments were made. The
Class B report also must include the Distributor's distribution
costs for the quarter, and such costs for previous quarters that
have been carried forward. The Class A and Class B reports also
must include the identity of each Recipient that received any
payment. These reports are subject to the review and approval 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, 1995, payments under
the Class A Plan totaled $7,591,135 all of which was paid by the
Distributor to Recipients, including $499,052 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, 1995,
payments under the Class B Plan totaled $17,108,221, including
$85,423 paid to an affiliate of the Distributor and $14,432,795
retained by the Distributor. For the fiscal year ended September
30, 1995, payments under Class C Plan totaled $83,371 including
$1,325 paid to an affiliate of the Distributor and $49,630 retained
by the Distributor
Asset-based sales charge payments are designed to permit an
investor to purchase shares of the Fund without the assessment of
a front-end sales load and at the same time permit the Distributor
to compensate brokers and dealers in connection with the sale of
Class B 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 the
individual 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 of $500,000 or more of
Class B shares or $1 million or more of Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the
same portfolio investments of the Fund. However, each class has
different shareholder privileges and features. The net income
attributable to Class B and Class C shares and the dividends
payable on Class B and Class C shares will be reduced by
incremental expenses borne 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 (the "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 Exchange 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 U.S. 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 actively traded on a foreign
securities exchange are valued at the last sales price available to
the pricing service approved by the Fund s Board of Trustees or to
the Manager as reported by the principal exchange on which the
security is traded; (iii) unlisted foreign securities or listed
foreign securities not actively traded are valued as in (i) above,
if available, or at the mean between "bid" and "asked" prices
obtained from active market makers in the security on the basis of
reasonable inquiry; (iv) long-term debt securities having a
remaining maturity in excess of 60 days are valued at the mean
between the "bid" and "asked" prices determined by a portfolio
pricing service approved by the Fund s Board of Trustees or
obtained from active market makers in the security on the basis of
reasonable inquiry; (v) debt instruments having a maturity of more
than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a
remaining maturity of 60 days or less are valued at the mean
between the "bid" and "asked" prices determined by a pricing
service approved by the Fund s Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (vi) money market-type debt securities having a maturity
of less than one year when issued that having a remaining maturity
of 60 days or less are valued at cost, adjusted for amortization of
premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available
market quotations are valued at fair value under the Board s
procedures.
Trading in securities on European and Asian exchanges and
over-the-counter markets is normally completed before the close of
the Exchange. Events affecting the values of foreign securities
traded in such markets that occur between the time their prices are
determined and the close of the Exchange will not be reflected in
the Fund's calculation of its net asset value unless the Board of
Trustees, or the Manager under procedures established by the Board,
determines that the particular event would materially affect the
Fund's net asset value, in which case an adjustment would be made.
Foreign currency, including forward contracts, will be valued at
the closing price in the London foreign exchange market that day as
provided by a reliable bank, dealer or pricing service. The value
of securities denominated in foreign currency will be converted to
U.S. dollars at the closing price in the London foreign exchange
market that day as provided by a reliable bank, dealer or pricing
service. In the case of U.S. Government 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 after the close of the Exchange, the shares will be
purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received
by the Fund 3 days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in
purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and 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 Oppenheimer Funds. The Oppenheimer funds are those
mutual funds for which the Distributor acts as the distributor or
the sub-Distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value 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 Oppenheimer funds 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. An investor may pay a reduced sales
charge on Class A shares by using a Letter of Intent. A Letter of
Intent (referred to as a "Letter") is an investor s statement in
writing to the Distributor of the intention to purchase Class A
shares or Class A and Class B shares of the Fund (and other
Oppenheimer funds) during a 13-month period (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 of shares which, when added to the investor s holdings of
shares of those funds, will equal or exceed the amount specified in
the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset
value without sales charge do not count toward satisfying the
amount of the Letter. A Letter enables an investor to count the
Class A and Class B shares purchased under the Letter to obtain the
reduced sales charge rate on purchases of Class A shares of the
Fund (and other Oppenheimer funds) that applies under the Right of
Accumulation to current purchases of Class A shares. Each purchase
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.
For purchases of shares of the Fund and other Oppenheimer
funds by OppenheimerFunds prototype 401(k) plans under a Letter of
Intent, the Transfer Agent will not hold shares in escrow. If the
intended purchase amount under the Letter entered into by an
OppenheimerFunds prototype 401(k) plan is not purchased by the plan
by the end of the Letter of Intent period, there will be no
adjustment of commissions paid to the broker-dealer or financial
institution of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of
Intent period do not equal or exceed the intended 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 a Letter)
include (a) Class A shares sold with a front-end sales charge or
subject to a Class A contingent deferred sales charge, (b) Class B
shares acquired subject to a contingent deferred sales charge, and
(c) Class A or B shares acquired in exchange for either (i) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(ii) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled
"How To Exchange Shares," and the escrow will be transferred to
that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a
bank account, a check (minimum $25) for the initial purchase must
accompany the application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "How To Sell
Shares," in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a 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 Oppenheimer funds into which
shares of the Fund are exchangeable as described below, at the net
asset value next computed after receipt by the Transfer Agent of
the reinvestment order. This reinvestment privilege does not apply
to Class C shares. 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
Oppenheimer funds within 90 days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That
would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the
redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after
the date of such amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any 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,
401(k) plans, or pension or profit-sharing plans should be
addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the
Transfer Agent at its address listed in "How To Sell Shares" in the
Prospectus. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if
the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption
requirements. Participants (other than self-employed persons
maintaining a plan account in their own name) in OppenheimerFunds-
sponsored pension or profit-sharing or 401(k) plans may not
directly redeem or exchange shares held for their accounts under
those plans. The employer or plan administrator must sign the
request. Distributions from pension and profit sharing plans are
subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be
completed before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the
Internal Revenue Code, and IRS Form W-4P (available from the
Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that
tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the
Distributor, the Trustee and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the
conditions of applicable tax laws and will not be responsible for
any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers. The repurchase price
per share will be the net asset value next computed after 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.). Ordinarily, for accounts redeemed by a
broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the
Distributor s receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners
guaranteed on the redemption document as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares
of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (minimum $50) automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior
to the date requested by the shareholder for receipt of the
payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are 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 or the Class C contingent deferred sales charge is
waived as described in the Prospectus in "Waivers of Class B and
Class C Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the
OppenheimerFunds Application relating to such Plans, as well as the
Prospectus. These provisions may be amended from time to time by
the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed
as necessary to meet withdrawal payments. Shares acquired without
a sales charge will be redeemed first and 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. Neither the Fund nor the Transfer
Agent shall incur any 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 ACH transfer 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 date selected cannot be guaranteed), according to the
choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments
are to be sent may be changed at any time by the Planholder by
writing to the Transfer Agent. The Planholder should allow at
least two weeks' time in mailing such notification for the
requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice (in proper form
in accordance with the requirements of the then-current Prospectus
of the Fund) to redeem all, or any part of, the shares held under
the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at
any time by the Transfer Agent upon receiving directions to that
effect from the Fund. The Transfer Agent will also terminate a
Plan upon receipt of evidence satisfactory to it of the death or
legal incapacity of the Planholder. Upon termination of a Plan by
the Transfer Agent or the Fund, shares that have not been redeemed
from the account will be held in uncertificated form in the name of
the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt,
the Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to
continue payments. However, should such uncertificated shares
become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of the Oppenheimer funds that have a single class
without a class designation are deemed "Class A" shares for this
purpose. All Oppenheimer funds offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market
Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Centennial America Fund, L.P., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund which only
offers Class A and Class B shares, (Class B and Class C shares of
Oppenheimer Cash Reserves are generally available only by exchange
from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401(k) plans). A list showing which
funds offer which class can be obtained by calling the Distributor
at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged for
shares of any Money Market Fund; shares of any Money Market Fund
purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the
sales charge (or, if applicable, may be used to purchase shares of
Oppenheimer funds subject to a CDSC); and shares of this Fund
acquired by reinvestment of dividends or distributions from any
other of the Oppenheimer funds 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 Oppenheimer funds. However, shares of Oppenheimer Money
Market Fund, Inc. purchased with the redemption procedures of
shares of other mutual funds (other than funds managed by the
Manager or its subsidiaries) redeemed within the 12 months prior to
that purchase may subsequently be exchanged for shares of other
Oppenheimer funds without being subject to an initial or contingent
deferred sales charge, whichever is applicable. To qualify for
that privilege, the investor or the investor s dealer must notify
the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased, and,
if requested, must supply proof of entitlement to this privilege.
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 Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal 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 three 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 and Class C dividends will
also differ in amount as a consequence of any difference in net
asset value between the classes.
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 which can be changed at ant time) 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
Oppenheimer funds listed in "Reduced Sales Charges" above at net
asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and either
must have an existing account in the fund selected for reinvestment
or must obtain a prospectus for that fund and an application from
the 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 Bank of New York is the custodian of the Funds
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on
the portfolio securities and handling the delivery of such
securities to and from the Fund. The Manager has represented to
the Fund that the banking relationships between the Manager and the
Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian.
It will be the practice of the Fund to deal with the Custodian in
a manner uninfluenced by any banking relationship the Custodian may
have with the Manager and its affiliates. The Fund's cash balances
with the Custodian in excess of $100,000 are not protected by
Federal deposit insurance. Such uninsured balances may at times be
substantial.
Independent Auditors. The independent auditors of the Fund audit
the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and certain
other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Strategic Income Fund as of
September 30, 1995, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1995
and 1994, and the financial highlights for the period October 16, 1989
(commencement of operations) to September 30, 1995. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial 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 includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Strategic Income Fund at September 30, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 20, 1995
<PAGE>
STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF DEPOSIT--3.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Bangkok Bank Co. Ltd. CD, 10.50%, 12/15/95(2)(THB) $ 250,000,000 $ 9,968,081
----------------------------------------------------------------------------------------------------
Bank Pacific CD, Zero Coupon, 3/5/96(IDR) 8,400,000,000 3,421,536
----------------------------------------------------------------------------------------------------
Citibank CD:
10.75%, 11/20/95(2)(CLP) 1,553,591,360 3,895,663
10.75%, 11/21/95(2)(CLP) 1,290,148,889 3,235,076
12.70%, 5/15/96(2)(CLP) 2,994,992,000 7,510,006
12.75%, 5/24/96(2)(CLP) 2,858,161,618 7,166,901
13%, 11/13/95(2)(CLP) 970,588,931 2,433,772
13%, 5/6/96(2)(CLP) 2,322,974,667 5,824,908
16%, 10/20/95(2)(CLP) 2,850,650,000 7,148,065
29.50%, 12/22/95(2)(HUF) 357,458,500 2,749,363
----------------------------------------------------------------------------------------------------
CS First Boston, Inc. CD, 15.75%, 6/11/96(2)(3)(IDR) 27,688,800,000 12,219,240
----------------------------------------------------------------------------------------------------
First Boston Corp. CD:
10.40%, 10/12/95(2)(3)(CZK) 457,709,390 17,357,200
11%, 12/27/95(2)(3)(4)(ARA) 3,400,000 3,400,428
12.50%, 12/21/95(2)(3)(ARA) 17,370,000 17,372,189
----------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD:
Zero Coupon, 6/17/96(2)(IDR) 39,500,000,000 15,365,952
Zero Coupon, 7/18/96(2)(IDR) 19,950,000,000 7,683,303
Zero Coupon, 7/8/96(2)(IDR) 15,450,000,000 6,030,920
----------------------------------------------------------------------------------------------------
Krungthai Thanakit CD:
Zero Coupon, 10/13/95(2)(THB) 74,500,000 2,925,931
Zero Coupon, 12/1/95(2)(THB) 108,750,000 4,266,737
----------------------------------------------------------------------------------------------------
Thai Farmers Bank PLC CD, Zero Coupon, 12/7/98(2)(THB) 49,500,000 1,894,733
----------------------------------------------------------------------------------------------------
Thai Military Bank Ltd. CD:
10.75%, 6/12/96(2)(THB) 250,000,000 9,968,081
11%, 11/30/95(2)(THB) 21,250,000 847,287
11%, 12/15/95(2)(THB) 20,000,000 797,446
----------------------------------------------------------------------------------------------------
Thai Military Bank PLC CD, 10%, 1/31/96(2)(THB) 174,500,000 6,954,892
--------------
Total Certificates of Deposit (Cost $163,305,547) 160,437,710
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--18.9%
- ----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--15.4%
- ----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--6.3% Federal Home Loan Mortgage Corp.:
Gtd. Multiclass Participation Certificates,
Series 1455, Cl. J, 7.50%, 12/15/22 25,027,500 25,770,316
Series 176, Cl. F, 8.95%, 3/15/20 14,565,663 14,679,422
----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 10.50%, 11/25/20 38,755,000 45,864,120
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series G93-27, Cl. S,
Inverse Floater, 1.068%, 8/25/23(5) 19,195,926 9,406,004
</TABLE>
6 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FHLMC/FNMA/SPONSORED Gtd. Real Estate Mtg. Investment Conduit Pass-Through
(CONTINUED) Certificates, Trust 1993-87, Cl. S, Inverse Floater,
5.339%, 6/25/23 (coupon inversely
indexed to 1-month US LIBOR, multiplied by 1.857)(5) $ 28,806,289 $ 18,683,580
Interest-Only Stripped Mtg.-Backed Security,
Trust 215, Cl. 2, 14.032%--14.073%, 4/1/23(6) 42,487,950 12,875,840
Interest-Only Stripped Mtg.-Backed Security, Trust 218, Cl. 2,
16.734%, 4/25/23(6) 48,612,701 14,363,535
Interest-Only Stripped Mtg.-Backed Security, Trust 221, Cl. 2,
9.782%--10.517%, 5/25/23(6) 61,261,276 18,100,793
Interest-Only Stripped Mtg.-Backed Security, Trust 222, Cl. 2,
11.27%--14.191%, 6/25/23(6) 298,754,848 91,890,459
Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl. 2,
9.121%--13.002%, 2/25/24(6) 142,385,044 32,145,189
Interest-Only Stripped Mtg.-Backed Security, Trust 258, Cl. 2,
8.853%, 3/25/24(6) 33,445,196 10,208,624
Principal-Only Stripped Mtg.-Backed Security,
Series 1993-253, Cl. G, 5.777%, 11/25/23(7) 7,802,220 5,317,701
Series 1994-83, Cl. Z, 7.50%, 6/25/24 34,607,848 32,898,913
--------------
332,204,496
- ----------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--9.0% Government National Mortgage Assn.:
13%, 10/15/15 48,420,310 57,665,563
13.50%, 6/15/15 62,724,732 75,661,708
6%, 10/1/25(4) 50,000,000 50,093,750
6%, 11/15/25(4) 47,795,000 47,884,616
6.50%, 10/1/25(4) 25,440,000 25,813,650
6.50%, 7/20/25 27,262,157 27,620,110
6.50%, 8/20/25 7,391,529 7,488,580
6.50%, 9/20/25 15,539,464 15,767,700
7.50%, 10/15/25(4) 160,000,000 161,600,000
--------------
469,595,677
- ----------------------------------------------------------------------------------------------------------------------------------
PRIVATE--3.5%
- ----------------------------------------------------------------------------------------------------------------------------------
AGRICULTURAL--0.2% Prudential Agricultural Credit, Inc., Farmer Mac Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass-Through Certificates, Series 1992-2:
Cl. B2, 9.192%, 1/15/03(3)(8) 6,383,500 5,342,691
Cl. B3, 9.479%, 4/15/09(3)(8) 7,685,390 5,872,719
--------------
11,215,410
- ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--1.5% CBA Mortgage Corp., Mtg. Pass-Through
Certificates, Series 1993-C1, Cl. F, 7.154%, 12/25/03(3)(8) 14,300,000 10,367,500
----------------------------------------------------------------------------------------------------
Citicorp Mortgage Securities, Inc., Sub. Bonds, Series 1993-5:
Cl. B3, 7%, 4/25/23 1,643,424 1,218,188
Cl. B4, 7%, 4/25/23 1,584,732 205,025
</TABLE>
7 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL (CONTINUED) CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Certificates, Cl. 1E-1, 11%, 2/15/02(3) $ 15,000,000 $ 14,907,705
----------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25(3) 2,500,000 2,632,813
Cl. 2-E, 8.70%, 9/25/25(3) 2,500,000 2,561,719
Cl. 2-G, 8.70%, 9/25/25(3) 4,870,000 4,868,478
- ----------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates:
Series 1991-M6, Cl. B4, 7.477%, 6/25/21(8) 9,606,269 9,477,185
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,704,279 1,732,507
Series 1992-CHF, Cl. D, 8.25%, 12/25/20 10,005,542 10,121,231
Series 1993-C1, Cl. B, 8.75%, 5/25/24 8,172,000 8,424,821
Series 1993-C1, Cl. D, 9.45%, 5/25/24 6,597,507 6,927,383
Series 1993-C1, Cl. E, 9.50%, 5/25/24 1,860,695 1,839,763
Series 1993-C2, Cl. E, 8.50%, 3/25/25 2,223,470 2,181,086
--------------
77,465,404
- ----------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY--1.2% ACP Mortgage LP, Cl. E, 7.668%, 2/25/28(3) 2,843,846 2,310,626
----------------------------------------------------------------------------------------------------
Countrywide Funding Corp.:
Series 1993-11, Cl. B1, 6.25%, 1/25/09 1,384,344 1,255,752
Series 1993-11, Cl. B3, 6.25%, 2/25/09(3) 807,537 268,569
Series 1993-12, Cl. B1, 6.625%, 2/25/24 3,500,000 3,145,625
----------------------------------------------------------------------------------------------------
Multi-family Capital Access One, Inc.,
Series 1, Cl. D, 10.549%, 1/15/24(3)(8) 3,576,000 3,304,448
----------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1992-M4, Cl. B, 7.20%, 9/25/21 3,834,385 3,824,799
Series 1994-C1, Cl. C, 8%, 6/25/26 8,000,000 8,275,000
Series 1994-C1, Cl. E, 8%, 6/25/26 6,643,756 5,545,461
Series 1994-C2, Cl. D, 8%, 4/25/25 1,964,112 1,940,789
Series 1994-C2, Cl. E, 8%, 4/25/25 19,458,690 17,683,085
Series 1994-C2, Cl. G, 8%, 4/25/25 3,983,095 3,276,719
Series 1995-C1, Cl. F, 6.90%, 2/25/07 14,714,710 12,760,413
--------------
63,591,286
- ----------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.7% Chase Mortgage Finance Corp., Sub. Mtg. Pass-Through Certificates:
Series 1994-1, Cl. B-10, 6.606%, 3/28/25(3)(8) 1,064,342 774,975
Series 1994-1, Cl. B-8, 6.606%, 3/28/25(3)(8) 2,128,685 1,617,801
Series 1994-1, Cl. B-9, 6.606%, 3/28/25(3)(8) 2,128,685 1,596,514
Series 1994-1, Class B-11, 6.606%, 3/28/25(3)(8) 1,064,342 649,914
Series 1994-1, Class B-12, 6.606%, 3/28/25(3)(8) 1,064,342 646,588
----------------------------------------------------------------------------------------------------
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(3)(8) 5,417,095 5,533,902
----------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp., Sub. Bonds,
Series 1993-3, Cl. B2, 6.7125%, 8/25/08(3) 1,341,583 1,044,758
</TABLE>
8 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESIDENTIAL (CONTINUED) SKW Real Estate LP, Sec. Nts., Cl. D, 9.05%, 4/15/04(3) $ 10,500,000 $ 10,413,848
----------------------------------------------------------------------------------------------------
U.S. Department of Veterans Affairs, Interest-Only Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Vendee Mtg. Trust,
Series 1992-2, Cl. IO, 18.112%, 9/15/22(6) 185,424,974 6,670,953
Series 1995-2B, Cl. 2-IO, 22.979%, 6/15/25(6) 16,957,022 442,472
Series 1995-3, Cl. 1-IO, 18.721%, 9/15/25(6) 388,661,230 5,957,399
--------------
35,349,124
--------------
Total Mortgage-Backed Obligations (Cost $985,047,834) 989,421,397
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.4%
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY--17.4% U.S. Treasury Bonds:
11.50%, 11/15/95 52,750,000 53,145,625
11.625%, 11/15/02 142,079,000 186,789,399
11.75%, 11/15/14 3,260,000 4,826,838
13.375%, 8/15/01 62,000,000 84,203,750
7.50%, 11/15/24 12,000,000 13,357,500
7.875%, 2/15/21(9)(10) 77,000,000 88,405,625
8.125%, 8/15/19 326,000 382,744
8.125%, 8/15/21 100,000,000 117,843,689
9%, 11/15/18 29,000,000 36,993,125
STRIPS, Zero Coupon, 11/15/18 50,000,000 10,442,543
STRIPS, Zero Coupon, 5/15/18 300,000,000 64,815,857
----------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
8%, 10/15/96 13,570,000 13,879,557
8.75%, 8/15/00 1,150,000 1,280,452
8.875%, 2/15/96 57,000,000 57,676,875
9.25%, 1/15/96 70,000,000 70,721,832
9.375%, 4/15/96 100,636,000 102,617,210
9.50%, 11/15/95 2,700,000 2,712,655
--------------
Total U.S. Government Obligations (Cost $887,438,872) 910,095,276
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--34.3%
- ----------------------------------------------------------------------------------------------------------------------------------
ARGENTINA--0.2% Argentina (Republic of):
Medium-Term Nts., 8%, 8/9/97(NLG) 3,900,000 2,396,320
Sr. Unsec. Unsub. Bonds, 13.45%, 10/21/97(ITL) 1,290,000,000 795,493
Bonds, Bonos del Tesoro, Series II, 5.906%, 9/1/97(8) 8,521,500 8,126,367
----------------------------------------------------------------------------------------------------
Province of Buenos Aires Sr. Unsub. Unsec. Nts., 9.50%, 7/14/97 975,000 945,750
--------------
12,263,930
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA--3.0% First Australia National Mortgage Acceptance Corp.
Ltd. Bonds, Series 17, 15%, 7/15/02(AUD) 2,190,000 1,951,641
----------------------------------------------------------------------------------------------------
New South Wales Treasury Corp.:
Gtd. Bonds, 12%, 12/1/01(AUD) 48,783,000 43,036,503
Gtd. Exch. Bonds, 12%, 12/1/01(AUD) 14,010,000 12,367,170
----------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01(AUD) 80,413,000 59,660,717
----------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria Gtd. Bonds, 10.25%, 11/15/06(AUD) 20,000,000 16,429,615
----------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 10%, 7/15/05(AUD) 30,000,000 24,306,526
--------------
157,752,172
</TABLE>
9 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BRAZIL--1.9% Banco do Estado de Sao Paulo SA, 9.25% Nts., 10/4/96 $ 540,000 $ 517,050
----------------------------------------------------------------------------------------------------
Banco Estado Minas Gerais:
8.25%, 2/10/00 9,500,000 7,885,000
8.25%, 2/10/00(3) 2,000,000 1,651,250
----------------------------------------------------------------------------------------------------
Brazil (Federal Republic of):
Eligible Interest Bonds, 7.25%, 4/15/06(8) 67,530,000 44,988,483
Interest Due and Unpaid Bonds, 6.688%, 1/1/01(8) 38,717,250 32,859,328
----------------------------------------------------------------------------------------------------
Petroquimica do Nordeste Sr. Unsec. Unsub. Nts., 9.50%, 10/19/01 11,950,000 10,807,281
--------------
98,708,392
- ----------------------------------------------------------------------------------------------------------------------------------
BULGARIA--0.5% Bulgaria (Republic of):
Disc. Bonds, Tranche A, 6.75%, 7/28/24(8) 36,000,000 18,313,198
Interest Arrears Bonds, 6.75%, 7/28/11(8) 19,975,000 9,025,103
--------------
27,338,301
- ----------------------------------------------------------------------------------------------------------------------------------
CANADA--4.4% Canada (Government of) Bonds:
10.25%, 3/1/96(CAD) 24,820,000 18,734,697
11.75%, 2/1/03(CAD) 20,000,000 18,261,553
9%, 12/1/04(CAD) 69,680,000 56,019,667
Series A33, 11.50%, 9/1/00(CAD) 10,000,000 8,675,300
9.75%, 10/1/97(CAD) 95,820,000 74,980,585
9.75%, 6/1/01(CAD) 25,000,000 20,550,297
Series H9, 12%, 3/1/05(CAD) 35,000,000 33,237,211
--------------
230,459,310
- ----------------------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.4% Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds:
6.875%, 10/26/03(8)(11) 7,994,231 7,194,808
7.313%, 7/1/01(8)(11) 14,979,289 13,930,739
--------------
21,125,547
- ----------------------------------------------------------------------------------------------------------------------------------
COSTA RICA--0.1% Central Bank of Costa Rica Principal Bonds,
Series A, 6.25%, 5/21/10 6,400,000 3,584,000
- ----------------------------------------------------------------------------------------------------------------------------------
DENMARK--2.3% Denmark (Kingdom of) Bonds:
7%, 11/10/24(DKK) 60,000,000 8,974,156
8%, 3/15/06(DKK) 170,000,000 30,536,756
8%, 5/15/03(DKK) 250,000,000 45,676,570
9%, 11/15/00(DKK) 190,000,000 36,881,680
--------------
122,069,162
- ----------------------------------------------------------------------------------------------------------------------------------
ECUADOR--0.3% Ecuador (Republic of):
Disc. Bonds, 6.812%, 2/28/25(8) 30,650,000 15,131,904
Par Bonds, 3%, 2/28/25(8) 5,750,000 1,875,650
--------------
17,007,554
</TABLE>
10 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GERMANY--1.6% German (Federal Government of) Nts., Bundesobligationen,
Series 105, 6.625%, 1/20/98(DEM) 20,000,000 $ 14,624,568
----------------------------------------------------------------------------------------------------
German Unity Fund (German Federal Government) Bonds,
8.75%, 8/20/01(DEM) 53,000,000 41,865,198
----------------------------------------------------------------------------------------------------
Germany (Republic of) Debs., Bundespost Deutscheland,
7.75%, 10/1/04(DEM) 20,000,000 14,835,398
----------------------------------------------------------------------------------------------------
Landeskreditbank Baden-Wurttemberg, 6.50% Nts., 9/15/08(DEM) 10,500,000 6,954,752
----------------------------------------------------------------------------------------------------
Vereinsbank International SA:
10.80% Sr. Debs., 6/16/03(ITL) 5,000,000,000 3,021,253
11% Sr. Unsub. Unsec. Nts., 5/14/03(ITL) 5,000,000,000 3,079,429
--------------
84,380,598
- ----------------------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN--2.6% United Kingdom:
Treasury Nts., 12.50%, 11/21/05(GBP) 10,000,000 19,848,037
Treasury Nts., 13%, 7/14/00(GBP) 21,775,000 41,689,793
Treasury Nts., 9.50%, 4/18/05(GBP) 17,000,000 29,234,927
GILT, 10%, 9/8/03(GBP) 26,010,000 45,822,911
--------------
136,595,668
- ----------------------------------------------------------------------------------------------------------------------------------
ITALY--2.4% Italy (Republic of):
Bonds, 11.50%, 3/1/03(ITL) 35,000,000,000 21,664,596
Treasury Bonds, Buoni del Tesoro Poliennali:
10.50%, 4/1/00(ITL) 34,000,000,000 20,584,609
10.50%, 4/1/05(ITL) 61,000,000,000 35,661,244
12%, 1/1/02(ITL) 16,000,000,000 10,137,138
12%, 9/18/98(ITL) 10,000,000,000 6,348,122
8.50%, 4/1/99(ITL) 20,000,000,000 11,465,094
12%, 5/1/02(ITL) 29,500,000,000 18,626,278
--------------
124,487,081
- ----------------------------------------------------------------------------------------------------------------------------------
JAMAICA--0.0% Jamaica (Government of) 1990 Refinancing Agreement Nts.,
Tranche A, 6.656%, 10/16/00(8)(11) 1,450,000 1,290,500
- ----------------------------------------------------------------------------------------------------------------------------------
MEXICO--2.9% Banco Nacional de Comercio Exterior SNC :
Debs., 10.875%, 6/23/97(8) 500,000 507,500
International Finance BV Gtd. Bonds, 10.875%, 6/23/97(3)(8) 20,120,000 20,371,500
International Finance BV Gtd. Bonds, 12.65%, 6/21/98(ESP) 3,028,000,000 23,443,086
International Finance BV Gtd. Bonds, 13%, 1/29/97(ESP) 1,250,000,000 10,108,872
Zero Coupon, 12/5/95(3) 9,650,000 9,457,000
----------------------------------------------------------------------------------------------------
Banco Nacional de Obras y Servicios Publicos SA Nts.,
10.75%, 8/16/96 4,260,000 4,302,600
----------------------------------------------------------------------------------------------------
Bonos de la Tesoreria de la Federacion, Zero Coupon, 8/15/96(MXP) 54,969,760 18,394,405
</TABLE>
11 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO (CONTINUED) United Mexican States:
Nts., 11.188%, 7/21/97(3)(8) $ 20,000,000 $ 20,323,999
Combined Facility 2, Loan Participation Agreement,
Tranche A, 6.75%, 3/20/99(8)(11) 1,088,112 788,882
Combined Facility 3, Loan Participation Agreement,
Tranche A, 6.75%, 9/20/97(8)(11) 142,880 103,588
Nacional Financiera SNC Nts., 13.60%, 4/2/98ESP 1,773,000,000 13,978,614
Petacalco Topolobampo Trust Sr. Sec. Unsub. Nts.,
8.125%, 12/15/03 975,000 750,750
Petacalco Topolobampo Trust Sr. Sec. Unsub. Nts.,
8.125%, 12/15/03(3) 1,950,000 1,501,500
Petroleos Mexicanos Gtd. Medium-Term Nts., 7.60%, 6/15/00 14,360,000 12,636,800
Petroleos Mexicanos Gtd. Sr. Unsec. Nts., 6.875%, 3/8/99(8) 7,700,000 6,910,750
Petroleos Mexicanos Gtd. Unsec. Unsub. Nts., 7.875%, 3/2/99(CAD) 5,600,000 3,752,212
Banco Nacional de Comercio Exterior SNC International
Finance BV Gtd. Bonds, 12.25%, 12/3/98(GBP) 1,500,000 2,406,692
Gtd. Bonds, Banpesca Restructured Sovereign Loan, 6.902%,
10/26/06(8)(11) 5,147,107 3,738,087
--------------
153,476,837
- ----------------------------------------------------------------------------------------------------------------------------------
MOROCCO--1.5%
Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 6.688%, 1/1/09(8) 89,550,000 56,080,688
Tranche B, 6.688%, 1/1/04(8) 33,850,000 23,874,744
--------------
79,955,432
- ----------------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--2.6%
New Zealand (Republic of) Bonds:
10%, 3/15/02(NZD) 130,000,000 94,462,839
10%, 7/15/97(NZD) 8,635,000 5,837,984
8%, 11/15/95(NZD) 23,700,000 15,578,086
8%, 4/15/04(NZD) 26,000,000 17,334,352
--------------
133,213,261
- ----------------------------------------------------------------------------------------------------------------------------------
NORWAY--1.0%
Norwegian Government:
Bonds, 5.75%, 11/30/04(NOK) 113,820,000 16,534,751
Gtd. Bonds, 9.50%, 10/31/02(NOK) 190,000,000 34,586,914
--------------
51,121,665
- ----------------------------------------------------------------------------------------------------------------------------------
PAKISTAN--0.0% Islamic (Republic of Pakistan) Debs., 11.50%, 12/22/99 1,143,000 1,175,861
- ----------------------------------------------------------------------------------------------------------------------------------
PANAMA--0.6% Panama (Republic of) Debs., 7.25%, 5/10/02(8) 36,221,000 28,795,695
- ----------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.0% Philippines (Republic of) Front-Loaded Interest
Reduction Bonds, Series B, 5%, 6/1/08(12) 550,000 424,531
- ----------------------------------------------------------------------------------------------------------------------------------
POLAND--0.8% Poland (Republic of) Disc. Bonds, 7.125%, 10/27/24(8) 55,650,000 42,989,625
- ----------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--0.2% Eskom Loan Participation Agreements:
7.25%, 9/15/99(8)(11) 6,863,161 6,622,950
7.937%, 4/15/98(8)(11) 2,075,862 2,003,207
-------------
8,626,157
</TABLE>
12 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SPAIN--2.5% Spain (Kingdom of):
Bills, Letras del Tesoro, Zero Coupon, 9/6/96(ESP) 980,000,000 $ 7,298,216
Gtd. Bonds, Bonos y Obligacion del Estado, 10.90%, 8/30/03(ESP) 1,200,000,000 9,877,421
Gtd. Bonds, Bonos y Obligacion del Estado, 10%, 2/28/05(ESP) 3,750,000,000 28,819,798
Gtd. Bonds, Bonos y Obligacion del Estado, 11.30%, 1/15/02(ESP) 10,000,000,000 82,742,069
-------------
128,737,504
- ----------------------------------------------------------------------------------------------------------------------------------
SUPERNATIONAL--1.2% Eurofima, 10.75% Sr. Unsec. Nts., 5/19/03(ITL) 8,000,000,000 4,834,005
- ----------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds:
12.50%, 7/25/97(NZD) 58,300,000 40,971,549
12.50%, 7/25/97(NZD) 8,000,000 5,622,168
----------------------------------------------------------------------------------------------------
Nordic Investment Bank, 10.80% Unsec. Unsub. Bonds, 5/24/03(ITL) 16,000,000,000 9,680,421
-------------
61,108,143
- ----------------------------------------------------------------------------------------------------------------------------------
SWEDEN--1.1% Sweden (Kingdom of) Bonds:
Series 1030, 13%, 6/15/01(SEK) 100,000,000 16,579,539
Series 1033, 10.25%, 5/5/03(SEK) 72,000,000 10,734,707
Series 1035, 6%, 2/9/05(SEK) 198,000,000 22,264,383
Series 1036, 10.25%, 5/5/00(SEK) 65,000,000 9,652,583
-------------
59,231,212
- ----------------------------------------------------------------------------------------------------------------------------------
VENEZUELA--0.2% Venezuela (Republic of) Debs.:
7.188%, 12/29/95(8) 2,682,857 2,672,796
Banco Venezuela TCI, Zero Coupon, 12/13/98(11) 7,908,048 5,970,577
-------------
8,643,373
-------------
Total Foreign Government Obligations (Cost $1,774,025,476) 1,794,561,511
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--29.1%
- ----------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.6%
- ----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5% NL Industries, Inc.:
0%/13% Sr. Sec. Disc. Nts., 10/15/05(13) 16,505,000 12,337,488
11.75% Sr. Sec. Nts., 10/15/03 3,700,000 3,922,000
----------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 3,500,000 3,950,236
----------------------------------------------------------------------------------------------------
Sherritt, Inc., 11% Debs., 3/31/04(CAD) 10,000,000 7,479,923
-------------
27,689,647
- ----------------------------------------------------------------------------------------------------------------------------------
METALS/MINING--0.7%
Carbide/Graphite Group, Inc. (The), 11.50% Sr. Nts., 9/1/03 13,000,000 13,877,500
----------------------------------------------------------------------------------------------------
Horsehead Industries, Inc., 14% Sub. Nts., 6/1/99 3,050,000 3,187,250
----------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp.:
12.75% Sr. Sub. Nts., 2/1/03 2,800,000 3,045,000
9.875% Sr. Nts., 2/15/02 13,375,000 13,441,875
----------------------------------------------------------------------------------------------------
UCAR Global Enterprises, Inc., 12% Sr. Sub. Nts., 1/15/05 2,250,000 2,565,000
-------------
36,116,625
</TABLE>
13 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER--1.2% Domtar, Inc.:
10.85% Debs., 8/5/17 (CAD) 1,700,000 $ 1,348,892
11.25% Debs., 9/15/17 5,625,000 6,145,313
12% Nts., 4/15/01 1,050,000 1,212,750
----------------------------------------------------------------------------------------------------
Gaylord Container Corp., 11.50% Sr. Nts., 5/15/01 8,950,000 9,352,750
----------------------------------------------------------------------------------------------------
Noranda Forest, Inc., 11% Debs., 7/15/98(CAD) 2,000,000 1,607,348
----------------------------------------------------------------------------------------------------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 5,040,000 4,762,800
----------------------------------------------------------------------------------------------------
Repap New Brunswick, Inc., 9.617% First Priority Sr. Sec. Nts.,
7/15/00(8) 7,200,000 7,218,000
----------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.75% Sr. Nts., 6/15/00 9,990,000 10,839,150
11.25% Sr. Sub. Nts., 6/15/02 7,004,000 7,634,360
----------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 2,547,149 2,549,709
----------------------------------------------------------------------------------------------------
Stone Consolidated Corp., 10.25% Sr. Sec. Nts., 12/15/00 5,625,000 5,934,375
----------------------------------------------------------------------------------------------------
Stone Container Corp.:
10.75% First Mtg. Nts., 10/1/02 4,700,000 4,899,750
10.75% Sr. Sub. Nts., 6/15/97 900,000 933,750
-------------
64,438,947
- ----------------------------------------------------------------------------------------------------------------------------------
STEEL--0.2% Jorgensen (Earle M.) Co., 10.75% Sr. Nts., 3/1/00 5,525,000 5,497,375
----------------------------------------------------------------------------------------------------
Sheffield Steel Corp., 12% Sec. First Mtg., 11/1/01 4,000,000 3,820,000
----------------------------------------------------------------------------------------------------
Wheel-Pittsburgh Corp., 9.375% Sr. Nts., 11/15/03 3,700,000 3,413,250
-------------
12,730,625
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED--5.4%
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--1.1% Coleman Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts., Series B,
5/27/98 14,950,000 11,847,860
----------------------------------------------------------------------------------------------------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02 24,950,000 27,569,750
----------------------------------------------------------------------------------------------------
International Semi-Tech Microelectronics, Inc.,
0%/11.50% Sr. Sec. Disc. Nts., 8/15/03(13) 19,960,000 10,678,600
----------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% First Priority Sr. Sec. Nts., 2/1/02 3,500,000 3,386,250
----------------------------------------------------------------------------------------------------
Williams (J. B.) Holdings, Inc., 12% Sr. Nts., 3/1/04 5,200,000 5,226,000
-------------
58,708,460
- ----------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO--0.7% Consdoidated Cigar Corp., 10.50% Sr. Sub. Nts., 3/1/03 3,600,000 3,600,000
----------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 5,975,000 4,511,125
----------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Holdings, Inc., 0%/11.625% Sr. Disc. Nts.,
2/15/03(13) 6,600,000 4,983,000
</TABLE>
14 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD/BEVERAGE/TOBACCO Heileman Acquisition Corp., 9.625% Sr. Sub. Nts., 1/31/04 $ 8,050,000 $ 2,254,000
----------------------------------------------------------------------------------------------------
(CONTINUED) Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96(11) 15,000,000 15,112,500
----------------------------------------------------------------------------------------------------
Royal Crown Corp., 9.75% Sr. Sec. Nts., 8/1/00 1,000,000 977,500
----------------------------------------------------------------------------------------------------
Specialty Foods Acquisition Corp., 10.25% Sr. Nts., 8/15/01 6,500,000 6,142,500
-------------
37,580,625
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--1.0% AmeriSource Health Corp., 11.25% Sr. Debs., 7/15/05(14) 9,350,844 10,145,666
----------------------------------------------------------------------------------------------------
Capstone Capital Corp., 10.50% Cv. Sub. Debs., 4/1/02(19) 5,450,000 6,315,188
----------------------------------------------------------------------------------------------------
Charter Medical Corp., 11.25% Sr. Sub. Nts., 4/15/04 6,000,000 6,510,000
----------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc., 13% Sr. Sub. Nts., 7/15/02 4,900,000 5,169,500
----------------------------------------------------------------------------------------------------
Mediq/PRN Life Support Services, Inc., 11.125% Sr. Sec. Nts., 7/1/99 3,000,000 2,850,000
----------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 6,290,000 7,139,150
----------------------------------------------------------------------------------------------------
Quorum Health Group, Inc., 11.875% Sr. Sub. Nts., 12/15/02 3,750,000 4,162,500
----------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 10.125% Sr. Sub. Nts., 3/1/05 200,000 212,000
----------------------------------------------------------------------------------------------------
Total Renal Care, Inc., Units (each unit consists of $1,000 principal
amount of 0%/12% sr. sub. disc. nts., 8/15/04 and nine shares
of non-voting class B common stock)(13)(15) 10,200,000 9,741,000
-------------
52,245,004
- ----------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING--1.4% Arizona Charlie's, Inc., 12% First Mtg. Nts., Series A, 11/15/00(11) 5,775,000 4,620,000
----------------------------------------------------------------------------------------------------
Aztar Corp., 13.75% Sr. Sub. Nts., 10/1/04 5,575,000 6,021,000
----------------------------------------------------------------------------------------------------
Bally's Casino Holdings, Inc., Zero Coupon Sr. Disc. Nts., 6/15/98 2,300,000 1,759,500
----------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Promissory Nts. 33,500 --
----------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% First Mtg. Nts., Series A,
11/15/00(11) 2,100,000 1,890,000
----------------------------------------------------------------------------------------------------
Casino Magic Finance Corp., 11.50% First Mtg. Nts., 10/15/01 3,150,000 2,567,250
----------------------------------------------------------------------------------------------------
Hollywood Casino Corp.:
13.50% First Mtg. Nts., 9/30/98 3,500,000 4,252,500
14% Sr. Sec. Nts., 4/1/98 7,900,000 8,749,250
----------------------------------------------------------------------------------------------------
Maritime Group Ltd., Units (each unit consists of $1,000 principal
amount of 14.25% first mtg. nts., series A, 2/15/97 and one warrant
to purchase one share of Palace Casinos, Inc., series A common stock)
(3)(15)(16) 3,042,347 1,262,574
----------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 13.50% Sr. Sec. Nts., 11/15/02(3) 2,100,000 2,189,250
----------------------------------------------------------------------------------------------------
Pioneer Finance Corp., 13.50% Gtd. First Mtg. Bonds, 12/1/98 18,205,000 15,383,225
----------------------------------------------------------------------------------------------------
Rio Hotel & Casino, Inc., 10.625% Sr. Sub. Nts., 7/15/05(3) 4,450,000 4,333,188
----------------------------------------------------------------------------------------------------
Santa Fe Hotel, Inc., 11% Gtd. First Mtg. Nts., 12/15/00 100,000 81,500
----------------------------------------------------------------------------------------------------
Showboat, Inc., 13% Sr. Sub. Nts., 8/1/09 2,650,000 2,881,875
----------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 4,400,000 4,202,000
----------------------------------------------------------------------------------------------------
Trump Hotels & Casino Resorts Holdings LP/Trump
Hotels & Casino Resorts Funding, Inc., 15.50% Sr. Sec. Nts., 6/15/05 2,700,000 2,693,250
----------------------------------------------------------------------------------------------------
Trump Plaza Funding, Inc., 10.875% Gtd. Mtg. Nts., 6/15/01 7,475,000 6,933,063
----------------------------------------------------------------------------------------------------
Trump Taj Mahal Funding, Inc., 11.35% Debs., Series A, 11/15/99 1,344,438 1,145,202
-------------
70,964,627
</TABLE>
15 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LEISURE--0.3% Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., Series A, 6/30/02 $ 12,800,000 $ 13,520,000
- ----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--0.4% Carrols Corp., 11.50% Sr. Nts., 8/15/03 2,820,000 2,805,900
----------------------------------------------------------------------------------------------------
Family Restaurants, Inc., 0%/10.875% Sr. Sub. Disc. Nts., 2/1/04(13) 4,000,000 380,000
----------------------------------------------------------------------------------------------------
Foodmaker, Inc.:
14.25% Sr. Sub. Nts., 5/15/98 3,000,000 3,060,000
9.25% Sr. Nts., 3/1/99 5,130,000 4,758,075
9.75% Sr. Sub. Nts., 6/1/02 14,300,000 12,226,500
-------------
23,230,475
- ----------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL--0.5% Polymer Group, Inc., 12.75% Sr. Nts., 7/15/02(3) 4,200,000 4,347,000
----------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa, Zero Coupon Promissory Nts.,
10/23/96(IDR) 20,500,000,000 7,090,865
----------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 14,225,000 14,082,750
----------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 250,000 244,375
-------------
25,764,990
- ----------------------------------------------------------------------------------------------------------------------------------
ENERGY--1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 2,500,000 2,694,172
----------------------------------------------------------------------------------------------------
Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99 6,785,000 7,531,350
----------------------------------------------------------------------------------------------------
Kelley Oil & Gas Corp., 13.50% Sr. Nts., 6/15/99 8,300,000 8,009,500
----------------------------------------------------------------------------------------------------
Maxus Energy Corp.:
11.50% Debs., 11/15/15 3,500,000 3,552,500
8.50% Debs., 4/1/08 1,000,000 940,000
----------------------------------------------------------------------------------------------------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02 13,000,000 14,820,000
----------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc.:
12.25% Sub. Debs., 2/1/05 3,825,000 4,150,125
9.375% Sub. Debs., 2/1/06 3,750,000 3,506,250
----------------------------------------------------------------------------------------------------
Plains Resources, Inc., 12% Sr. Sub. Nts., 10/1/99 1,200,000 1,242,000
----------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 125,000 141,820
----------------------------------------------------------------------------------------------------
Triton Energy Corp.:
0%/9.75% Sr. Sub. Disc. Nts., 12/15/00(13) 800,000 740,000
Zero Coupon Sr. Sub. Disc. Nts., 11/1/97 11,350,000 9,718,438
-------------
57,046,155
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--1.9%
- ----------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS--0.8% Banco Bamerindus do Brasil SA:
10.50% Debs., 6/23/97 1,000,000 957,500
11% Sr. Unsub. Unsec. Bonds, 10/6/97 2,230,000 2,204,913
9% Unsub. Unsec. Bonds, 10/29/98 1,740,000 1,596,450
----------------------------------------------------------------------------------------------------
Banco Ganadero SA:
Zero Coupon Nts., 7/1/96(3) 8,790,000 8,181,804
Zero Coupon Sr. Unsub. Unsec. Nts., 6/15/96(3) 8,190,000 7,656,410
</TABLE>
16 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------=
<S> <C> <C> <C>
BANKS & THRIFTS Banco Mexicano SA, 8% Sr. Unsub. Unsec.
(CONTINUED) Exchangeable Medium-Term Nts., 11/4/98 $ 640,000 $ 555,200
----------------------------------------------------------------------------------------------------
Bank Nederlandse Gemeenten Unsec. Bonds, 10.50%, 6/18/03(ITL) 8,000,000,000 4,778,157
----------------------------------------------------------------------------------------------------
Canadian Imperial Banking Corp., Zero Coupon Indexed Nts., 12/28/95 9,900,000 9,289,170
----------------------------------------------------------------------------------------------------
Morgan Stanley Group, 14.25% Indian Rupee Indexed Nts., 6/26/96(INR) 228,978,900 6,749,562
-------------
41,969,166
- ----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--0.9% Banco del Atlantico SA, 7.875% Eurobonds, 11/5/98 12,590,000 11,079,200
----------------------------------------------------------------------------------------------------
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02(11) 997,845 1,097,630
----------------------------------------------------------------------------------------------------
GPA Delaware, Inc.:
8.75% Gtd. Nts., 12/15/98 3,705,000 3,320,606
9.75%, 12/10/01 2,000,000 1,652,500
----------------------------------------------------------------------------------------------------
GPA Holland BV:
8.50% Medium-Term Nts., 2/10/97(3) 10,500,000 10,040,625
8.94% Medium-Term Nts., Series C, 2/16/99 2,000,000 1,735,000
----------------------------------------------------------------------------------------------------
GPA Investment BV, 6.40% Nts., 11/19/98 2,000,000 1,665,000
----------------------------------------------------------------------------------------------------
GPA Netherlands BV, 8.50% Medium-Term Nts., 3/3/97(3) 6,500,000 6,199,375
----------------------------------------------------------------------------------------------------
Olympic Financial Ltd., 13% Sr. Nts., 5/1/00 7,500,000 8,175,000
-------------
44,964,936
- ----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.2% Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 2,500,000 2,787,500
----------------------------------------------------------------------------------------------------
Terra Nova Insurance (UK) Holdings PLC, 10.75% Sr. Nts., 7/1/05 6,300,000 6,725,250
-------------
9,512,750
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSING RELATED--1.4%
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS--0.6% Dal-Tile International, Inc., Zero Coupon Sr. Sec. Nts., 7/15/98 8,750,000 6,693,750
----------------------------------------------------------------------------------------------------
Nortek, Inc., 9.875% Sr. Sub. Nts., 3/1/04 3,500,000 3,193,750
----------------------------------------------------------------------------------------------------
Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 15,770,000 14,902,650
----------------------------------------------------------------------------------------------------
Southdown, Inc., 14% Sr. Sub. Nts., Series B, 10/15/01 3,450,000 3,855,375
----------------------------------------------------------------------------------------------------
Walter Industries, Inc., 17% Sub. Nts., 1/1/96(16) 4,250,000 2,698,750
-------------
31,344,275
- ----------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDERS/REAL ESTATE--0.8% Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts., 5/1/99 4,442,000 4,686,310
- ----------------------------------------------------------------------------------------------------------------------------------
Hovnanian K. Enterprises, Inc., 11.25% Gtd. Sub. Nts., 4/15/02 6,900,000 6,434,250
----------------------------------------------------------------------------------------------------
Olympia & York First Canadian Place Ltd., 11% Debs., Series 3,
11/4/49(17)(CAD) 5,150,000 2,614,307
----------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 17,825,000 17,334,813
----------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(3) 13,700,000 10,549,000
----------------------------------------------------------------------------------------------------
41,618,680
</TABLE>
17 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING--1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ELECTRONICS/ Berg Electronics Holdings Corp., 11.375% Sr. Sub. Debs., 5/1/03 $ 4,550,000 $ 4,823,000
----------------------------------------------------------------------------------------------------
COMPUTERS--0.7% Communications & Power Industries, Inc., 12% Sr. Sub. Nts.,
8/1/05(3) 3,000,000 3,082,500
----------------------------------------------------------------------------------------------------
Dell Computer Corp., 11% Sr. Nts., 8/15/00 9,500,000 10,497,500
----------------------------------------------------------------------------------------------------
Rohr, Inc., 11.625% Sr. Nts., 5/15/03 7,600,000 8,132,000
----------------------------------------------------------------------------------------------------
Unisys Corp.:
13.50% Credit Sensitive Nts., 7/1/97(8) 9,400,000 10,199,000
8.875% Nts., 7/15/97 1,000,000 1,007,922
-------------
37,741,922
- ----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.8% Aftermarket Technology Corp:
12% Sr. Sub. Nts., Series B, 8/1/04 5,370,000 5,678,775
12% Sr. Sub. Nts., Series D, 8/1/04 1,080,000 1,142,100
----------------------------------------------------------------------------------------------------
Chrysler Financial Corp., 13.25% Nts., 10/15/99 4,500,000 5,516,802
----------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp.:
11.25% Sr. Nts., 10/1/02 5,100,000 5,227,500
9.50% Sr. Sec. Nts., 6/1/00 3,672,000 3,690,360
----------------------------------------------------------------------------------------------------
Foamex LP/JPS Automotive Corp., 0%/14% Sr. Disc. Nts., Series B,
7/1/04(13) 7,250,000 3,951,250
----------------------------------------------------------------------------------------------------
JPS Automotive Products Corp., 11.125% Sr. Nts., 6/15/01 2,500,000 2,540,625
----------------------------------------------------------------------------------------------------
Navistar Financial Corp., 9.50% Medium-Term Nts., 6/1/96 6,075,000 6,148,422
----------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 9,100,000 7,962,500
-------------
41,858,334
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--0.3% Imo Industries, Inc., 12.25% Sr. Sub. Debs., 8/15/97 1,815,000 1,835,419
----------------------------------------------------------------------------------------------------
Terex Corp., Units (each unit consists of $1,000 principal amount
of 13.75% sr. sec. nts., 5/15/02 and four common stock appreciation
rights)(3)(15) 17,000,000 14,025,000
-------------
15,860,419
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIA--6.6%
- ----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.4% Act III Broadcasting, Inc., 9.625% Sr. Sub. Nts., 12/15/03 5,030,000 5,080,300
----------------------------------------------------------------------------------------------------
Chancellor Broadcasting Co., 12.50% Sr. Sub. Nts., 10/1/04 5,750,000 6,023,125
----------------------------------------------------------------------------------------------------
New City Communications, Inc., 11.375% Sr. Sub. Nts., 11/1/03 10,475,000 10,160,750
----------------------------------------------------------------------------------------------------
New World Communications Group Holding Corp.,
Zero Coupon Sr. Disc. Nts., Series B, 6/15/99 5,000,000 3,375,000
----------------------------------------------------------------------------------------------------
Outlet Broadcasting, Inc., 10.875% Sr. Sub. Nts., 7/15/03 2,000,000 2,110,000
----------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts., 10/1/02(3) 14,300,000 14,067,625
----------------------------------------------------------------------------------------------------
SCI Television, Inc., 11% Sr. Nts., Series 1, 6/30/05 2,153,155 2,293,110
----------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc., 11.375% Sr. Sub. Nts., 10/1/00 3,000,000 3,142,500
----------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
10% Sr. Sub. Nts., 12/15/03 9,275,000 9,483,688
10% Sr. Sub. Nts., 9/30/05 2,200,000 2,249,500
----------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec. Disc.
Nts., 11/15/99 13,045,000 7,892,225
----------------------------------------------------------------------------------------------------
Univision Television Group, Inc., 11.75% Sr. Sub. Nts., 1/15/01 5,500,000 5,940,000
-------------
71,817,823
</TABLE>
18 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE TELEVISION--3.5% Adelphia Communications Corp., 12.50% Sr. Nts., 5/15/02 $ 6,090,000 $ 6,135,675
----------------------------------------------------------------------------------------------------
American Telecasting, Inc.:
0%/14.50% Sr. Disc. Nts., 6/15/04(13) 26,479,495 15,291,908
Units (each unit consists of $1,000 principal amount at maturity
of 0%/14.50% sr. disc. nts., 8/15/05 and one warrant to purchase
4.68 shares of American Telecasting, Inc., common stock)(3)(13)(15) 12,800,000 6,208,000
----------------------------------------------------------------------------------------------------
Australis Media Ltd., Units (each unit consists of $1,000 principal
amount of 0%/14% sr. sub. disc. nts., 5/15/03 and one warrant
to purchase 57.721 ordinary shares)(13)(15) 9,000,000 5,355,000
----------------------------------------------------------------------------------------------------
Bell Cablemedia PLC, 0%/11.95% Sr. Disc. Nts., 7/15/04(13) 23,100,000 15,592,500
----------------------------------------------------------------------------------------------------
Cablevision Industries Corp.:
10.75% Sr. Nts., 1/30/02 1,000,000 1,092,500
9.25% Sr. Debs., Series B, 4/1/08 4,400,000 4,686,000
----------------------------------------------------------------------------------------------------
Cablevision Systems Corp.:
10.75% Sr. Sub. Debs., 4/1/04 6,325,000 6,696,594
9.875% Sr. Sub. Debs., 2/15/13 4,550,000 4,754,750
9.875% Sr. Sub. Debs., 4/1/23 1,200,000 1,257,000
----------------------------------------------------------------------------------------------------
Continental Cablevision, Inc.:
11% Sr. Sub. Debs., 6/1/07 3,000,000 3,330,000
9.50% Sr. Debs., 8/1/13 12,255,000 12,775,838
----------------------------------------------------------------------------------------------------
Diamond Cable Communications PLC, 0%/13.25% Sr. Disc. Nts.,
9/30/04(13) 2,750,000 1,828,750
----------------------------------------------------------------------------------------------------
Echostar Communications Corp., 0%/12.875% Sr. Disc. Nts., 6/1/04(13) 13,000,000 6,045,000
----------------------------------------------------------------------------------------------------
Helicon Group LP/Helicon Capital Corp., 9% Sr. Sec. Nts., Series B,
11/1/03(8) 13,800,000 13,041,000
----------------------------------------------------------------------------------------------------
International CableTel, Inc.:
0%/10.875% Sr. Deferred Coupon Nts., 10/15/03(13) 900,000 607,500
0%/12.75% Sr. Deferred Coupon Nts., 4/15/05(13) 9,550,000 5,730,000
----------------------------------------------------------------------------------------------------
Marcus Cable Operating Co. LP/Marcus Cable Capital Corp.,
0%/13.50% Gtd. Sr. Sub. Disc. Nts., Series II, 8/1/04(13) 10,900,000 7,493,750
----------------------------------------------------------------------------------------------------
People's Choice TV Corp., Units (each unit consists of $1,000
principal amount of 0%/13.125% sr. disc. nts., 6/1/04 and one warrant
to purchase 1.427 shares of common stock)(13)(15) 8,900,000 4,650,250
----------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/12.25% Sr. Sub. Disc. Nts., 10/1/03(13) 6,300,000 4,504,500
----------------------------------------------------------------------------------------------------
TeleWest Communications PLC, 0%/11% Sr. Disc. Debs., 10/1/07(4)(13) 42,245,000 24,924,550
----------------------------------------------------------------------------------------------------
Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs.,
3/15/23 13,004,000 13,132,413
</TABLE>
19 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE TELEVISION (CONTINUED) Time Warner, Inc., 9.125% Debs., 1/15/13 $ 12,550,000 $ 13,456,160
----------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 3,600,000 4,064,180
----------------------------------------------------------------------------------------------------
Videotron Holdings PLC, 0%/11% Sr. Disc. Nts., 8/15/05(13) 900,000 517,500
-------------
183,171,318
- ----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA--1.2% Ackerley Communications, Inc., 10.75% Sr. Sec. Nts., Series A,
10/1/03 9,050,000 9,593,000
----------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10(3) 823,244 973,487
----------------------------------------------------------------------------------------------------
Lamar Advertising Co., 11% Sr. Sec. Nts., 5/15/03 12,000,000 12,150,000
----------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
10.125% Gtd. Sr. Debs., 10/15/12 3,300,000 3,809,120
12% Sr. Nts., 12/15/01 2,500,000 2,804,262
----------------------------------------------------------------------------------------------------
Outdoor Systems, Inc., 10.75% Sr. Nts., 8/15/03 2,400,000 2,316,000
----------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.:
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(13) 36,900,000 28,689,750
9.75% Sr. Sec. Nts., 8/1/00 2,525,000 2,638,625
-------------
62,974,244
- ----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/FILM--0.3% Imax Corp., 7% Sr. Nts., 3/1/01(12) 13,780,000 13,159,900
- ----------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING--0.2% Bell & Howell Holdings Co., 0%/11.50% Sr. Disc. Debs., Series B,
3/1/05(13) 3,400,000 2,125,000
----------------------------------------------------------------------------------------------------
Marvel Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts., Series B,
4/15/98 8,000,000 5,800,000
----------------------------------------------------------------------------------------------------
United States Banknote Corp., 11.625% Sr. Nts., Series B, 8/1/02 4,220,000 2,764,100
-------------
10,689,100
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER--1.4%
- ----------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES--0.8% Acadia Partners LP, 13% Sr. Sub. Nts., 10/1/97(3) 25,000,000 25,875,000
----------------------------------------------------------------------------------------------------
MacAndrews & Forbes Group, Inc., 12.25% Sub. Nts., 7/1/96 1,565,000 1,582,606
----------------------------------------------------------------------------------------------------
MacAndrews & Forbes Holdings, Inc., 13% Sub. Debs., 3/1/99 5,215,000 5,260,631
----------------------------------------------------------------------------------------------------
Talley Industries, Inc., 0%/12.25% Sr. Disc. Debs., 10/15/05(13) 11,946,000 8,511,525
-------------
41,229,762
- ----------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL--0.2% EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 10,735,000 9,661,500
----------------------------------------------------------------------------------------------------
Envirotest Systems Corp., 9.125% Sr. Nts., 3/15/01 5,200,000 3,666,000
-------------
13,327,500
- ----------------------------------------------------------------------------------------------------------------------------------
SERVICES--0.4% Borg-Warner Security Corp., 9.125% Sr. Sub. Nts., 5/1/03 12,160,000 10,123,200
----------------------------------------------------------------------------------------------------
Grupo Mexicano de Desarrollo SA, 8.25% Gtd. Nts., 2/17/01(3) 14,700,000 6,670,125
----------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc., Units (each unit consists
of ten $1,000 principal amount 0%/13.625% sr. sub. disc. nts.,
6/30/05 and 32 warrants, each warrant entitles holder to
purchase one share of Protection, One, Inc. common stock)(3)(15) 4,200,000 2,929,500
-------------
19,722,825
</TABLE>
20 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL--1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES--0.0% Sears Canada, Inc., 11.75% Debs., 12/5/95(CAD) 2,400,000 $ 1,799,636
- ----------------------------------------------------------------------------------------------------------------------------------
DRUG STORES--0.1% Duane Reade, 12% Sr. Nts., Series B, 9/15/02 4,050,000 3,665,250
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING--0.5% Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 10,350,000 10,298,250
----------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 12% Sr. Nts., 10/1/03 6,600,000 5,610,000
----------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 6,970,000 6,795,750
----------------------------------------------------------------------------------------------------
United Stationers Supply Co., 12.75% Sr. Sub. Nts., 5/1/05(3) 5,600,000 6,006,000
-------------
28,710,000
- ----------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--1.0% Grand Union Co., 12% Sr. Nts., 9/1/04 27,176,000 26,224,840
----------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc., 11.50% Sr. Nts., 2/1/03(14) 2,188,800 2,172,384
----------------------------------------------------------------------------------------------------
Penn Traffic Co.:
10.25% Sr. Nts., 2/15/02 1,500,000 1,428,750
9.625% Sr. Sub. Nts., 4/15/05 5,900,000 4,867,500
----------------------------------------------------------------------------------------------------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99 13,065,000 14,306,175
----------------------------------------------------------------------------------------------------
Ralph's Grocery Co., 13.75% Sr. Sub. Nts., 6/15/05 1,500,000 1,582,500
-------------
50,582,149
- ----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.0%
- ----------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION--0.3% American International Group, Inc., 11.70%
Unsec. Unsub. Bonds, 12/4/01 (ITL) 18,000,000,000 11,407,073
----------------------------------------------------------------------------------------------------
Northwest Airlines, Inc., 12.092% Sr. Gtd. Nts., 12/31/00 3,305,434 3,506,944
-------------
14,914,017
- ----------------------------------------------------------------------------------------------------------------------------------
RAILROADS--0.3% Transtar Holdings LP/Transtar Capital Corp.,
0%/13.375% Sr. Disc. Nts., Series B, 12/15/03(13) 23,816,000 15,123,160
- ----------------------------------------------------------------------------------------------------------------------------------
SHIPPING--0.4% Sea Containers Ltd.:
12.50% Sr. Sub. Debs., Series A, 12/1/04 2,850,000 3,149,250
9.50% Sr. Sub. Debs., 7/1/0 33,250,000 3,237,813
----------------------------------------------------------------------------------------------------
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 12,300,000 12,607,500
-------------
18,994,563
- ----------------------------------------------------------------------------------------------------------------------------------
TRUCKING--0.0% Trism, Inc., 10.75% Sr. Sub. Nts., 12/15/00 1,250,000 1,243,750
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--4.3%
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.8% Beaver Valley II Funding Corp., 9% Second Lease
Obligation Bonds, 6/1/17 5,906,000 5,016,721
----------------------------------------------------------------------------------------------------
C.A. La Electricidad de Caracas, 6.875% Exchange Eurobonds, 9/30/03(8) 3,638,739 1,637,433
----------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(13) 20,140,000 18,072,949
----------------------------------------------------------------------------------------------------
Del Norte Funding Corp.:
11.25% Debs., 1/2/14(17) 3,350,000 2,092,852
9.95% Debs., 1/2/98(17) 5,000,000 3,108,520
----------------------------------------------------------------------------------------------------
El Paso Electric Co.:
10.375% Lease Obligation Bonds, Series 1986A, 1/2/11(17) 2,510,000 1,602,919
10.75% Lease Obligation Bonds, 4/1/13(17) 7,400,000 4,725,684
9.20% Lease Obligation Bonds, Series 1986A, 7/2/97(17) 1,500,000 956,640
9.375% Lease Obligation Bonds, 10/1/96(17) 6,000,000 3,825,840
</TABLE>
21 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRIC UTILITIES
(CONTINUED) First PV Funding Corp.:
10.15% Lease Obligation Bonds, Series 1986B, 1/15/16 $ 20,350,000 $ 21,149,794
10.30% Lease Obligation Bonds, Series 1986A, 1/15/14 16,700,000 17,559,866
----------------------------------------------------------------------------------------------------
Subic Power Corp.:
9.50% Sr. Sec. Nts., 12/28/08(3) 5,586,206 4,866,983
9.50% Sr. Sec. Nts., 12/28/08 7,401,724 6,929,864
-------------
91,546,065
- ----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.5% Call-Net Enterprises, Inc., 0%/13.25% Sr. Disc. Nts., 12/1/04(13) 6,800,000 4,411,500
----------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04(3)(13) 12,700,000 9,211,676
----------------------------------------------------------------------------------------------------
Cellular Communications International, Inc., Units (each unit
consists of $1,000 principal amount of zero coupon sr. disc. nts., 8/15/00
and one warrant to purchase 1.126 shares of common stock)(15) 11,950,000 6,632,250
----------------------------------------------------------------------------------------------------
Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03(13) 26,906,000 20,583,090
----------------------------------------------------------------------------------------------------
Comcast Cellular Corp., Zero Coupon Nts., Series B, 3/5/00 7,423,000 5,678,595
----------------------------------------------------------------------------------------------------
Geotek Communications, Inc., Units (each unit consists
of $1,000 principal amount 0%/15% sr. sec. disc. nts.,
7/15/05 and warrants to purchase 30 shares of common stock)
(3)(13)(15) 23,000,000 11,557,500
----------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(13) 21,902,000 18,616,700
----------------------------------------------------------------------------------------------------
In Flight Phone Corp., Units (each unit consists of $1,000
principal amount of 0%/14% sr. disc. nts., series A,
5/15/02 and one warrant to purchase one share of common stock)
(3)(13)(15) 13,050,000 5,220,000
----------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc. (ICG) and IntelCom Group, Inc.,
Units (each unit consists of ten 0%/13.50% sr. disc. nts., 9/15/05 of ICG
and 33 warrants to purchase an equal number of common shares
of IntelCom at an exercise price equal to $12.51 per share)
(3)(13)(15) 13,200,000 7,359,000
----------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04(13) 17,801,000 13,528,760
----------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts., 11/15/01(13) 18,817,000 15,618,110
----------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II:
14% Sr. Nts., 11/1/04 11,100,000 12,709,500
9.50% Sr. Nts., 2/1/04 1,850,000 1,720,500
-------------
132,847,181
-------------
Total Corporate Bonds and Notes (Cost $1,525,605,745) 1,520,424,905
Shares
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--0.2%
----------------------------------------------------------------------------------------------------
American Telecasting, Inc.(18) 50,000 575,000
----------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp.(3)(18) 159,220 955,320
----------------------------------------------------------------------------------------------------
Celcaribe SA(3)(18) 2,065,020 1,964,323
----------------------------------------------------------------------------------------------------
ECM Fund, L.P.I.(11) 525 525,000
----------------------------------------------------------------------------------------------------
Equitable Bag, Inc.(18) 68,985 172,463
----------------------------------------------------------------------------------------------------
Grand Union Co.(18) 244,257 3,175,341
----------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp.(18) 115,330 1,686,701
----------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc.(18) 45,170 1,151,835
</TABLE>
22 Oppenheimer Strategic Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED) Ladish, Inc.(18) 806,000 $ 302,250
----------------------------------------------------------------------------------------------------
Thrifty Payless Holdings, Inc.(18) 38,000 161,500
----------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc.(11)(18) 232,222 464,444
----------------------------------------------------------------------------------------------------
Walter Industries, Inc.(18) 1,763 22,148
-------------
Total Common Stocks (Cost $12,951,487) 11,156,325
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--0.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for
Common Stock of Lyondell Petrochemical Co., 9/15/97 28,500 726,750
----------------------------------------------------------------------------------------------------
BankAmerica Corp., 8.375%, Series K 150,000 3,862,500
----------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp., $3.3438, Series E(14) 92,671 2,548,453
----------------------------------------------------------------------------------------------------
California Federal Bank, 10.625% Non-Cum., Series B 65,975 7,339,719
----------------------------------------------------------------------------------------------------
First Nationwide Bank, 11.50% Non-Cum. 135,000 14,985,000
----------------------------------------------------------------------------------------------------
K-III Communications Corp.:
$11.625 Exchangeable, Series B(14)(19) 59,713 5,851,882
Sr. Exchangeable, Series A 80,000 2,160,000
----------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp., 8.255% Provisionally
Redeemable Income Debt Exchangeable for Stock 59,400 809,325
----------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 Cv., Series B 238,000 4,403,000
----------------------------------------------------------------------------------------------------
Stone Container Corp., $1.75 Cum. Cv. Exchangeable, Series E 18,200 391,300
----------------------------------------------------------------------------------------------------
TGX Corp., Series A(18) 692,000 1,211,000
----------------------------------------------------------------------------------------------------
Unisys Corp., $3.75 Cv., Series A 118,800 4,455,000
-------------
Total Preferred Stocks (Cost $47,403,421) 48,743,929
Units
- ----------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp. 6/99 119,070 327,443
----------------------------------------------------------------------------------------------------
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(11) 262,500 393,750
----------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Wts., Exp. 2/99 74,086 2,778
----------------------------------------------------------------------------------------------------
Casino America, Inc. Wts., Exp. 11/96 9,789 1,468
----------------------------------------------------------------------------------------------------
Echostar Communications Corp. Wts., Exp. 6/04 78,000 858,000
----------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc. Wts., Exp. 10/03(3) 6,600 33,000
----------------------------------------------------------------------------------------------------
Foamex LP/JPS Automotive Corp. Wts., Exp. 7/99 7,250 72,500
----------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc. Wts., Exp. 11/99 4,900 122,500
----------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 11/03 182,000 1,615,250
----------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/96(3) 16,941 847
----------------------------------------------------------------------------------------------------
United International Securities Ltd. Wts., Exp. 11/99 13,045 495,710
-------------
Total Rights, Warrants and Certificates (Cost $2,050,774) 3,924,808
</TABLE>
23 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Face Market Value
Amount(1) See Note 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STRUCTURED INSTRUMENTS--1.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch, 10% CD Linked Nts.,
10/30/95 (indexed to the mid-market yield of the Japanese
Government Bond, Series 174, 4.60%, 9/20/04, multiplied by 14)(11) $ 24,640,000 $ 21,941,920
----------------------------------------------------------------------------------------------------
CS First Boston Corp. Argentina Structured Product Asset
Return Trust Certificates, 9.40%, 9/1/97 [representing debt
of Argentina (Republic of) Bonos del Tesoro Bonds,
Series II, 5.906%, 9/1/97 and an interest rate swap between
Credit Suisse
Financial Products and the Trust](3) 6,571,428 6,391,463
----------------------------------------------------------------------------------------------------
Goldman, Sachs & Co. Argentina Local Market Securities Trust,
11.30%, 4/1/00 [representing debt of Argentina (Republic of) Bonos del
Tesoro Bonds, Series 10, 5.98%, 4/1/00 and an interest rate swap
between Goldman Sachs and the Trust](11) 19,578,260 18,501,457
----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Units, 9.75%, 6/15/99 (representing debt
of Chemical Banking Corp., sub. capital nts., and equity
of Citicorp, 7.75% preferred, series 22)(11)(15) 10,000,000 11,066,000
----------------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc. Repackaged Argentina Domestic Securities
Trust, 14.75%, 9/1/02 [representing debt of Argentina (Republic of)
Bonos de Consolidacion de Deudas Bonds, Series I, 5.875%, 9/1/02](11) 6,000,000 4,560,000
----------------------------------------------------------------------------------------------------
Salomon Brothers, Inc., Zero Coupon Brazilian Credit Linked Nts.,
12/14/95 (indexed to the Nota Do Tesouro Nacional, Zero Coupon,
12/13/95) 2,830,000 2,756,595
----------------------------------------------------------------------------------------------------
Salomon Brothers, Inc., Zero Coupon Brazilian Credit Linked Nts.,
12/14/95 (indexed to the Nota Do Tesouro Nacional, Zero Coupon,
12/13/95) 4,880,000 4,753,379
-------------
Total Structured Instruments (Cost $75,324,058) 69,970,814
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (Cost $5,473,153,214) 105.3% 5,508,736,675
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (5.3) (275,803,993)
------------- --------------
NET ASSETS 100.0% $5,232,932,682
------------- --------------
------------- --------------
</TABLE>
<TABLE>
<CAPTION>
1. Face amount is reported in U.S. Dollars, except for those denoted in the following currencies:
<S> <C> <C>
ARA--Argentine Austral ESP--Spanish Peseta MXP--Mexican Peso
AUD--Australian Dollar GBP--British Pound Sterling NLG--Netherlands Guilder
CAD--Canadian Dollar HUF--Hungarian Forints NOK--Norwegian Krone
CLP--Chilean Peso IDR--Indonesian Rupiah NZD--New Zealand Dollar
CZK--Czech Koruna INR--Indian Rupee SEK--Swedish Krona
DEM--German Deutsche Mark ITL--Italian Lira THB--Thai Baht
DKK--Danish Krone
</TABLE>
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 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 $360,526,449 or 6.89% of the
Fund's net assets, at September 30, 1995.
4. When-issued security to be delivered and
settled after September 30, 1995.
5. 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 $28,089,584
or 0.54% of the Fund's net assets at September 30,
1995.
6. 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). Interest rates disclosed represent
current yields based upon the current cost basis
and estimated timing and amount of future cash
flows.
7. 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. Interest rates disclosed represent
current yields based upon the current cost basis
and estimated timing of future cash flows.
24 Oppenheimer Strategic Income Fund
<PAGE>
- -------------------------------------------------------------------------------
8. Represents the current interest rate for a
variable rate security.
9. Securities with an aggregate market value of
$688,875 are held in collateralized accounts to
cover initial margin requirements on open futures
sales contracts. See Note 9 of Notes to Financial
Statements.
10. A sufficient amount of liquid assets have 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>
Put Option on Argentina (Republic of)
Past Due Interest Bonds, 6.50%, 3/31/05 30,000 11/2/95 $62.00 $405,000 $753,000
----------------------------------------------------------------------------------------------------
Put Option on Brazil (Federal Republic
of) Interest Due and Unpaid Bonds,
7.813%, 1/1/01 19,000 11/2/95 $95.00 313,500 3,800
-------- --------
$718,500 $756,800
-------- --------
-------- --------
</TABLE>
11. Identifies issues considered to be illiquid--
See Note 8 of Notes to Financial Statements.
12. Represents the current interest rate for an
increasing rate security.
13. Represents a zero coupon bond that converts to
a fixed rate of interest at a designated future
date.
14. Interest or dividend is paid in kind.
15. Units may be comprised of several components,
such as debt and equity and/or warrants to
purchase equity at some point in the future.
16. Non-income producing--issuer is in default of
interest payment.
17. Partial interest payment received.
18. Non-income producing security.
19. 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, 1995. The aggregate fair
value of all securities of affiliated companies as
of September 30, 1995 amounted to $12,167,070.
Transactions during the period in which the issuer
was an affiliate are as follows:
<TABLE>
<CAPTION>
BALANCE
SEPTEMBER 30, 1994 GROSS ADDITIONS GROSS REDUCTIONS
------------------------ ----------------------- ----------------------
FACE/SHARES COST FACE/SHARES COST FACE/SHARES COST
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capstone Capital
Corp., 10.50%
Cv.Sub. Debs., 4/1/02 -- $ -- 5,450,000 $5,537,088 -- $ --
K-III Communications
Corp., $11.625
Exchangeable,
Series B 53,248 $5,383,979 6,465 614,630 -- --
---------- ---------- ---------
$5,383,979 $6,151,718 $ --
---------- ---------- ---------
---------- ---------- ---------
<CAPTION>
BALANCE
SEPTEMBER 30, 1995 INTEREST/
------------------------ DIVIDEND
FACE/SHARES COST INCOME
- -----------------------------------------------------------------
<S> <C> <C> <C>
Capstone Capital 5,450,000 $ 5,537,088 $232,861
Corp., 10.50%
Cv.Sub. Debs., 4/1/02
K-III Communications
Corp., $11.625
Exchangeable,
Series B 59,713 5,998,609 $614,630
----------- --------
$11,535,697 $847,491
----------- --------
----------- --------
</TABLE>
See accompanying Notes to Financial Statements.
25 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS Investments, at value (cost $5,473,153,214)--see accompanying statement $5,508,736,675
----------------------------------------------------------------------------------------------------------
Receivables:
Interest, dividends and principal paydowns 128,413,727
Investments sold 122,629,621
Shares of beneficial interest sold 14,062,106
Receivable for daily variation margin on futures contracts 275,000
----------------------------------------------------------------------------------------------------------
Other 186,914
--------------
Total assets 5,774,304,043
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Bank overdraft 28,700,257
----------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency exchange contracts--Note 5 7,282,708
----------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $718,500)--
see accompanying statement--Note 4 756,800
----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 470,512,822
Shares of beneficial interest redeemed 15,872,047
Dividends 13,704,030
Distribution and service plan fees--Note 6 3,183,500
Transfer and shareholder servicing agent fees 276,695
Other 1,082,502
--------------
Total liabilities 541,371,361
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,232,932,682
--------------
--------------
- ----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $5,569,709,674
NET ASSETS ----------------------------------------------------------------------------------------------------------
Overdistributed net investment income (6,400,367)
----------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investments, written options and foreign
currency transactions (359,116,632)
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments, options written and translation of assets
and liabilities denominated in foreign currencies 28,740,007
--------------
Net assets $5,232,932,682
--------------
--------------
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $3,218,621,790 and 687,546,419 shares of beneficial interest outstanding) $4.68
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $4.91
----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $1,947,337,632 and 415,199,883 shares of beneficial interest outstanding) $4.69
----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $66,973,260 and 14,313,936 shares of beneficial interest outstanding) $4.68
</TABLE>
See accompanying Notes to Financial Statements.
26 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest:
Unaffiliated companies (net of foreign withholding taxes of $497,148) $504,330,415
Affiliated companies 232,861
----------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies 4,194,095
Affiliated companies 614,630
--------------
Total income 509,372,001
- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 6 25,850,896
----------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 6:
Class A 7,591,135
Class B 17,108,221
Class C 83,371
----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 6 5,397,229
----------------------------------------------------------------------------------------------------------
Custodian fees and expenses 2,132,788
----------------------------------------------------------------------------------------------------------
Shareholder reports 1,750,484
----------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 9,588
Class B 125,616
Class C 22,691
----------------------------------------------------------------------------------------------------------
Legal and auditing fees 121,770
----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 85,905
----------------------------------------------------------------------------------------------------------
Other 209,893
--------------
Total expenses 60,489,587
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 448,882,414
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain (loss) on:
GAIN (LOSS) ON, Investments and options written (including premiums on options exercised) (318,344,913)
INVESTMENTS OPTIONS Closing and expiration of options written (17,484,763)
WRITTEN AND FOREIGN Foreign currency transactions (13,670,507)
CURRENCY TRANSACTIONS Futures transactions 1,207,828
--------------
Net realized loss (348,292,355)
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 297,543,927
Translation of assets and liabilities denominated in foreign currencies (890,017)
--------------
Net change 296,653,910
--------------
Net realized and unrealized loss on investments, options written and
foreign currency transactions (51,638,445)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $397,243,969
--------------
--------------
See accompanying Notes to Financial Statements.
</TABLE>
27 Oppenheimer Strategic Income Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
19951994
<S> <C> <C> <C>
OPERATIONS Net investment income $ 448,882,414 $ 366,546,493
----------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (348,292,355) (17,210,118)
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments, options written and translation of assets and
liabilities denominated in foreign currencies 296,653,910 (317,182,306)
-------------- --------------
Net increase in net assets resulting from operations 397,243,969 32,154,069
- ----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.41 and $.4329 per share, respectively) (254,120,541) (236,741,649)
SHAREHOLDERS Class B ($.3771 and $.3938 per share, respectively) (153,748,570) (119,419,105)
Class C ($.1181 per share) (5,287,754) --
----------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options
written and foreign currency transactions:
Class A ($.01 per share) (9,994,119) --
Class B ($.01 per share) (5,867,961) --
Class C ($.01 per share) (14,565) --
----------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments, options
written and foreign currency transactions:
Class A ($.1179 per share) -- (57,628,697)
Class B ($.1179 per share) -- (29,069,526)
----------------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.0280 and $.0135 per share, respectively) (17,363,434) (8,947,314)
Class B ($.0258 and $.0135 per share, respectively) (10,505,263) (4,513,275)
Class C ($.0081 per share) (361,299) --
- ----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase in net assets resulting from Class A beneficial
TRANSACTIONS interest transactions--Note 2 119,123,728 685,155,178
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial
interest transactions--Note 2 378,396,143 1,019,463,146
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C beneficial
interest transactions--Note 2 66,237,938 --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase 503,738,272 1,280,452,827
----------------------------------------------------------------------------------------------------------
Beginning of period 4,729,194,410 3,448,741,583
-------------- --------------
End of period (including overdistributed net investment income
of $6,400,367 and $2,882,064, respectively) $5,232,932,682 $4,729,194,410
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Financial Statements.
28 Oppenheimer Strategic Income Fund
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <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
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .41 .45 .48 .46 .56 .59
Net realized and unrealized gain (loss)
on investments, options written
and foreign currency transactions (.03) (.35) .17 .14 .21 (.10)
- -----------------------------------------------------------------------------------------------------------------------
Total income from
investment operations .38 .10 .65 .60 .77 .49
- -----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.41) (.43) (.50) (.46) (.57) (.57)
Distributions from net realized gain
on investments, options written
and foreign currency transactions (.01) -- (.01) (.08) (.06) (.05)
Distributions in excess of net
realized gain on investments,
options written and foreign
currency transactions -- (.12) -- -- -- --
Tax return of capital (.03) (.01) -- -- -- --
------- ------- ------- ------- ------- -----
Total dividends and distributions
to shareholders (.45) (.56) (.51) (.54) (.63) (.62)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.75 $5.21 $5.07 $5.01 $4.87
------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 8.62% 1.85% 13.30% 12.56% 16.97% 10.20%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) $3,219 $3,143 $2,754 $1,736 $560 177
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,085 $3,082 $2,107 $1,084 $311 $93
- -----------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 687,546 661,897 528,587 342,034 111,739 36,418
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 9.63% 8.72% 9.78% 9.39% 11.82% 12.79%(5)
Expenses .99% .95% 1.09% 1.16%(6) 1.27%(6) 1.36%(5)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 141.5% 119.0% 148.6% 208.2% 194.7% 424.6%
<CAPTION>
Class B Class C
-------------------------------------- -------
Year
Ended
Year Ended Sept, 30, Sept, 30,
1995 1994 1993(2) 1995(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA: $4.76 $5.22 $4.89 $4.68
Net asset value, beginning of period
- ------------------------------------------------------------------------------------------
Income (loss) from investment
operations: .37 .42 .36 .13
Net investment income
Net realized and unrealized gain (loss)
on investments, options written (.03) (.36) .34 .01
and foreign currency transactions
------- ------- ------- -------
Total income from .34 .06 .70 .14
investment operations
- -------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders: (.37) (.39) (.36) (.12)
Dividends from net investment income
Distributions from net realized gain
on investments, options written (.01) -- (.01) (.01)
and foreign currency transactions
Distributions in excess of net
realized gain on investments,
options written and foreign -- (.12) -- --
currency transactions (.03) (.01) -- (.01)
Tax return of capital
Total dividends and distributions
to shareholders (.41) (.52) (.37) (.14)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $4.69 $4.76 $5.22 $4.68
------- ------- ------- -------
------- ------- ------- -------
- ------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 7.79% 1.07% 13.58% 3.09
- ------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) 1,947 $1,586 $695 $67
- ------------------------------------------------------------------------------------------
Average net assets (in millions) 1,711 $1,236 $276 $24
- ------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 415,200 333,489 133,235 14,314
- ------------------------------------------------------------------------------------------
Ratios to average net assets
Net investment income 8.83% 7.90% 8.13%(5) 8.28
Expenses 1.75% 1.71% 1.80%(5) 2.02
- ------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 141.5% 119.0% 148.6% 141.5%
</TABLE>
1. For the period from May 26, 1995
(inception of offering) to September 30,
1995.
2. For the period from November 30, 1992
(inception of offering) to September 30,
1993.
3. For the period from October 16, 1989
(inception of offering) to September 30,
1990.
4. 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.
5. Annualized.
6. 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.
7. The lesser of purchases or sales of
portfolio securities for a period, divided
by the monthly average of the market value
of portfolio securities owned during the
period. Securities with a maturity or
expiration date at the time of acquisition
of one year or less are excluded from the
calculation. Purchases and sales of
investment securities (excluding short-term
securities) for the period ended September
30, 1995 were $7,299,319,937 and
$6,307,228,611, respectively.
See accompanying Notes to Financial Statements.
29 Oppenheimer Strategic Income Fund
<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 Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All three 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 are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term ``money
market type'' debt 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.
- --------------------------------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to market fluctuation
and may increase or decrease in value prior to their delivery. The Fund
maintains, in a segregated account with its custodian, assets with a market
value equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of September 30,
1995, the Fund had entered into outstanding when-issued or forward commitments
of $313,292,095.
In connection with its ability to purchase securities on a when-issued
or forward commitment basis, the Fund may enter into mortgage ``dollar-rolls''
in which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar- roll as a sale and a new purchase
transaction.
- --------------------------------------------------------------------------------
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, 1995, securities with an
aggregate market value of $22,888,086, representing .44% 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 Statement of Operations.
30 Oppenheimer Strategic Income Fund
<PAGE>
- --------------------------------------------------------------------------------
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. 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.
- --------------------------------------------------------------------------------
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. At September 30, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $34,310,000 expiring in 2002 and 2003.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C 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 and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of 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.
During the year ended September 30, 1995, 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, during the year ended
September 30, 1995, amounts have been reclassified to reflect a decrease in
paid-in capital of $28,272,149, a decrease in undistributed net investment
income of $11,013,856, and a decrease in accumulated net realized loss on
investments of $39,286,005.
- --------------------------------------------------------------------------------
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.
31 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, 1995(1) Year Ended September 30, 1994
------------------------------- -----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 148,016,674 $ 683,433,740 236,638,548 $ 1,198,107,502
Dividends and distributions reinvested 44,280,828 204,225,816 46,661,271 234,357,544
Redeemed (166,648,327) (768,535,828) (149,989,676) (747,309,868)
------------- ------------- ------------- --------------
Net increase 25,649,175 $ 119,123,728 133,310,143 $ 685,155,178
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
- -----------------------------------------------------------------------------------------------------
Class B:
Sold 116,898,296 $ 540,870,128 211,514,941 $ 1,074,296,304
Dividends and distributions reinvested 19,012,767 87,850,572 13,715,575 68,501,659
Redeemed (54,200,534) (250,324,557) (24,975,699) (123,334,817)
------------- ------------- ------------- --------------
Net increase 81,710,529 $ 378,396,143 200,254,817 $ 1,019,463,146
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
- -----------------------------------------------------------------------------------------------------
Class C:
Sold 2,871,521 $ 13,389,069 -- --
Dividends and distributions reinvested 90,363 421,261 -- --
Issued in connection with the
acquisition of Oppenheimer Strategic
Diversified Income Fund--Note 711,908,408 55,016,842 -- --
Redeemed (556,356) (2,589,234) -- --
------------- ------------- ------------- --------------
Net increase 14,313,936 $66,237,938 -- --
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
1. For the year ended September 30, 1995 for Class A and Class B shares and for
the period from May 26, 1995 (inception of offering) to September 30, 1995 for
Class C shares.
- --------------------------------------------------------------------------------
3. UNREALIZED GAINS
AND LOSSES ON
INVESTMENTS AND
OPTIONS WRITTEN
At September 30, 1995, net unrealized appreciation on investments and options
written of $35,545,161 was composed of gross appreciation of $157,089,688, and
gross depreciation of $121,544,527.
- --------------------------------------------------------------------------------
4. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write covered put and call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When
an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of
the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is 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.
32 Oppenheimer Strategic Income Fund
<PAGE>
- -------------------------------------------------------------------------------
4. OPTION ACTIVITY (continued)
Written option activity for the year ended September 30, 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 492,409 2,981,048 66,538,263 1,354,070
- -------------------------------------------------------------------------------------------------------------------
Options closed or expired (428,904,484) (8,198,502) (66,789,263) (1,244,945)
- -------------------------------------------------------------------------------------------------------------------
Options exercised (100,458) (714,690) -- --
------------- ------------ ------------ -----------
Options outstanding at September 30, 1995 -- $ -- 49,000 $ 718,500
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
- -------------------------------------------------------------------------------------------------------------------
</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
(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 September 30, 1995, the Fund had outstanding forward contracts to purchase
and sell foreign currencies as follows:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
AMOUNT VALUATION AS OF APPRECIATION
CONTRACTS TO PURCHASE EXPIRATION DATE (000S) SEPTEMBER 30, 1995 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
German Deutsche Mark (DEM) 10/4/95--10/25/95 45,289 (DEM) $ 31,867,353 $ 399,441
Italian Lira (ITL) 10/3/95--10/13/95 79,818,817 (ITL) 49,471,665 629,263
New Zealand Dollar (NZD) 10/3/95--10/10/95 32,604 NZD 21,458,230 (350,668)
Spanish Peseta (ESP) 10/3/95--10/6/95 5,973,525 ESP 48,464,753 324,844
---------------- ------------ -----------
85,870,235 $ 151,262,001 $ 1,002,880
---------------- ------------ -----------
---------------- ------------ -----------
Contracts to Sell
- -------------------------------------------------------------------------------------------------------------------
Australian Dollar (AUD) 10/3/95--10/10/95 29,485 AUD $ 22,260,562 (451,664)
German Deutsche Mark (DEM) 10/18/95--12/14/95 307,000 (DEM) 216,037,314 (8,341,934)
Italian Lira (ITL) 10/3/95--12/11/95 83,556,642 (ITL) 51,723,507 (129,059)
Spanish Peseta (ESP) 10/3/95--11/28/95 9,982,040 ESP 81,030,277 705,873
Swedish Krona (SEK) 12/14/95 20,800 SEK 2,983,603 (68,804)
---------------- ------------- ------------
93,895,967 $ 374,035,263 (8,285,588)
---------------- ------------- ------------
---------------- ------------- ------------
Net Unrealized Depreciation $(7,282,708)
------------
------------
- -------------------------------------------------------------------------------------------------------------------
</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 a fee of .75% on the first
$200 million of average annual 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.
33 Oppenheimer Strategic Income Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------
6. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
(CONTINUED)
For the year ended September 30, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $16,024,553, of which $4,566,642
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 and
Class C shares totaled $20,385,966 and $126,382, of which $1,130,489 and $3,318,
respectively, was paid to an affiliated broker/dealer. During the year ended
September 30, 1995, OFDI received contingent deferred sales charges of
$5,144,993 and $5,409, respectively, upon redemption of Class B and Class C
shares as reimbursement for sales commissions advanced by OFDI at the time of
sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is
the transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans, each class may expend up to .25% of its
net assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions. In
addition, Class B and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to reimburse OFDI for sales commissions paid
from its own resources at the time of sale and associated financing costs. In
the event of termination or discontinuance of the Class B or Class C plan, the
Board of Trustees may allow the Fund to continue payment of the asset-based
sales charge to OFDI for distribution expenses incurred on Class B or Class C
shares sold prior to termination or discontinuance of the plan. At September 30,
1995, OFDI had incurred unreimbursed expenses of $73,988,456. During the year
ended September 30, 1995, OFDI paid $499,052, $85,423 and $1,325, respectively,
to an affiliated broker/dealer as reimbursement for Class A, Class B and Class C
personal service and maintenance expenses and retained $14,432,795 and $49,630,
respectively, as reimbursement for Class B and Class C sales commissions and
service fee advances, as well as financing costs.
- --------------------------------------------------------------------------------
7. ACQUISITION OF OPPENHEIMER
STRATEGIC DIVERSIFIED
INCOME FUND
On August 18, 1995, the Fund acquired all of the net assets of Oppenheimer
Strategic Diversified Income Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Oppenheimer Strategic Diversified Income Fund
shareholders on July 12, 1995. The Fund issued 11,908,408 shares of beneficial
interest (Class C), valued at $55,016,842 in exchange for the net assets,
resulting in combined Class C net assets of $63,020,965 on August 18, 1995. The
exchange qualified as a tax-free reorganization for federal income tax purposes.
- --------------------------------------------------------------------------------
8. ILLIQUID AND
RESTRICTED SECURITIES
At September 30, 1995, investments in securities included issues that are
illiquid or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid or
restricted securities. The aggregate value of these securities subject to this
limitation at September 30, 1995 was $121,816,039 which represents 2.33% 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 SEPT. 30, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Charlie's, Inc., 12% First Mtg. Nts., Series A, 11/15/00 11/18/93--12/9/93 $ 100.00 $ 80.00
- ----------------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch, 10% CD Linked Nts., 10/30/95 4/14/95 $ 100.00 $ 89.05
- ----------------------------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp. 11/00 11/18/93--12/9/93 $ 2.10 $ 1.50
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Queen & Casino, Inc., 12% First Mtg. Nts., Series A, 11/15/00 11/18/93--12/17/93 $ 87.89 $ 90.00
- ----------------------------------------------------------------------------------------------------------------------------------
Columbia (Republic of) 1989-1990 Integrated Loan Facility Bonds:
7.313%, 7/1/01 6/17/93--11/12/93 $ 91.77 $ 93.00
6.875%, 10/26/03 10/25/93--12/17/93 $ 89.77 $ 90.00
- ----------------------------------------------------------------------------------------------------------------------------------
ECM Fund L.P.I. Common Stock 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
- ----------------------------------------------------------------------------------------------------------------------------------
Eskom Loan Participation Agreements, 7.937%, 4/15/98 11/18/93 $ 94.75 $ 96.50
- ----------------------------------------------------------------------------------------------------------------------------------
Eskom Loan Participation Agreements, 7.25%, 9/15/99 12/17/93 $ 89.75 $ 96.50
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs & Co. Argentina Local
Market Securities Trust, 11.30%, 4/1/00 8/24/94 $ 100.00 $ 94.50
- ----------------------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing
Agreement Nts., Tranche A, 6.656%, 10/16/00 7/12/95--8/15/95 $ 89.03 $ 89.00
</TABLE>
34 Oppenheimer Strategic Income Fund
<PAGE>
- -------------------------------------------------------------------------------
8. ILLIQUID AND
RESTRICTED SECURITIES
(CONTINUED)
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT SEPT. 30, 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Units, 9.75%, 6/15/99 5/15/95 $110.05 $110.66
- ----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc. Repackaged Argentina
Domestic Securities Trust, 14.75%, 9/1/02 9/19/94--10/19/94 $100.31 $ 76.00
- ----------------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/14/95 $100.00 $100.75
- ----------------------------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. Common Stock 5/2/94 $ 9.50 $ 2.00
- ----------------------------------------------------------------------------------------------------------------------------------
United Mexican States, Combined Facility 2, Loan
Participation Agreement, Tranche A, 6.75%, 3/20/99 10/25/94 $ 84.25 $ 72.50
- ----------------------------------------------------------------------------------------------------------------------------------
United Mexican States, Combined Facility 3, Loan Participation
Agreement, Tranche A, 6.75%, 9/20/97 10/25/94 $ 89.00 $ 72.50
- ----------------------------------------------------------------------------------------------------------------------------------
United Mexican States, Gtd. Bonds, Banpesca Restructured
Sovereign Loan, 6.902%, 10/26/06 1/13/94 $ 91.75 $ 72.63
- ----------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Debs., Banco
Venezuela TCI, Zero Coupon, 12/13/98 7/13/93--7/15/93 $ 72.64 $ 75.50
</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.
- --------------------------------------------------------------------------------
9. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or
protect against changes in interest rates. The Fund may also buy or write put or
call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases
in interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities. The Fund will segregate
assets to cover its commitments under futures contracts.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
At September 30, 1995, the Fund had outstanding futures contracts to purchase
debt securities as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
CONTRACTS TO PURCHASE DATE FUTURES CONTRACTS SEPTEMBER 30, 1995 APPRECIATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 12/95 400 $44,100,000 $312,500
</TABLE>
<PAGE>
Appendix
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking<PAGE>
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
