Oppenheimer
Strategic Income Fund
Prospectus dated January 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
Oppenheimer Strategic Income Fund is a mutual fund. It seeks high current income
by investing mainly in debt securities in three market sectors: debt securities
of foreign governments and companies, U.S. government securities, and
lower-rated high-yield securities of U.S. and foreign companies.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
[logo] OppenheimerFunds Distributor, Inc.
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221
Contents
About the Fund
3 The Fund's Investment Objective and Strategies
4 Main Risks of Investing in the Fund
7 The Fund's Past Performance
8 Fees and Expenses of the Fund
9 About the Fund's Investments
14 How the Fund is Managed
About Your Account
15 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
22 Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
Retirement Plans
24 How to Sell Shares
By Mail
By Telephone
By Checkwriting
27 How to Exchange Shares
29 Shareholder Account Rules and Policies
30 Dividends, Capital Gains and Taxes
32 Financial Highlights
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ABOUT THE FUND
The Fund's Investment Objective and Strategies
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WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks high current income by
investing mainly in debt securities and by writing covered call options on them.
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WHAT DOES THE FUND INVEST IN? The Fund invests mainly in debt securities of
issuers in three market sectors: foreign governments and companies, U.S.
government securities and lower-rated high-yield securities of U.S. and foreign
companies (commonly called "junk bonds"). Those debt securities typically
include:
o foreign government and U.S. government bonds and notes,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes,
o lower-grade, high-yield domestic and foreign corporate debt obligations, and
o "zero-coupon" or "stripped" securities.
Under normal market conditions, the Fund invests in each of those three
market sectors. However, the Fund is not required to invest in all three sectors
at all times, and the amount of its assets in each of the three sectors will
vary over time. The Fund can invest up to 100% of its assets in any one sector
at any time, if the Fund's investment Manager, OppenheimerFunds, Inc., believes
that the Fund can achieve its objective without undue risk. The Fund can invest
in issuers in any market capitalization range - large-cap, mid-cap and
small-cap, and can buy securities having short-, medium-, or long-term
maturities.
The Fund's foreign investments can include debt securities of issuers in
developed markets and emerging markets. The Fund also uses derivative
investments for hedging purposes or to seek higher investment returns. These
include options, futures, forward contracts, CMOs and "structured" notes. The
Fund's investments are more fully explained in "About the Fund's Investments,"
below.
HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund's portfolio managers analyze the
overall investment opportunities and risks among the three sectors in which the
Fund invests. Their overall strategy is to build a broadly-diversified portfolio
of debt securities to help moderate the special risks of investing in high-yield
debt securities and foreign securities. The Fund may try to take advantage of
any lack of correlation in the movement of securities prices among the three
sectors from time to time. The portfolio managers currently focus on the factors
below (some of which may vary in particular cases and may change over time),
looking for:
o Securities offering high current income,
o Overall portfolio diversification by seeking securities whose market prices
tend to move in different directions, and
o Relative values among the three major market sectors in which the Fund
invests.
The Fund's diversification strategies, both with respect to securities in
different sectors, and securities issued by different companies and governments,
are intended to help reduce the volatility of the Fund's share prices while
seeking current income.
WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking high current income from a fund that normally diversifies its portfolio
by investing in a variety of domestic and foreign debt securities, including
government securities and lower-grade debt securities. Those investors should be
willing to assume the risks of short-term share price fluctuations that are
typical for a fund that invests in debt securities, particularly high-yield and
foreign securities. Since the Fund's income level will fluctuate, it is not
designed for investors needing an assured level of current income. Also, the
Fund does not seek capital appreciation. The Fund is designed as a long-term
investment and may be appropriate as a part of an investor's retirement plan
portfolio. However, the Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors described below. There is also
the risk that poor security selection by the Manager will cause the Fund to
under perform other funds having a similar objective.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a debt security might not make interest and principal
payments on the security as they become due. If the issuer fails to pay
interest, the Fund's income might be reduced, and if the issuer fails to repay
principal, the value of that security and of the Fund's shares might fall. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities. While the Fund's
investments in U.S. government securities are subject to little credit risk, the
Fund's other investments in debt securities, particularly high-yield,
lower-grade debt securities, are subject to risks of default.
Special Risks of Lower-Grade Securities. Because the Fund can invest without
limit in securities below investment grade to seek high income, the Fund's
credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities may be subject to
greater market fluctuations and greater risks of loss of income and
principal than investment-grade debt securities. Securities that are (or
that have fallen) below investment grade are exposed to a greater risk
that the issuers of those securities might not meet their debt
obligations. The market for these securities may be less liquid, making it
difficult for the Fund to sell them quickly at an acceptable price. These
risks can reduce the Fund's share prices and the income it earns.
RISKS OF FOREIGN INVESTING. The Fund can invest without limit in foreign
government and corporate debt securities in both developed and emerging markets.
The Fund will normally invest significant amounts of its assets in foreign
securities. While foreign securities may offer special investment opportunities,
they also have special risks that can reduce the Fund's share prices and income.
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The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities if foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. 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 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.
Special Risks of Emerging Markets. The Fund can buy securities in emerging and
developing markets. They present risks not found in more mature markets.
Those securities may be more difficult to sell at an acceptable price and
their prices may be more volatile than securities of issuers in more
developed markets. Settlements of trades may be subject to greater delays
so that the Fund might not receive the sale proceeds of a security on a
timely basis.
Emerging markets might have less developed trading markets and exchanges,
and less developed legal and accounting systems. Investments may be subject to
greater risks of government restrictions on withdrawing the sales proceeds of
securities from the country. Economies of developing countries may be more
dependent on relatively few industries that may be highly vulnerable to local
and global changes. Governments may be more unstable and present greater risks
of nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be substantially more volatile than debt
securities of issuers in the U.S. and other developed countries and may be very
speculative.
INTEREST RATE RISKS. The values of debt securities, including U.S. government
securities, are subject to change when prevailing interest rates change. When
interest rates fall, the values of already-issued debt securities generally
rise. When interest rates rise, the values of already-issued debt securities
generally fall, and they may sell at a discount from their face amount. The
magnitude of these fluctuations will often be greater for debt securities having
longer maturities than for shorter-term debt securities. The Fund's share prices
can go up or down when interest rates change because of the effect of the
changes on the value of the Fund's investments in debt securities. Also, if
interest rates fall, the Fund's investments in new securities at lower yields
will reduce the Fund's income.
PREPAYMENT RISK. Prepayment risk is the risk that the issuer of a security can
prepay the principal prior to the security's expected maturity. The prices and
yields of mortgage-related securities are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when general interest rates rise. Securities subject to
prepayment risk, including the mortgage-related securities that the Fund buys,
have greater potential for losses when interest rates rise than other types of
debt securities.
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The impact of prepayments on the price of a security may be difficult to
predict and may increase the volatility of the price. Interest-only and
principal-only "stripped" securities can be particularly volatile when interest
rates change. If the Fund buys mortgage-related securities at a premium,
accelerated prepayments on those securities could cause the Fund to lose a
portion of its principal investment represented by the premium the Fund paid.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Fund's shares to fall more.
RISKS OF DERIVATIVE INVESTMENTS. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value of an
underlying asset, interest rate or index. Options, futures, structured notes and
mortgage-related securities are some of the derivatives the Fund typically uses.
If the issuer of the derivative does not pay the amount due, the Fund can
lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share prices
could fall, and the Fund could get less income than expected, or its hedge might
be unsuccessful. Some derivatives may be illiquid, making it difficult to sell
them quickly at an acceptable price. Using derivatives can increase the
volatility of the Fund's share prices.
SECTOR ALLOCATION RISKS. In allocating the Fund's investments among the three
principal sectors in which the Fund invests to seek to take advantage of the
lack of correlation of the performance of these sectors, the Manager's
expectations about the relative performance of those sectors may be inaccurate,
and the Fund's returns might be less than other funds using similar strategies.
HOW RISKY IS THE FUND OVERALL? The risks described above collectively form the
overall risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and its prices per share. Particular
investments and investment strategies also have risks. These risks mean that you
can lose money by investing in the Fund. When you redeem your shares, they may
be worth more or less than what you paid for them. There is no assurance that
the Fund will achieve its investment objective.
In the short term, the values of debt securities can fluctuate
substantially because of interest rate changes. Prices of foreign debt
securities, particularly in emerging markets, and of high-yield securities can
be volatile, and the prices of the Fund's shares and its income can go up and
down substantially because of events affecting foreign markets or issuers or
events affecting the high-yield market. In the OppenheimerFunds spectrum, the
Fund is generally more aggressive and has more risks than funds that focus on U.
S. government securities and
<PAGE>
investment-grade bonds, but its sector diversification strategy may help make it
less volatile than funds that focus solely on investments high-yield bonds or a
single foreign sector, such as emerging markets.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the past ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of broad-based market
indices. The Fund's past investment performance is not necessarily an indication
of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 6.80% (1Q'91) and the lowest return (not annualized)
for a calendar quarter was -3.41% (3Q'98).
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Average Annual Total Returns 5 Years 10 Years
for the periods ended (or life of (or life of
December 31, 1999 1 Year class, if less) class, if less)
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Class A Shares (inception -0.90% 7.24% 8.50%
10/16/89)
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Lehman Bros. Aggregate Bond -0.82% 7.73% 7.70%1
Index
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Salomon Bros. World Gov't -4.27% 6.42% 8.03%1
Bond Index
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Class B Shares (inception -1.51% 7.17% 7.32%
11/30/92)
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Class C Shares (inception 2.54% 6.60% N/A
5/26/95)
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Class Y Shares (inception 4.67% 2.96% N/A
1/26/98)
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1. From 12/31/89.
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
contingent deferred sales charges of 5% (1-year), and 2% (5-years); and for
Class C, the 1% contingent deferred sales charge for the 1-year period. Because
Class B shares convert to Class A shares 72 months after purchase, Class B
"life-of-class" performance does not include any contingent deferred sales
charge and uses Class A performance for the period after conversion. There is no
sales charge for Class Y shares. The returns measure the performance of a
hypothetical account and assume that all dividends and capital gains
distributions have been reinvested in additional shares. The performance of
Class A shares is compared to the Lehman Brothers Aggregate Bond Index, an
unmanaged index of U.S. corporate and government bonds, and the Salomon Brothers
World Government Bond Index, an unmanaged index of debt securities of major
foreign government bond markets. Index performance reflects the reinvestment of
income but does not consider transaction costs. The Fund's investments vary from
those in the indices.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
September 30, 1999.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C Class Y
Shares Shares Shares Shares
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Maximum Sales Charge
(Load) on purchases 4.75% None None None
(as % of offering price)
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Maximum Deferred Sales
Charge (Load) (as % of
the lower of the None1 5%2 1%3 None
original offering price
or redemption proceeds)
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1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Class C Class Y
Shares Shares Shares Shares
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Management Fees 0.52% 0.52% 0.52% 0.52%
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Distribution and/or 0.25% 1.00% 1.00% None
Service (12b-1) Fees
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Other Expenses 0.17% 0.17% 0.17% 0.05%
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Total Annual Operating 0.94% 1.69% 1.69% 0.57%
Expenses
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Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
Examples. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
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If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $566 $760 $970 $1,575
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Class B Shares $672 $833 $1,118 $1,616
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Class C Shares $272 $533 $918 $1,998
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Class Y Shares $58 $183 $318 $714
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If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $566 $760 $970 $1,575
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Class B Shares $172 $533 $918 $1,616
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Class C Shares $172 $533 $918 $1,998
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Class Y Shares $58 $183 $318 $714
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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different investments will vary over time based upon the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below. At times the
Fund might increase the relative emphasis of its investments in one or two
sectors because of the Manager's belief that there are greater opportunities for
high current income from debt securities of issuers in those sectors relative to
other sectors. The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of securities of any
one issuer and by not investing too great a percentage of the Fund's assets in
any one company. Also, the Fund does not concentrate 25% or more of its total
assets in investments in the securities of any one foreign government or in
securities of companies in any one industry. However, changes in the overall
market prices of securities and the income they pay can occur at any time. The
Fund's share prices and yields will change daily based on changes in market
prices of securities and market conditions and in response to other economic
events.
The Fund can invest in different types of debt securities, as described
above. The debt securities the Fund buys may be rated by nationally-recognized
rating organizations or they may be unrated securities assigned an equivalent
rating by the Manager. The Fund can buy investment-grade securities, although it
normally invests a substantial part of its assets in debt securities below
investment-grade, and can do so without limit.
What is a "debt security?" A debt security is essentially a loan by the buyer to
the issuer of the debt security. The issuer promises to pay back the principal
amount of the loan and normally pays interest, at a fixed or variable rate, on
the debt while it is outstanding.
U.S. Government Securities. The Fund normally invests some of its assets in
securities issued or guaranteed by the U.S. Treasury or other government
agencies or federally-chartered corporate entities referred to as
"instrumentalities." These are referred to as "U.S. government securities"
in this Prospectus. o
<PAGE>
U.S. Treasury Obligations. These include Treasury bills (having maturities of
one year or less when issued), Treasury notes (having maturities of more
than one and up to ten years when issued), and Treasury bonds (having
maturities of more than ten years when issued). Treasury securities are
backed by the full faith and credit of the United States as to timely
payments of interest and repayments of principal. The Fund can buy U. S.
Treasury securities that have been "stripped" of their coupons by a
Federal Reserve Bank and zero-coupon U.S. Treasury securities described
below.
o Obligations of U.S. Government Agencies or Instrumentalities. These
include direct obligations and mortgage-related securities that have
different levels of credit support from the U.S. government. Some are
supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds ("Fannie Maes"). Others are supported
only by the credit of the entity that issued them, such as Federal Home
Loan Mortgage Corporation obligations ("Freddie Macs").
o Mortgage-Related U.S. Government Securities. Pools of residential or
commercial mortgages, in the form of CMOs and other "pass-through" mortgage
securities that are U.S. government securities, have collateral to secure
payment of interest and principal. They may be issued in different series
each having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or
guaranteed by a U.S. agency or instrumentality or mortgage loans insured by
a U.S. government agency.
High-Yield, Lower-Grade Debt Securities. The Fund can purchase a variety of
lower-grade, high-yield debt securities of U.S. and foreign issuers,
including bonds, debentures, notes, preferred stocks, loan participation
interests, structured notes, asset-backed securities, among others, to seek
high current income. These securities are sometimes called "junk bonds."
Lower-grade debt securities are rated below "Baa" by Moody's Investors
Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service or
have comparable ratings by other nationally-recognized rating
organizations. The Fund can invest in securities rated as low as "C" or
"D" or which are in default at the time the Fund buys them. While
securities rated "Baa" by Moody's or "BBB" by S&P are considered
"investment grade," they have some speculative characteristics.
The Manager does not rely solely on ratings issued by rating organizations
when selecting investments for the Fund, and it can buy unrated
securities. The Manager may assign a rating to an unrated security that
the Manager believes is equivalent to that of a rated security that offers
comparable yields and risks.
Private-Issuer Mortgage-Backed Securities. CMOs and other mortgage-related
securities issued by private issuers are not U.S. government securities,
and are subject to greater credit risks than mortgage-related securities
that are U.S. government securities. The Fund can invest in
mortgage-backed securities issued by private issuers. Primarily these
include multi-class debt or pass-through certificates secured by mortgage
loans. They may be issued by banks, savings and loans, mortgage bankers
and other non-governmental issuers. Private issuer mortgage-backed
securities are subject to the credit risks of the issuers (as well as
interest rate risks and prepayment risks), although in some cases they may
be supported by insurance or guarantees.
Asset-Backed Securities. The Fund can buy asset-backed securities, which are
fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of
the interest. These securities are subject to the risk of default by the
issuer as well as by the borrowers of the underlying loans in the pool, as
well as interest rate and prepayment risks.
Foreign Securities. The Fund can buy a variety of debt securities issued by
foreign governments and companies, as well as "supra-national" entities,
such as the World Bank. They can include bonds, debentures, and notes,
including derivative investments called "structured" notes, described
below. The Fund's foreign debt investments can be denominated in U.S.
dollars or in foreign currencies. The Fund will buy foreign currency only
in connection with the purchase and sale of foreign securities and not for
speculation.
o Investments in Emerging and Developing Markets. The Fund can buy "Brady
Bonds," which are U.S. dollar-denominated debt securities collateralized by
zero-coupon U.S. Treasury securities. They are typically issued by emerging
markets countries and are considered speculative securities with higher
risks of default.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have risks, although some are designed to help
reduce overall investment or market risks. The Fund can invest in common and
preferred stocks and other equity securities such as warrants and rights of
foreign and U.S. companies. However, the Fund does not anticipate having a
substantial percentage of its assets invested in those types of securities as
part of its normal portfolio strategies.
Zero-Coupon and "Stripped" Securities. The Fund can buy government and corporate
zero-coupon bonds that pay no interest. They are issued at a substantial
discount from their face value. The Fund also can buy "stripped"
securities that are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped,
with each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all the
principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. The
Fund may have to pay out the imputed income on zero-coupon securities
without receiving the actual cash currently. The Fund can invest up to 50%
of its total assets in zero-coupon securities issued by either the U.S.
government or U.S. companies. The values of interest-only and
principal-only mortgage-related securities are also very sensitive to
prepayments of underlying mortgages and changes in interest rates. When
prepayments tend to fall, the timing of the cash flows to these securities
increases, making them more sensitive to changes in interest rates. The
market for some of these securities may be limited, making it difficult
for the Fund to dispose of its holdings quickly at an acceptable price.
Participation Interests in Loans. These securities represent an undivided
fractional interest in a loan obligation of a borrower. They are typically
purchased from banks or dealers that have made the loan or are members of
the loan syndicate. The loans may be to foreign or U.S. companies. They
are subject to the risk of default by the borrower as well as credit risks
of the servicing agent of the participation interest, which can cause the
Fund to lose money on its investment. The Fund can also buy interests in
trusts and other entities that hold loan obligations. In that case the
Fund will be subject to the trust's credit risks. The Fund does not invest
more than 5% of its net assets in participation interests of any one
borrower.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. A restricted security may
have a contractual restriction on its resale or cannot be sold publicly
until it is registered under the Securities Act of 1933. The Fund will not
invest more than 10% of its net assets in illiquid or restricted
securities (the Fund's Board of Trustees can increase that limit to 15%).
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
Derivative Investments. The Fund can invest in a number of different kinds of
"derivative investments." Options, futures contracts, structured notes,
mortgage-related securities and forward contracts are "derivative
investments" the Fund uses. In addition to using derivatives to hedge
risks, the Fund can use other derivative investments because they offer
the potential for increased income. Interest rate and stock market changes
in the U.S. and abroad may also influence the performance of derivatives.
o
<PAGE>
Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed debt investments with principal payments or interest
payments that are linked to the value of an index (such as a currency or
securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the
note.
The values of these notes will fall or rise in response to the changes in
the values of the underlying security or index. They are subject to both
credit and interest rate risks. Therefore the Fund could receive more or
less than it originally invested when a note matures, or it might receive
less interest than the stated coupon payment if the underlying investment
or index does not perform as anticipated. The prices of these notes may be
very volatile and they may have a limited trading market, making it
difficult for the Fund to sell its investment quickly at an acceptable
price.
o Hedging. The Fund can buy and sell futures contracts, put and call
options, and forward contracts. These are all referred to as "hedging
instruments." Writing covered call options is part of the Fund's
objective, and is used when deemed appropriate by the Manager. The Fund is
not required to use other hedging instruments to seek its objective. The
Fund does not use hedging instruments for speculative purposes and has
limits on its use of them.
The Fund could buy and sell options, futures and forward contracts for a
number of purposes. It might do so to try to hedge against falling prices
of its portfolio securities or to establish a position in the securities
market as a temporary substitute for purchasing individual securities. It
might do so to try to manage its exposure to changing interest rates.
Forward contracts and currency options can be used to try to manage
foreign currency risks on the Fund's foreign investments. The Fund could
write covered call options to seek cash for liquidity purposes or to
distribute to shareholders.
Hedging has risks. Options trading involves the payment of premiums and
increases portfolio turnover. If a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. In writing a put, there is a risk that the Fund may be required to
buy the underlying security at a disadvantageous price. If the Manager
used a hedging instrument at the wrong time or judged market conditions
incorrectly, the strategy could reduce the Fund's return. The Fund could
also experience losses if it could not close out a position because of an
illiquid market.
Portfolio Turnover. The Fund may use short-term trading to try to achieve its
objective. Portfolio turnover affects brokerage and transaction costs the
Fund pays, however, most of the Fund's portfolio transactions are
principal trades that do not entail brokerage fees. If the Fund realizes
capital gains when it sells its portfolio investments, it must generally
pay those gains out to shareholders, increasing their taxable
distributions. The Financial Highlights table at the end of this
Prospectus shows the Fund's portfolio turnover rates during recent fiscal
years.
Temporary Defensive Investments. When market or economic conditions are unstable
or adverse, the Fund can invest up to 100% of its assets in defensive
securities. Generally, they would be short-term U.S. government
securities, high-grade commercial paper, bank obligations or repurchase
agreements. It can also hold these types of instruments for cash
management purposes. Interest rates on these types of investments tend to
be lower than on longer-term debt securities. To the extent the Fund
invests in these securities, it might not achieve its investment objective
of high current income.
How the Fund Is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets the
fees the Fund pays 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 advisor since January 1960. The
Manager (including subsidiaries and affiliates) managed more than $120 billion
in assets as of December 31, 1999, including other Oppenheimer funds with more
than 5 million shareholder accounts. The Manager is located at Two World Trade
Center, 34th Floor, New York, New York 10048-0203.
Portfolio Managers. The portfolio managers of the Fund are Arthur P. Steinmetz
and David P. Negri, who have been the persons principally responsible for
the day-to-day management of the Fund's portfolio since the Fund's
inception in October 1989. They are Vice Presidents of the Fund and Senior
Vice Presidents of the Manager. They each serve as officers and portfolio
managers for other Oppenheimer funds.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average
annual net assets of the Fund, 0.72% of the next $200 million, 0.69% of
the next $200 million, and 0.66% of the next $200 million, 0.60% of the
next $200 million and 0.50% of average annual net assets in excess of $1
billion. The Fund's management fee for its last fiscal year ended
September 30, 1999, was 0.52% of average annual net assets for each class
of shares.
ABOUT YOUR ACCOUNT
How to Buy Shares
HOW DO you buy SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
<PAGE>
BuyingShares Through Your Dealer. You can buy shares through any dealer,
broker, or financial institution that has a sales agreement with the
Distributor. 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 with a financial advisor before you make a purchase to be sure
that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.525.7048 to notify the Distributor of the wire and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you
pay for shares by electronic funds transfers from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below for
more details.
o Buying Shares Through 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 in the Asset Builder
Application and the Statement of Additional Information.
How Much Must You Invest? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments
for as little as $25. You can make additional purchases of at least $25
through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans and
401(k) plans, you can start your account with as little as $250. If your
IRA is started as an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be for as little as $25.
o The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order and sends it to the Distributor. Net Asset Value.
The Fund calculates the net asset value of each class of shares
as of the close of The New York Stock Exchange, on each day the Exchange
is open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days. All references to time in this Prospectus mean
"New York time."
The net asset value per share is determined 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. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures
for valuing illiquid securities and obligations for which market values
cannot be readily obtained. Because some foreign securities trade in
markets and on exchanges that operate on weekends and U.S. holidays, the
values of some of the Fund's foreign investments may change on days when
investors cannot buy or redeem Fund shares.
The Offering Price. To receive the offering price for a particular day, in
most cases the Distributor or its designated agent must receive your order
by the time of day The New York Stock Exchange closes that day. If your
order is received on a day when the Exchange is closed or after it has
closed, the order will receive the next offering price that is determined
after your order is received.
Buying Through a Dealer. If you buy shares through a dealer, your dealer
must receive the order by the close of The New York Stock Exchange and
transmit it to the Distributor so that it is received before the
Distributor's close of business on a regular business day (normally 5:00
P.M.) to receive that day's offering price. Otherwise, the order will
receive the next offering price that is determined.
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
Class A Shares. If you buy Class A shares, you pay an initial sales charge
(on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within six years of buying them, you will normally pay a
contingent deferred sales charge. That contingent deferred sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B Shares?" below.
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within 12 months of buying them, you will normally pay a
contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
Class Y Shares. Class Y shares are offered only to certain institutional
investors that have special agreements with the Distributor.
<PAGE>
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 best suited to your needs depends on a number of factors that you
should discuss with your financial advisor. Some 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. 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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares,
and not a combination of shares of different classes. Of course, these examples
are based on approximations of the effect of current sales charges and expenses
projected over time and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice.
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,
compared to the effect over time of higher class-based expenses on shares
of Class B or Class C .
o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you have a relatively 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. That is because of the effect of the Class B contingent deferred
sales charge if you redeem within six 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend
to hold your shares. For that reason, the Distributor normally will not
accept purchase orders of $500,000 or more of Class B shares or $1 million
or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 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
appropriate.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B or Class C shareholders. Other
features may not be advisable because of the effect of the contingent
deferred sales charge for Class B or Class C shareholders. Therefore, you
should carefully review how you plan to use your investment account before
deciding which class of shares to buy.
Additionally, the 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 or Class Y shares, such as the Class B and Class C
asset-based sales charge described below and in the Statement of
Additional Information. Share certificates are not available for Class B
and Class C shares, and if you are considering using your shares as
collateral for a loan, that may be a factor to consider. Also,
checkwriting is not available on accounts subject to a contingent deferred
sales charge.
How Does It Affect Payments to My Broker? A financial advisor may receive
different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the
same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its
customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special condition
applies.
HOW CAN you BUY 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 other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
<PAGE>
------------------------------------------------------------------------------
Front-End Sales
Front-End Sales Charge As a
Charge As a Percentage of Commission As
Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 3.75%
less than $100,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 2.75%
less than $250,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
------------------------------------------------------------------------------
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
aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in Appendix C to the Statement of
Additional Information. The Distributor pays dealers of record commissions
in an amount equal to 1.0% of purchases of $1 million or more other than
by those retirement accounts. For those retirement plan accounts, the
commission is 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, based on the cumulative
purchases during the prior 12 months ending with the current purchase. In
either case, the commission will be paid only on purchases that were not
previously subject to a front-end sales charge and dealer commission.1
That commission will not be paid on purchases of shares in amounts of $1
million or more (including any right of accumulation) by a retirement plan
that pays for the purchase with the redemption proceeds of Class C shares
of one or more Oppenheimer funds held by the plan for more than one year.
If you redeem any of those shares within an 18-month "holding period"
measured from the end of the calendar month of their purchase, a
contingent deferred sales charge (called the "Class A contingent deferred
sales charge") may be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of the lesser of (1) the aggregate net asset
value of the redeemed shares at the time of redemption (excluding shares
purchased by reinvestment of dividends or capital gain distributions) or
(2) the original net asset value of the redeemed shares. The Class A
contingent deferred sales charge will not exceed the aggregate amount of
the commissions the Distributor paid to your dealer on all purchases of
Class A shares of all Oppenheimer funds you made that were subject to the
Class A contingent deferred sales charge.
<PAGE>
Can You Reduce Class A Sales Charges? You may be eligible to buy Class A shares
at reduced sales charge rates under the Fund's "Right of Accumulation" or a
Letter of Intent, as described in "Reduced Sales Charges" in the Statement of
Additional Information.
HOW CAN you BUY 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 the end of the calendar month of their purchase, a contingent
deferred sales charge will be deducted from the redemption proceeds. The Class B
contingent deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class B shares.
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 for the Class B contingent deferred sales
charge holding period:
<PAGE>
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which 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. [In applying the sales charge, all
purchases are considered to have been made on the first regular day of the month
in which the purchase was made.]
1 No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies to
Class B shares under the Class B Distribution and Service Plan, described below.
The conversion is based on the relative net asset value of the two classes, and
no sales load or other charge is imposed. When any Class B shares that you hold
convert, any Class B shares that were acquired by reinvesting dividends and
distributions on the converted shares will also convert to Class A shares. For
further information on the conversion feature and its tax implications, see
"Class B Conversion" in the Statement of Additional Information.
How Can you Buy 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 a holding period of 12 months from their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds. The Class C
contingent deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class C shares.
<PAGE>
Who Can Buy Class Y Shares? Class Y shares are sold at net asset value per share
without a sales charge directly to institutional investors that have special
agreements with the Distributor for this purpose. They may include insurance
companies, registered investment companies and employee benefit plans. For
example, Massachusetts Mutual Life Insurance Company, an affiliate of the
Manager, may purchase Class Y shares of the Fund and other Oppenheimer funds (as
well as Class Y shares of funds advised by MassMutual) for asset allocation
programs, investment companies or separate investment accounts it sponsors and
offers to its customers. Individual investors cannot buy Class Y shares
directly.
An institutional investor that buys Class Y shares for its customers'
accounts may impose charges on those accounts. The procedures for buying,
selling, exchanging and transferring the Fund's other classes of shares (other
than the time those orders must be received by the Distributor or Transfer Agent
at their Colorado office) and the special account features available to
investors buying other classes of shares do not apply to Class Y shares.
Instructions for purchasing, redeeming, exchanging or transferring Class Y
shares must be submitted by the institutional investor, not by its customers for
whose benefit the shares are held.
Distribution and Service (12b-1) Plans.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
pay the Distributor for its services and costs in distributing Class B and
Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class
B shares and on Class C shares. The Distributor also receives a service
fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the
first year after the shares are sold by the dealer. After the shares have
been held for a year, the Distributor pays the service fees to dealers on
a quarterly basis.
<PAGE>
The Distributor currently pays a sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sales of Class B shares is
therefore 4.00% of the purchase price. The Distributor retains the Class B
asset-based sales charge.
The Distributor currently pays a sales commission of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.00% of the purchase price. The Distributor pays 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.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1.800.533.3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
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.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C or Class Y shares. You must be
sure to ask the Distributor for this privilege when you send your payment.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs, rollover IRAs and Education IRAs.
SEP-IRAs. These are Simplified Employee Pension Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These are tax-deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
401(k) Plans. These are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by writing a check against your account or by
telephone. You can also set up Automatic Withdrawal Plans to redeem shares on a
regular basis. 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 account, please call the
Transfer Agent first, at 1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem $100,000 or more and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or
name
o Shares are being redeemed by someone (such as an Executor) other than the
owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities or
government securities, or
o 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.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares
in your plan account.
<PAGE>
Sending Redemption Proceeds by Wire. While the Fund normally sends your money by
check, you can arrange to have the proceeds of the shares you sell sent by
Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each wire. To find out how to set up this feature on your account or
to arrange a wire, call the Transfer Agent at 1.800.852.8457.
HOW DO you SELL SHARES BY MAIL? Write a letter of instructions that includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement)
o The dollar amount or number of shares to be redeemed
o Any special payment instructions
o Any share certificates for the shares you are selling
o The signatures of all registered owners exactly as the account is
registered, and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
Send courier or express mail
Use the following address for requests to:
Requests by mail: OppenheimerFunds Services
OppenheimerFunds Services 10200 E. Girard Avenue, Building D
P.O. Box 5270 Denver, Colorado 80231
Denver Colorado 80217
HOW DO you SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular 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 account or under a share
certificate by telephone.
o To redeem shares through a service representative, call 1.800.852.8457
o 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 sent to that bank
account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 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
<PAGE>
after the redemption. You do not receive dividends on the proceeds of the
shares you redeemed while they are waiting to be transferred.
If you have requested Federal Funds wire privileges for your account, the
wire of the redemption proceeds 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.
Checkwriting. To write checks against your Fund account, request that privilege
on your account application, or contact the Transfer Agent for signature cards.
They 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 another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank the checks are payable through or the Fund's custodian
bank.
o Checkwriting privileges are not available for accounts holding shares that
are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o 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.
o 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.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
CAN YOU SELL 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase shares
subject to a Class A, Class B or Class C contingent deferred sales charge and
redeem any of those shares during the applicable holding period for the class of
shares you own, the contingent deferred sales charge will be deducted from the
redemption proceeds (unless you are eligible for a waiver of that sales charge
based on the categories listed in Appendix C to the Statement of Additional
Information and you advise the Transfer Agent of your eligibility when you place
your redemption request).
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on:
<PAGE>
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether a 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 the holding period that applies to the class, and
3. shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
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. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of both funds must offer the exchange privilege.
o 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.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another
fund. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale of the shares of the
fund you own and a purchase of the shares of the other fund, which may
result in a capital gain or loss. Please refer to "How to Exchange Shares"
in the Statement of Additional Information for more details.
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.
<PAGE>
HOW DO you SUBMIT EXCHANGE REQUESTS? 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
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificates
with the request.
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.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o 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 conforms to the
policies described above. It must be received 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 exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so by
applicable law, but it may impose changes at any time for emergency
purposes.
o 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
More information about the Fund's policies and procedures for buying, selling,
and exchanging shares is contained 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.
<PAGE>
Telephone privileges apply to each owner of the account and the dealer
representative of record for the account unless 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. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
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. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or through AccountLink or by Federal Funds wire (as elected by the
shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the name
of a broker-dealer, payment will normally be forwarded within three
business days after redemption.
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 Federal Funds wire or 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. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Sharesmay be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio.
"Backup withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
<PAGE>
To avoid sending duplicate copies of materials to households, the Fund will
mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1.800.525.7048 to ask that
copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income each regular business day and pay those
dividends to shareholders monthly on a date selected by the Board of Trustees.
Daily dividends will not be declared or paid on newly-purchased shares until
Federal Funds are available to the Fund from the purchase payment for the
shares. The Fund cannot guarantee that it will pay any dividend or
distributions.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend rate at any time without prior notice to
shareholders. Additionally, the amount of those dividends and the dividends paid
on Class B and Class C shares may vary over time, depending on market
conditions, the composition of the Fund's portfolio, and expenses borne by the
particular class of shares. Dividends and distributions paid on Class A and
Class Y shares will generally be higher than dividends for Class B and Class C
shares, which normally have higher expenses than Class A and Class Y.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and capital gains distributions in additional shares of the Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
If more than 50% of the Fund's assets are invested in foreign securities
at the end of any fiscal year, the Fund may elect under the Internal Revenue
Code to permit shareholders to take a credit or deduction on their federal
income tax returns for foreign taxes paid by the Fund.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Avoid "Buying a Distribution." If you buy shares on 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.
Remember, There May be Taxes on Transactions. Because the Fund's share price
fluctuates, you may have a capital gain or loss when you sell or exchange
your shares. 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. Any
capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995
=====================================================================================================================
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.59 $4.95
$4.84 $4.68 $4.75
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .42 .42
.43 .44 .41
Net realized and unrealized gain (loss) (.29) (.37)
.09 .15 (.03)
- -------------------------------------------------------------------
Total income (loss) from
investment operations .13 .05
.52 .59 .38
- ---------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.39) (.41)
(.41) (.41) (.41)
Distributions from net realized gain -- --
- -- -- (.01)
Tax return of capital distribution -- --
- -- (.02) (.03)
- -------------------------------------------------------------------
Total dividends and distributions
to shareholders (.39) (.41)
(.41) (.43) (.45)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.33 $4.59
$4.95 $4.84 $4.68
===================================================================
=====================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 2.91% 0.80%
11.29% 13.06% 8.62%
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3,578 $3,951
$3,969 $3,526 $3,219
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,798 $4,077
$3,735 $3,340 $3,085
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 9.34% 8.48%
8.77% 9.09% 9.63%
Expenses 0.94% 0.92%(3)
0.93%(3) 0.97%(3) 0.99%(3)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172% 104%
117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
51 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS B YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995
============================================================================================================================
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.61 $4.96
$4.85 $4.69 $4.76
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39
.37 .39 .40 .37
Net realized and unrealized gain (loss) (.30)
(.35) .10 .15 (.03)
- ------------------------------------------------------------------------
Total income (loss) from
investment operations .09
.02 .49 .55 .34
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.36) (.37)
(.38) (.37) (.37)
Distributions from net realized gain --
- -- -- -- (.01)
Tax return of capital distribution --
- -- -- (.02) (.03)
- ------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.36) (.37)
(.38) (.39) (.41)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.61
$4.96 $4.85 $4.69
============================================================================================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 1.92% 0.26%
10.43% 12.19% 7.79%
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3,381 $4,041
$3,501 $2,590 $1,947
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,838 $3,871
$3,018 $2,250 $1,711
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 8.55% 7.73%
7.94% 8.30% 8.83%
Expenses 1.69% 1.67%(3)
1.69%(3) 1.72%(3) 1.75%(3)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172%
104% 117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
52 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS C YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995(5)
======================================================================================================================
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.59 $4.95
$4.83 $4.68 $4.68
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .37
.37 .38 .13
Net realized and unrealized gain (loss) (.30) (.36)
.13 .16 .01
- ----------------------------------------------------------------------
Total income (loss) from
investment operations .09 .01
.50 .54 .14
- ----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.36) (.37)
(.38) (.37) (.12)
Distributions from net realized gain -- --
- -- -- (.01)
Tax return of capital distribution -- --
- -- (.02) (.01)
- ----------------------------------------------------------------------
Total dividends and distributions
to shareholders (.36) (.37)
(.38) (.39) (.14)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.32 $4.59
$4.95 $4.83 $4.68
======================================================================
======================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 1.92% 0.05%
10.67% 11.96% 3.09%
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $611 $651
$417 $175 $67
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $650 $547
$291 $110 $24
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 8.58% 7.73%
7.73% 8.18% 8.28%
Expenses 1.69% 1.67%(3)
1.69%(3) 1.74%(3) 2.02%(3)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172% 104%
117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
5. For the period from May 26, 1995 (inception of offering) to September 30,
1995.
53 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS Y YEAR ENDED SEPTEMBER 30,
1999 1998(6)
==================================================================================================
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------
<S>
<C> <C>
Net asset value, beginning of period
$4.59 $4.90
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.44 .29
Net realized and unrealized gain (loss)
(.30) (.32)
- -----------------------
Total income (loss) from
investment operations .
.14 (.03)
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.41) (.28)
Distributions from net realized gain
- -- --
Tax return of capital distribution
- -- --
- -----------------------
Total dividends and distributions
to shareholders
(.41) (.28)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period
$4.32 $4.59
=======================
==================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1)
3.07% (0.64)%
- --------------------------------------------------------------------------------------------------
==================================================================================================
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (in millions)
$49 $7
- --------------------------------------------------------------------------------------------------
Average net assets (in millions)
$32 $4
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income
10.16% 8.82%
Expenses
0.57% 0.58%(3)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(4)
172% 104%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
5. For the period from May 26, 1995 (inception of offering) to September 30,
1995.
6. For the period from January 26, 1998 (inception of offering) to September
30, 1998.
54 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer Strategic Income Fund
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. How to Get More Information: You can
request the Statement of Additional Information, the Annual and Semi-Annual
Reports, and other information about the Fund or your account:
- ----------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.525.7048
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or
read or down-load documents on the
OppenheimerFunds website:
http://www.oppenheimerfunds.com
- ----------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected], or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
SEC File No. 811-5724
PR0230.001.0100 Printed on recycled paper. [logo] OppenheimerFunds
Distributor, Inc.
<PAGE>
Appendix to Prospectus of
Oppenheimer Strategic IncomeFund
Graphic material included in the Prospectus of Oppenheimer Strategic
Income Fund under the heading "Annual Total Returns (Class A)(% as of 12/31 each
year)":
A bar chart will be included in the Prospectus of Oppenheimer Strategic
Income Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the past ten calendar
years, without deducting sales charges. Set forth below are the relevant data
points that will appear in the bar chart:
Calendar Annual
Year Total
Ended Returns
12/31/90 7.78%
12/31/91 20.25%
12/31/92 7.74%
12/31/93 19.51%
12/31/94 -4.45%
12/31/95 15.38%
12/31/96 12.59%
12/31/97 8.36%
12/31/98 1.67%
12/31/99 4.04%
- --------------------------------------------------------------------------------
<PAGE>
Oppenheimer Strategic Income Fund
- --------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated January 28, 2000
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 28, 2000. It should be read together
with the Prospectus. You can obtain the Prospectus 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, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks......2
The Fund's Investment Policies.........................................2
Other Investment Techniques and Strategies.............................12
Investment Restrictions................................................31
How the Fund is Managed....................................................33
Organization and History...................................................33
Trustees and Officers......................................................34
The Manager............................................................39
Brokerage Policies of the Fund.............................................40
Distribution and Service Plans.............................................42
Performance of the Fund....................................................46
About Your Account
How To Buy Shares..........................................................51
How To Sell Shares.........................................................59
How To Exchange Shares.....................................................65
Dividends, Capital Gains and Taxes.........................................67
Additional Information About the Fund......................................70
Financial Information About the Fund
Independent Auditors' Report...............................................71
Financial Statements.......................................................72
Appendix A: Ratings Definitions............................................A-1
Appendix B: Industry Classifications.......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers..................C-1
- -------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
- --------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks
of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below in seeking its goal. It may
use some of the investment techniques and strategies at some times or not at
all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation of
the issuer's historical operations, prospects for the industry of which the
issuer is part, the issuer's financial condition, its pending product
developments and business (and those of its competitors), the effect of general
market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer.
Additionally, in analyzing a particular issuer, the Manager may consider
the trading activity in the issuer's 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.
n Foreign Securities. The Fund expects to have substantial investments in
foreign securities. For the most part, these will be debt securities issued or
guaranteed by foreign companies or governments, including "supra-national"
entities. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt
securities issued or guaranteed by governments other than the U.S. government or
by foreign supra-national entities. They also include securities of companies
(including those that are located in the U.S. or organized under U.S. law) that
derive a significant portion of their revenue or profits from foreign
businesses, investments or sales, or that have a significant portion of their
assets abroad. They may be traded on foreign securities exchanges or in the
foreign over-the-counter markets.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary over time depending on a number of factors. Those factors
may include the relative yields of foreign and U.S. securities, the economies of
foreign countries, the condition of a country's financial markets, the interest
rate climate of particular foreign countries and the relationship of particular
foreign currencies to the U.S. dollar. The Manager analyzes fundamental economic
criteria (for example, relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations, because they are not subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be
received in foreign currencies, the Fund will be required to compute its income
in U.S. dollars for distribution to shareholders, and therefore the Fund will
absorb the cost of currency fluctuations. After the Fund has distributed income,
subsequent foreign currency losses may result in the Fund's having distributed
more income in a particular fiscal period than was available from investment
income, which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer high income
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 securities markets that do not move in a manner
parallel to U.S. markets. The Fund will hold foreign currency only in connection
with the purchase or sale of foreign securities.
Foreign Debt Obligations. The debt obligations of foreign governments and
entities may or may not be supported by the full faith and credit of the
foreign government. The Fund may buy securities issued by certain
supra-national entities, which include entities designated or supported by
governments to promote economic reconstruction or development,
international banking organizations and related government agencies.
Examples are the International Bank for Reconstruction and Development
(commonly called the "World Bank"), the Asian Development bank and the
Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero-coupon obligations that have the same maturity as
the Brady Bonds. Brady Bonds can be viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity.
Those uncollateralized amounts constitute what is called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and 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. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in
domestic securities.
Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in
foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o foreign exchange contracts;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o foreign withholding taxes on interest and dividends;
o possibilities in some countries of expropriation, nationalization,
confiscatory taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
Special Risks of Emerging Markets. Emerging and developing markets abroad
may also offer special opportunities for investing but have greater risks
than more developed foreign markets, such as those in Europe, Canada,
Australia, New Zealand and Japan. There may be even less liquidity in their
securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be
subject to the risk of greater political and economic instability, which
can greatly affect the volatility of prices of securities in those
countries. The Manager will consider these factors when evaluating
securities in these markets, because the selection of those securities must
be consistent with the Fund's investment objective.
Risks of Conversion to Euro. There may be transaction costs and risks
relating to the conversion of certain European currencies to the Euro that
commenced in January 1, 1999. However, their current currencies (for
example, the franc, the mark, and the lira) will also continue in use until
January 1, 2002. After that date, it is expected that only the euro will be
used in those countries. A common currency is expected to confer some
benefits in those markets, by consolidating the government debt market for
those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also
has potential risks, some of which are listed below. Among other things,
the conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress stock values.
o vendors the Fund depends on to carry out its business, such as its
custodian (which holds the foreign securities the Fund buys), the Manager
(which must price the Fund's investments to deal with the conversion to the
euro) and brokers, foreign markets and securities depositories. If they are
not prepared, there could be delays in settlements and additional costs to
the Fund.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between the
affected currencies and the need to update the Fund's contracts could pose
extra costs to the Fund.
The lack of currency rate calculations between the affected currencies and
the need to update the Fund's contracts could pose extra costs to the Fund.
The Manager has upgraded (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
n Debt Securities. The Fund can invest in a variety of debt securities to
seek its objective. Foreign debt securities are subject to the risks of foreign
securities described above. In general, debt securities are also subject to two
additional types of risk: credit risk and interest rate risk. o Credit Risks.
Credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they become due. In general, lower-grade, higher-yield bonds
are subject to credit risk to a greater extent that lower-yield, higher-quality
bonds.
The Fund's debt investments can include high-yield, non-investment-grade
bonds (commonly referred to as "junk bonds"). Investment-grade bonds are bonds
rated at least "Baa" by Moody's Investors Service, Inc., at least "BBB" by
Standard & Poor's Ratings Group or Duff & Phelps, Inc., or that have comparable
ratings by another nationally-recognized rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's credit-worthiness. If securities the Fund buys are
unrated, they are assigned a rating by the Manager of comparable quality to
bonds having similar yield and risk characteristics within a rating category of
a rating organization.
The Fund does not have investment policies establishing specific maturity
ranges for the Fund's investments, and they may be within any maturity range
(short, medium or long) depending on the Manager's evaluation of investment
opportunities available within the debt securities markets. The Fund may shift
its investment focus to securities of longer maturity as interest rates decline
and to securities of shorter maturity as interest rates rise.
o Interest Rate Risk. Interest rate risk refers to the fluctuations in value of
fixed-income securities resulting from the inverse relationship between price
and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued fixed-income investments, and a
decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value from changes in
interest rates than obligations with shorter maturities.
While the changes in value of the Fund's portfolio securities after they
are purchased will be reflected in the net asset value of the Fund's shares,
those changes normally do not affect the interest income paid by those
securities (unless the security's interest is paid at a variable rate pegged to
particular interest rate changes). However, those price fluctuations will be
reflected in the valuations of the securities, and therefore the Fund's net
asset values will be affected by those fluctuations.
Special Risks of Lower-Grade Securities. The Fund can invest without
limit in lower-grade debt securities, if the Manager believes it is
consistent with the Fund's objective. Because lower-rated securities tend
to offer higher yields than investment grade securities, the Fund may
invest in lower-grade securities to try to achieve higher income.
"Lower-grade" debt securities are those rated below "investment grade"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
considered part of the Fund's portfolio of lower-grade securities. The Fund can
invest in securities rated as low as "C" or "D" or which may be in default at
the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment grade
securities. The issuer's low creditworthiness may increase the potential for its
insolvency. An overall decline in values in the high-yield bond market is also
more likely during a period of a general economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for
high-yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high-yield bonds, these risks are in addition to the special risk of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of these risks than non-convertible high-yield bonds,
since stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of the
principal rating organizations are included in Appendix A to this Statement of
Additional Information.
n Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or instrumentalities or by private issuers.
These securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus. Mortgage-related
securities issued by private issuers have greater credit risk.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages, and it is not possible to
predict accurately the security's yield. The principal that is returned earlier
than expected may have to be reinvested in other investments having a lower
yield than the prepaid security. As a result, these securities may be less
effective as a means of "locking in" attractive long-term interest rates, and
they may have less potential for appreciation during periods of declining
interest rates, than conventional bonds with comparable stated maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
Collateralized Mortgage Obligations. CMOs are multi-class bonds that are
backed by pools of mortgage loans or mortgage pass-through certificates.
They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or
(5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the opposite direction of an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
n U.S. Government Securities. These are securities issued or guaranteed by
the U.S. Treasury or other government agencies or federally-charted corporate
entities referred to as "instrumentalities." The obligations of U.S. government
agencies or instrumentalities in which the Fund may invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States.
"Full faith and credit" means generally that the taxing power of the U.S.
government is pledged to the payment of interest and repayment of principal on a
security. If a security is not backed by the full faith and credit of the United
States, the owner of the security must look principally to the agency issuing
the obligation for repayment. The owner might not be able to assert a claim
against the United States if the issuing agency or instrumentality does not meet
its commitment. The Fund will invest in securities of U.S. government agencies
and instrumentalities only if the Manager is satisfied that the credit risk with
respect to the agency or instrumentality is minimal.
U.S. Treasury Obligations. These include Treasury bills (maturities of
one year or less when issued), Treasury notes (maturities of one to ten
years), and Treasury bonds (maturities of more than ten years). Treasury
securities are backed by the full faith and credit of the United States as
to timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and
Treasury Inflation-Protection Securities ("TIPS").
Treasury Inflation-Protection Securities. The Fund can buy these TIPS,
which are designed to provide an investment vehicle that is not vulnerable
to inflation. The interest rate paid by TIPS is fixed. The principal value
rises or falls semi-annually based on changes in the published Consumer
Price Index. If inflation occurs, the principal and interest payments on
TIPS are adjusted to protect investors from inflationary loss. If deflation
occurs, the principal and interest payments will be adjusted downward,
although the principal will not fall below its face amount at maturity.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association ("GNMA") pass-through mortgage
certificates (called "Ginnie Maes"). Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
U.S. Government Mortgage-Related Securities. The Fund can invest in a
variety of mortgage-related securities that are issued by U.S. government
agencies or instrumentalities, some of which are described below.
o GNMA Certificates. The Government National Mortgage Association is a
wholly-owned corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs involve
its guarantees of privately-issued securities backed by pools of mortgages.
Ginnie Maes are debt securities representing an interest in one mortgage or a
pool of mortgages that are insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans Administration
The Ginnie Maes in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the Ginnie Maes
will receive timely monthly payments of the pro-rata share of the scheduled
principal payments on the underlying mortgages, whether or not those amounts are
collected by the issuers. Amounts paid include, on a pro rata basis, any
prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of the Ginnie Maes,
whether or not the interest on the underlying mortgages has been collected by
the issuers.
The Ginnie Maes purchased by the Fund are guaranteed as to timely payment
of principal and interest by GNMA. In giving that guaranty, GNMA expects that
payments received by the issuers of Ginnie Maes on account of the mortgages
backing the Ginnie Maes will be sufficient to make the required payments of
principal of and interest on those Ginnie Maes. However, if those payments are
insufficient, the guaranty agreements between the issuers of the Ginnie Maes and
GNMA require the issuers to make advances sufficient for the payments. If the
issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to the
extent of payments received by the issuers on account of such mortgages, Ginnie
Maes do not constitute a liability of those issuers, nor do they evidence any
recourse against those issuers. Recourse is solely against GNMA. Holders of
Ginnie Maes (such as the Fund) have no security interest in or lien on the
underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
Ginnie Maes owned by the Fund. All of the mortgages in the pools relating to the
Ginnie Maes in the Fund are subject to prepayment without any significant
premium or penalty, at the option of the mortgagors. While the mortgages on
1-to-4-family dwellings underlying certain Ginnie Maes have a stated maturity of
up to 30 years, it has been the experience of the mortgage industry that the
average life of comparable mortgages, as a result of prepayments, refinancing
and payments from foreclosures, is considerably less.
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each
registered holder of a FHLMC Certificate timely payment of the amounts
representing a holder's proportionate share in:
(i) interest payments less servicing and guarantee fees,
(ii) principal prepayments, and
(iii)the ultimate collection ofamounts representing the holder's
proportionate interest in principal payments on the mortgage loans in the
pool represented by the FHLMC Certificate, in each case whether or not such
amounts are actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
o Federal National Mortgage Association (Fannie Mae) Certificates. Fannie Mae, a
federally-chartered and privately-owned corporation, issues Fannie Mae
Certificates which are backed by a pool of mortgage loans. Fannie Mae guarantees
to each registered holder of a Fannie Mae Certificate that the holder will
receive amounts representing the holder's proportionate interest in scheduled
principal and interest payments, and any principal prepayments, on the mortgage
loans in the pool represented by such Certificate, less servicing and guarantee
fees, and the holder's proportionate interest in the full principal amount of
any foreclosed or other liquidated mortgage loan. In each case the guarantee
applies whether or not those amounts are actually received. The obligations of
Fannie Mae under its guarantees are obligations solely of Fannie Mae and are not
backed by the full faith and credit of the United States or any of its agencies
or instrumentalities other than Fannie Mae.
n Zero-Coupon U.S. Government Securities. The Fund may buy zero-coupon U.S.
government securities. These will typically be U.S. Treasury Notes and Bonds
that have been stripped of their unmatured interest coupons, the coupons
themselves, or certificates representing interests in those stripped debt
obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
n Portfolio Turnover. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. The Fund's portfolio turnover rate will fluctuate
from year to year, and the Fund may continue to have a portfolio turnover rate
of more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
n Other Zero-Coupon Securities. The Fund may buy zero-coupon and
delayed-interest securities, and "stripped" securities of corporations and of
foreign government issuers. These are similar in structure to zero-coupon and
"stripped" U.S. government securities, but in the case of foreign government
securities, they may or may not be backed by the "full faith and credit" of the
issuing foreign government. Zero-coupon securities issued by foreign governments
and by corporations will be subject to greater credit risks than U.S. government
zero-coupon securities.
n "Stripped" Mortgage-Related Securities. The Fund may invest in stripped
mortgage-related securities that are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities. Each has a specified percentage of the underlying security's
principal or interest payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass-through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
n Preferred Stocks. Unlike common stock, preferred stock typically has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid.
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, which can be a negative feature when interest
rates decline. 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. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock 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.
|X| Floating Rate and Variable Rate Obligations. Some securities the Fund
can purchase have variable or floating interest rates. Variable rates are
adjusted at stated periodic intervals. Variable rate obligations can have a
demand feature that allows the Fund to tender the obligation to the issuer or a
third party prior to its maturity. The tender may be at par value plus accrued
interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals of not less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than that for
fixed-rate obligations of the same maturity. The Manager may determine that an
unrated floating rate or variable rate demand obligation meets the Fund's
quality standards by reason of being backed by a letter of credit or guarantee
issued by a bank that meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally, the issuer must provide a specified number of days' notice to the
holder.
n "When-Issued" and "Delayed-Delivery" Transactions. The Fund can purchase
securities on a "when-issued" basis, and may purchase or sell securities on a
"delayed-delivery" basis. "When-issued" or "delayed-delivery" refers to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. The securities are
subject to change in value from market fluctuations during the period until
settlement. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by
the Manager before settlement will affect the value of such securities and may
cause a loss to the Fund. During the period between purchase and settlement, the
Fund makes no payment to the issuer and no interest accrues to the Fund from the
investment until it receives the security at settlement. There is a risk of loss
to the Fund if the value of the security changes prior to the settlement date,
and there is the risk that the other party may not perform.
The Fund may engage in when-issued transactions to secure what the Manager
considers to be an advantageous price and yield at the time the obligation is
entered into. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
<PAGE>
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge 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
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Participation Interests. The Fund may invest in participation interests,
subject to the Fund's limitation on investments in illiquid investments. A
participation interest is an undivided interest in a loan made by the issuing
financial institution in the proportion that the buyers participation interest
bears to the total principal amount of the loan. No more than 5% of the Fund's
net assets can be invested in participation interests of the same borrower. The
issuing financial institution may have no obligation to the Fund other than to
pay the Fund the proportionate amount of the principal and interest payments it
receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
n Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Manager from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will monitor the collateral's value on an
on-going basis.
n 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. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days. n Forward Rolls. The Fund can enter into "forward roll" transactions
with respect to mortgage-related securities. In this type of transaction, the
Fund sells a mortgage-related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and having the same
coupon and maturity) at a later date at a set price. The securities that are
repurchased will have the same interest rate as the securities that are sold,
but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold.
Proceeds from the sale are invested in short-term instruments, such as
repurchase agreements. The income from those investments, plus the fees from the
forward roll transaction, are expected to generate income to the Fund in excess
of the yield on the securities that have been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books liquid assets
in an amount equal to the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities.
n Investments in Equity Securities. The Fund can invest limited amounts of its
assets in securities other than debt securities, including certain types of
equity securities of both foreign and U.S. companies. However, it does not
anticipate investing significant amounts of its assets in these securities as
part of its normal investment strategy. Those equity securities include
preferred stocks (described above), rights and warrants, and securities
convertible into common stock. Certain equity securities may be selected because
they may provide dividend income.
o Risks of Investing in Stocks. Stocks fluctuate in price, and their short-term
volatility at times may be great. To the extent that the Fund invests in equity
securities, the value of the Fund's portfolio will be affected by changes in the
stock markets. Market risk can affect the Fund's net asset value per share,
which will fluctuate as the values of the Fund's portfolio securities change.
The prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer or
its industry. The Fund can invest in securities of large companies and mid-size
companies, but may also buy stocks of small companies, which may have more
volatile stock prices than large companies.
o Convertible Securities. While some convertible securities are a form of debt
security, in many cases their conversion feature (allowing conversion into
equity securities) causes them to be regarded by the Manager more as "equity
equivalents." As a result, the rating assigned to the security has less impact
on the Manager's investment decision with respect to convertible securities than
in the case of non-convertible debt fixed-income securities. Convertible
securities are subject to the credit risks and interest rate risks described
above.
<PAGE>
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security. In that case, it will likely
sell at a premium over its conversion value and its price will tend to fluctuate
directly with the price of the underlying security.
To determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors:
(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis (considering
the effect of conversion of the convertible securities), and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
o Rights and Warrants. The Fund can invest up to 5% of its total assets in
warrants or rights. That limit does not apply to warrants and rights the Fund
has acquired as part of units of securities or that are attached to other
securities that the Fund buys. The Fund does not expect that it will have
significant investments 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 directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
n Loans of Portfolio Securities. To raise cash for liquidity purposes or
income, the Fund can lend its portfolio securities to brokers, dealers and other
types of financial institutions approved by the Fund's Board of Trustees. These
loans are limited to not more than 25% of the value of the Fund's total assets.
The Fund currently does not intend to lend securities, but if it does so, such
loans will not likely exceed 5% of the Fund's total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. government or
its agencies or instrumentalities, 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. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
<PAGE>
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finders', custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Borrowing for Leverage. The Fund has the ability to borrow from banks on
an unsecured basis to invest the borrowed funds in portfolio securities. This
speculative technique is known as "leverage." The Fund may borrow only from
banks. Under current regulatory requirements, borrowings can 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). If the value of the Fund's assets fails to meet this 300% asset
coverage requirement, the Fund will reduce its bank debt within three days to
meet the requirement. To do so, the Fund might have to sell a portion of its
investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more than that of funds that do not borrow. Currently, the Fund does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.
n Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
interest or repayments of principal are not made, the Fund could suffer losses
on its investment or delays in receiving payment.
The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to 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 may shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as in the case of mortgage-backed
securities and CMOs, described above. Unlike mortgage-backed securities,
asset-backed securities typically do not have the benefit of a security interest
in the underlying collateral.
n Derivatives. The Fund can invest in a variety of derivative investments to
seek income or for hedging purposes. Some derivative investments the Fund can
use are the hedging instruments described below in this Statement of Additional
Information.
Among the derivative investments the Fund can invest in are structured
notes called "index-linked" or "currency-linked" notes. Principal and/or
interest payments on index-linked notes depend on the performance of an
underlying index. Currency-indexed securities are typically short-term or
intermediate-term debt securities. Their value at maturity or the rates at which
they pay income are determined by the change in value of the U.S. dollar against
one or more foreign currencies or an index. In some cases, these securities may
pay an amount at maturity based on a multiple of the amount of the relative
currency movements. This type of index security offers the potential for
increased income or principal payments but at a greater risk of loss than a
typical debt security of the same maturity and credit quality.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
n Hedging. The Fund can use hedging instruments. It is not obligated to
use them in seeking its objective although it can write covered calls to seek
high current income if the Manager believes that it is appropriate to do so. 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 that have appreciated, or to facilitate selling securities for
investment reasons, the Fund could: o sell futures contracts, o buy puts on such
futures or on securities, or o write covered calls on securities or futures.
Covered calls may also be used
to increase the Fund's income.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could: o buy
futures, or o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. 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. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to (1)
broadly-based securities indices (these are referred to as "financial futures"),
(2) commodities (these are referred to as "commodity index futures"), (3) debt
securities (these are referred to as "interest rate futures"), and (4) foreign
currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index
futures. They may in some cases be based on stocks of issuers in a particular
industry or group of industries. A stock index assigns relative values to the
securities included in the index and its value fluctuates in response to the
changes in value of the underlying securities. A stock index cannot be purchased
or sold directly. Bond index futures are similar contracts based on the future
value of the basket of securities that comprise the index. These contracts
obligate the seller to deliver, and the purchaser to take, cash to settle the
futures transaction. There is no delivery made of the underlying securities to
settle the futures obligation. Either party may also settle the transaction by
entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups:
(1) energy, which includes crude oil, natural gas, gasoline and heating
oil;
(2) livestock, which includes cattle and hogs;
(3) agriculture, which includes wheat, corn, soybeans, cotton, coffee,
sugar and cocoa;
(4) industrial metals, which includes aluminum, copper, lead, nickel, tin
and zinc; and
(5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts
and options and futures on commodity indices with respect to these five
main commodity groups and the individual commodities within each group, as
well as other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
Custodian bank 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 (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o
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Put and Call Options. The Fund may buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
o Writing Covered Call Options. The Fund may write (that is, sell) covered
calls. If the Fund sells a call option, it must be covered. That means the Fund
must own the security subject to the call while the call is outstanding, or, for
certain types of calls, the call may be covered by liquid assets identified on
the Fund's books to enable the Fund to satisfy its obligations if the call is
exercised. There is no limit on the amount of the Fund's total assets that may
be subject to covered calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
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 calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
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 will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will 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 option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
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.
o Writing Put Options. The Fund may sell put options on securities,
broadly-based securities indices, foreign currencies and futures. 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. 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
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, 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 underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay 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.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls on securities,
broadly-based securities indices, foreign currencies and futures. It may do so
to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price.
The Fund benefits only if it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns the underlying
investment. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to 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.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is 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. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put 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. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may also purchase calls and puts on spread options. Spread
options pay the difference between two interest rates, two exchange rates or two
referenced assets. Spread options are used to hedge the decline in the value of
an interest rate, currency or asset compared to a reference or base interest
rate, currency or asset. The risks associated with spread options are similar to
those of interest rate options, foreign exchange options and debt or equity
options.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
o Buying and Selling Options on Foreign Currencies. The Fund can buy and sell
calls and puts on foreign currencies. They include puts and calls that trade on
a securities or commodities exchange or in the over-the-counter markets or are
quoted by major recognized dealers in such options. The Fund could use these
calls and puts to try to protect against declines in the dollar value of foreign
securities and increases in the dollar cost of foreign securities the Fund wants
to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency 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 it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's custodian
bank.
o Risks of Hedging with Options and Futures. 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.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o 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 possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund limits its exposure in foreign currency
exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely-correlated 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.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of 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.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in 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 the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its 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.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, 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. As another alternative,
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.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
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 to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might 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. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs 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 brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each 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
will incur costs in doing so. 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 might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest rate swap
agreements. 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 might swap the right to receive floating rate payments for fixed rate
payments. The Fund can enter into swaps only on securities that it owns. The
Fund will not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will identify on its books 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.
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 be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty 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 can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results 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 for each swap. It is measured by 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."
o Regulatory Aspects of Hedging Instruments. When using futures and options on
futures, the Fund is required to operate within certain guidelines and
restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "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 Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Fund may invest are treated as "Section 1256 contracts"
under the Internal Revenue Code. In general, gains or losses relating to Section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from Section 1256 contracts that are 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," and unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of determining 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 those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for Federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized 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 that the 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, the following gains or losses are treated
as ordinary income or loss:
(1) 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, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated in
a foreign currency or foreign currency forward contracts and the date of
disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
n Temporary Defensive Investments. When market conditions are unstable, or the
Manager believes it is otherwise appropriate to reduce holdings in stocks, the
Fund can invest in a variety of debt securities for defensive purposes. The Fund
can also purchase these securities for liquidity purposes to meet cash needs due
to the redemption of Fund shares, or to hold while waiting to reinvest cash
received from the sale of other portfolio securities. The Fund's temporary
defensive investments can include the following short-term (maturing in one year
or less) dollar-denominated debt obligations:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured promissory notes) of domestic or
foreign companies,
o debt obligations of domestic or foreign corporate issuers,
o certificates of deposit and bankers' acceptances of domestic and foreign
banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
<PAGE>
Investment Restrictions
n What Are "Fundamental Policies?" Fundamental policies are those policies that
the Fund has adopted to govern its investments that can be changed only by the
vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
n Does the Fund Have Additional Fundamental Policies? The following investment
restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or if
it would then own more than 10% of that issuer's voting securities. That
restriction applies to 75% of the Fund's total assets. The limit does not apply
to securities issued by the U.S. government or any of its agencies or
instrumentalities.
o The Fund cannot invest more than 25% (the Fund interprets this policy to apply
to "25% or more" of its total assets) of its total assets in any one industry.
That limit does not apply to securities issued or guaranteed by the U.S.
government or its agencies and instrumentalities. Each foreign government is
treated as an "industry" and utilities are divided according to the services
they provide.
o The Fund cannot invest more than 5% of its total assets in securities of
issuers (including their predecessors) that have been in operation less than
three years.
o The Fund cannot borrow money in excess of 50% of the value of its total assets
(as a non-fundamental operating policy, that limit is applied to 50% of the
Fund's net assets). The Fund may only borrow subject to the 300% asset coverage
requirement set forth in its policy on borrowing.
o The Fund cannot make loans. However, it can invest in debt obligations in
accordance with its investment objective and policies. The Fund may also lend
its portfolio securities as set forth in its policy on securities lending and
may enter into repurchase agreements.
o The Fund cannot buy or sell real estate, commodities or commodity contracts.
However, the Fund can purchase debt securities secured by real estate or
interests in real estate, or issued by companies, including real estate
investment trusts, that invest in real estate or interests in real estate. The
Fund can also buy and sell hedging instruments.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot invest in the securities issued by any company for the
purpose of exercising management control.
o The Fund cannot invest in or hold securities of any issuer if officers,
Directors and Trustees of the Fund or the Manager individually or beneficially
own more than 1/2 of 1% of the securities of that issuer and together own more
than 5% of the securities of that issuer.
o The Fund cannot buy securities on margin. However, the Fund can make margin
deposits in connection with its use of hedging instruments.
o The Fund cannot invest in oil, gas or other mineral exploration or
development programs.
o The Fund cannot make short sales of securities or maintain a short position,
unless at all times when a short position is open the Fund owns an equal amount
of those securities, or by virtue of ownership of other securities has the right
to obtain an equal amount of the securities sold short without payment of
further consideration.
o The Fund cannot issue "senior securities," but this does not prohibit certain
investment activities for which assets of the Fund are designated as segregated,
or margin, collateral or escrow arrangements are established, to cover the
related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
n Does the Fund Have Additional Restrictions That Are Not "Fundamental"
Policies?
The Fund has additional operating policies that are not "fundamental," and
which can be changed by the Board of Trustees without shareholder approval.
o The Fund cannot invest in securities of other investment companies, except if
it acquires them as part of a merger, consolidation or acquisition of assets.
For purposes of the Fund's policy not to concentrate its investments, the
Fund has adopted the industry classifications set forth in Appendix B to this
Statement of Additional Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in 1989.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager.
n Classes of Shares. The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has four classes of shares: Class A,
Class B, Class C and Class Y. All classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one
class are different from interests of another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
n Meetings of Shareholders. As a Massachusetts business trust, the Fund is not
required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law. It will also do so 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.
If the Trustees receive a request from at least 10 shareholders 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. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act. n Shareholder and Trustee Liability.
The Fund's Declaration of Trust contains an express disclaimer of shareholder or
Trustee liability for the Fund's obligations. It also provides for
indemnification and reimbursement of expenses out of the Fund's property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also states that upon request, the Fund shall assume the defense of any claim
made against a shareholder for any act or obligation of the Fund and shall
satisfy any judgment on that claim. Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances. However, the risk that a Fund shareholder will
incur financial loss from being held liable as a "partner" of the Fund is
limited to the relatively remote circumstances in which the Fund would be unable
to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. Additionally, the
Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds2:
2 Mr. Armstrong is not a trustee, Director or Managing General Partners of
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt Trust,
Centennial, Centennial America Fund, L.P., Centennial Money Market Trust,
Centennial Government Trust, Centennial Tax Exempt Trust, Oppenheimer Main
Street Funds, Inc., Oppenheimer Cash Reserves and Oppenheimer Champion Income
Fund. Mr. Fossel is not a Trustee of Centennial New York Tax Exempt Trust or
Managing General Partners of Centennial America Fund, L.P.
<PAGE>
Oppenheimer Cash Reserves Oppenheimer Senior Floating Rate
Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund,
Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government Fund Centennial California Tax Exempt
Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt
Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of January 1, 2000, 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 shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue, are trustees of that plan.
William L. Armstrong, Trustee; Age: 62
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following private mortgage banking companies: Cherry Creek
Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994),
The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc.
(since 1997), and Ambassador Media Corporation (since 1984); Chairman of the
following private companies: Frontier Real Estate, Inc. (residential real estate
brokerage) (since 1994), Frontier Title (title insurance agency) (since 1995)
and Great Frontier Insurance (insurance agency) (since 1995); Director of the
following public companies: Storage Technology Corporation (computer equipment
company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production
company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly
Director of the following public companies: International Family Entertainment
(television channel) (1991 - 1997) and Natec Resources, Inc. (air pollution
control equipment and services company) (1991 - 1995); formerly U.S. Senator
(January 1979 - January 1991).
Robert G. Avis*, Trustee; Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Trustee; Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Jon S. Fossel, Trustee; Age: 57
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., Shareholder Services, Inc. and Shareholder
Financial Services, Inc.
Sam Freedman, Trustee; Age: 59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services, a
transfer agent division of the Manager; Chairman, Chief Executive Officer and a
director of Shareholder Services, Inc.; Chairman, Chief Executive Officer and
director of Shareholder Financial Services, Inc.; Vice President and director of
Oppenheimer Acquisition Corp. and a director of the Manager.
Raymond J. Kalinowski, Trustee; Age: 70
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company), self-employed consultant (securities matters).
C. Howard Kast, Trustee; Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112 President of The Kirchner
Company (management consultants).
Ned M. Steel, Trustee; Age: 84
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain*, Chairman, Chief Executive Officer and Trustee; Age: 66 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation; and Chairman of the Board of Shareholder Services, Inc.
Bridget A. Macaskill*, President; Age: 51
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation, an investment advisory
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995) (both are transfer agent subsidiaries of the Manager); President (since
September 1995) and a director (since October 1990) of Oppenheimer Acquisition
Corp., the Manager's parent holding company; President (since September 1995)
and a director (since November 1989) of Oppenheimer Partnership Holdings, Inc.,
a holding company subsidiary of the Manager; a director of Oppenheimer Real
Asset Management, Inc., an investment advisory subsidiary of the Manager (since
July 1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd. and of Oppenheimer Millennium Funds plc, off-shore investment
companies managed by the Manager; President and a director of other Oppenheimer
funds; a director of Prudential Corporation plc (a U.K. financial service
company).
Arthur P. Steinmetz, Vice President and Portfolio Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since March 1993); an officer of other
Oppenheimer funds.
David P. Negri, Vice President and Portfolio Manager; Age: 45
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since June 1989); an officer of other
Oppenheimer funds.
Andrew J. Donohue, Vice President and Secretary; Age: 49
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of the Sub-Advisor (since July 1996); General Counsel (since May
1996) and Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice
President and a director of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Brian W. Wixted, Treasurer; Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert J. Bishop, Assistant Treasurer; Age: 41
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer; Age: 34
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Robert G. Zack, Assistant Secretary; Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
n Remuneration of Trustees. The officers of the Fund and one of the Trustees of
the Fund (Mr. Swain) are affiliated with the Manager and receive no salary or
fee from the Fund. The remaining Trustees of the Fund received the compensation
shown below. The compensation from the Fund was paid during its fiscal year
ended September 30, 1999. The compensation from all of the Denver-based
Oppenheimer funds includes the compensation from the Fund and represents
compensation received as a director, trustee, managing general partner or member
of a committee of the Board during the calendar year 1999.
<PAGE>
- --------------------------------------------------------------------------
Total Compensation
Trustee's Name and Other Aggregate Compensation from all Denver-Based
Positions From Fund Oppenheimer Funds1
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William H. Armstrong $1,789 $14,542
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert G. Avis $10,946 $67,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William A. Baker $11,186 $69,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Jon. S. Fossel $11,110 $66,586
Review Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Sam Freedman $11,912 $73,998
Review Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Raymond J. Kalinowski $11,789 $73,248
Audit Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
C. Howard Kast
Chairman, Audit and
Review $12,580 $78,873
Committees
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert M. Kirchner $11,069 $69,248
Audit Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Ned M. Steel $10,946 $67,998
- --------------------------------------------------------------------------
1. For the 1999 calendar year.
n Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds.
Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
n Major Shareholders. As of January 7, 2000, the only persons who owned of
record or were known by the Fund to own beneficially 5% or more of any class of
the Fund's outstanding securities were:
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E., 3rd Floor,
Jacksonville, Florida 32246, which owned 11,221,573.169 Class C shares
(representing approximately 8.34% of the Fund's then-outstanding Class C
shares), for the benefit of its customers.
Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, Massachusetts 01111, which owned 5,472,844.124 Class Y shares
(representing approximately 72.46% of the Fund's then-outstanding Class Y
shares), for the benefit of its customers.
Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, Massachusetts 01111, which owned 2,706,766.996 Class Y shares
(representing approximately 23.14% of the Fund's then-outstanding Class Y
shares), for the benefit of its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
n Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
n The Investment Advisory Agreement. The Manager provides investment advisory
and management services to the Fund under an investment advisory agreement
between the Manager and the Fund. The Manager selects securities for the Fund's
portfolio and handles its day-to-day business. The portfolio managers of the
Fund are employed by the Manager and are the persons who are principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed-Income Portfolio Team provide the portfolio managers with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include 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.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class.
<PAGE>
- -------------------------------------------------------------------------------
Fiscal Year ended 9/30: Management Fees Paid to OppenheimerFunds, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $37,014,867
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $44,320,889
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $43,449,103
- -------------------------------------------------------------------------------
The investment advisory agreement states 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 investment advisory
agreement, the Manager is not liable for any loss the Fund sustains by reason of
good faith errors or omissions on its part with respect to any of its duties
under the agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
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. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The investment 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. The investment research received for the
commissions of those other accounts may be useful both to the Fund and one or
more of the Manager's other accounts. Investment research may be supplied to the
Manager by a third party at the instance of a broker through which trades are
placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
<PAGE>
- -------------------------------------------------------------------------------
Fiscal Year Ended 9/30: Total Brokerage Commissions Paid by the Fund1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $376,817
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $1,119,6302
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $759,438
- -------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 9/30/99, the amount of transactions directed to
brokers for research services was $221,441,199 and the amount of the
commissions paid to broker-dealers for those services was $125,524.
Distribution and Service Plans
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 different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
- -------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions Commissions Commissions
Fiscal Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
9/30: Shares Distributor Distributor1 Distributor1 Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $20,149,168 $5,660,176 $286,485 $41,868,645 $2,728,179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $20,863,625 $5,846,580 $1,019,515 $46,878,475 $3,717,936
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $9,786,050 $2,971,4172 $547,997 $22,420,501 $1,887,953
- -------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. Includes amounts retained by a broker-dealer that is an affiliate or a parent
of the distributor.
<PAGE>
- -------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Deferred Sales Deferred Sales Deferred Sales
Year Ended Charges Retained by Charges Retained by Charges Retained by
9/30 Distributor Distributor Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $52,154 $11,656,313 $346,906
- -------------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class. Each plan
has been approved by a vote of the Board of Trustees, including a majority of
the Independent Trustees3, cast in person at a meeting called for the purpose of
voting on that plan.
3 In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not have
any direct or indirect financial interest in the operation of the distribution
plan or any agreement under the plan.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time, may use their own
resources (at no direct cost to the Fund) to make payments to brokers, dealers
or other financial institutions for distribution and administrative services
they perform. The Manager may use its profits from the advisory fee it receives
from the Fund. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A 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.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each Class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, and the purpose for which the payments were made. The reports
on the Class B plan shall also include the Distributor's distribution costs for
that quarter and in the case of the Class B plan the amount of those costs for
previous fiscal periods that are unreimbursed. Those reports are subject to the
review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services 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. While the plan
permits the Board to authorize payments to the Distributor to reimburse itself
for services under the plan, the Board has not yet done so. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets consisting of Class A shares held in the
accounts of the recipients or their customers.
For the fiscal period ended September 30, 1999 payments under the Class A
Plan totaled $9,366,471, all of which was paid by the Distributor to recipients.
That included $692,780 paid to an affiliate of the Distributor's parent company.
Any unreimbursed expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A Plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
n Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B plan allows the Distributor
to be reimbursed for its services and costs in distributing Class B shares and
servicing accounts. 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 under the plan during the period
for which the fee is paid. The types of services that recipients provide are
similar to the services provided under the Class A service plan, described
above.
The Class B and the Class C Plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to pay dealers that sell those shares. The Fund pays the asset-based
sales charges to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C shares,
and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
Class B plan allows for the carry-forward of unreimbursed distribution expenses,
to be recovered from asset-based sales charges in subsequent fiscal periods.
- -------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 9/30/99
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Plan $38,357,095 $31,023,7821 $127,444,289 3.77%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Plan $6,503,018 $3,651,4132 $10,533,859 1.72%
- -------------------------------------------------------------------------------
1. Includes $216,015 paid to and affiliate of the Distributor's parent company.
2. Includes $85,919 paid to and affiliate of the Distributor's parent company.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "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."
An explanation of how yields and total returns are calculated is set forth
below. The charts below show the Fund's performance as of the Fund's most recent
fiscal year end. You can obtain current performance information by calling the
Fund's Transfer Agent at 1-800-525-7048 or by visiting the OppenheimerFunds
Internet web site at http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
o Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of
each shareholder's account. Your account's performance will vary from the
model performance data if your dividends are received in cash, or you buy
or sell shares during the period, or you bought your shares at a different
time and price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
n Yields. The Fund uses a variety of different yields to illustrate its current
returns. Each class of shares calculates its yield separately because of the
different expenses that affect each class.
o Standardized Yield. The "standardized yield" (sometimes referred to just as
"yield") is shown for a class of shares for a stated 30-day period. It 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 for that period. It may therefore differ from
the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their 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 assumptions).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. 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. 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 any 30-day period.
o Dividend Yield. The Fund may quote a "dividend yield" for each class of its
shares. Dividend yield is based on the dividends paid on a class of shares
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. There is no sales charge on Class Y shares. The Class A
dividend yield may also be quoted without deducting the maximum initial sales
charge.
- -------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 9/30/99
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class of
Shares Standardized Yield Dividend Yield
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A 11.11% 10.56% 8.99% 8.55%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B 10.35% N/A 8.17% N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C 10.35% N/A 8.21% N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class Y 11.53% N/A 9.39% N/A
- -------------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
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 without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period. There is no sales charge on Class Y
shares.
o Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
o Cumulative Total Return. The "cumulative total return" calculation measures
the change in value of a hypothetical investment of $1,000 over an entire period
of years. Its calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual basis.
Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
o Total Returns at Net Asset Value. From time to time the Fund may also quote a
cumulative or an average annual total return "at net asset value" (without
deducting sales charges) for each class of 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 Fund's Total Returns for the Periods Ended 9/30/99
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cumulative Total
Returns (10
Class of years or Life of
Shares Class) Average Annual Total Returns
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or (or (or
life-of-class) life-of-class) life-of-class)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A 126.77% 138.08% -1.98% 2.91% 6.19% 7.23% 8.57%1 9.10%1
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B 60.23% 60.23% -2.79% 1.92% 6.13% 6.41% 7.14%2 7.14%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C 30.26% 30.26% 0.98% 1.92% 6.27%3 6.27%3 N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class Y 2.41%4 2.41%4 3.07% 3.07% 1.43%4 1.43%4 N/A N/A
- --------------------------------------------------------------------------------
1. Inception of Class A: 10/16/89
2. Inception of Class B: 11/30/92
3. Inception of Class C: 5/26/95
4. Inception of Class Y: 1/26/98
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
n Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its classes of shares by Lipper Analytical Services, Inc. Lipper
is 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 in categories based on
investment styles. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
o Morningstar Ratings and Rankings. From time to time the Fund may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the intermediate government fund category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk is measured by a
fund's (or class's) performance below 90-day U.S. Treasury bill returns. Risk
and investment return are combined to produce star ratings reflecting
performance relative to the other funds in the fund's category. Five stars is
the "highest" ranking (top 10% of funds in a category), 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%). The current star
rating is the fund's (or class's) overall rating, which is the fund's 3-year
rating or its combined 3- and 5-year ranking (weighted 60%/40% respectively), or
its combined 3-, 5-, and 10-year rating (weighted 40%/30%/30%, respectively),
depending on the inception date of the fund (or class). Ratings are subject to
change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star rating. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk-adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S.
government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives federal
funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
n 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:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
o current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
o 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.
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. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
n The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which
the Distributor acts as the distributor or the sub-distributor and currently
include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Global Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Growth Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund
Oppenheimer Trinity Core Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Trinity Growth Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Trinity Value Fund
Oppenheimer International Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund
Oppenheimer World Bond Fund
Oppenheimer International Small Company Fund
Limited-Term New York Municipal Fund
Oppenheimer Large Cap Growth Fund
Rochester Fund Municipals
Oppenheimer Limited-Term Government Fund
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent 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"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent 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.
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.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
2. If the 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 purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1)
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 (2) 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 to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor ) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset
Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. Under current interpretations of applicable
federal income tax law by the Internal Revenue Service, the conversion of Class
B shares to Class A shares after six years is not treated as a taxable event for
the shareholder. If those laws or the IRS interpretation of those laws should
change, the automatic conversion feature may be suspended. In that event, no
further conversions of Class B shares would occur while that 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
shareholder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on those days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
nSecurities Valuation. The Fund's Board of Trustees has established procedures
for the valuation of the Fund's securities. In general those procedures are as
follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are
valued at the last reported sale price preceding the valuation date if it
is within the spread of the closing "bid" and "asked" prices on the
valuation date or, if not, at the closing "bid" price on the valuation
date.
o Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last trading
session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis of
reasonable inquiry, from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry. o The following securities 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 by the
Manager from two active market makers in the security on the basis of
reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or less.
o The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining maturity
of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available
market quotations are valued at fair value determined under the Board's
procedures. If the Manager is unable to locate two market makers willing to
give quotes, a security may be priced at the mean between the "bid" and
"asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
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.
In choosing to take advantage of the Checkwriting privilege, by signing
the Account Application or by completing a Checkwriting card, each individual
who signs:
1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other
entities, represents that they are an officer, general partner,
trustee or other fiduciary or agent, as applicable, duly authorized
to act on behalf of the registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which
the Fund's drafts (checks) are payable to pay all checks drawn on the
Fund account of such person(s) and to redeem a sufficient amount of
shares from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall
incur any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed
by them to be genuine, or for returning or not paying checks that
have not been accepted for any reason.
Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of
redemption 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 Federal Funds wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or o 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 in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
or Class Y shares. 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.
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.
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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
<PAGE>
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other
redemption requirements.
Participants (other than self-employed persons) in OppenheimerFunds-sponsored
pension or profit-sharing plans with shares of the Fund held in the name of the
plan or its fiduciary may not directly request redemption of their accounts. The
plan administrator or fiduciary 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 and submitted to the Transfer Agent
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, 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 on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
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. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
n Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
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. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed
instructions. 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.
n Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
<PAGE>
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (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 not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. 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 Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
o All of the Oppenheimer funds currently 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, and Centennial America Fund, L.P., which only offer Class A
shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o 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.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares
of Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged back for Class A shares of
Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge or contingent deferred sales
charge. 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. If requested, they
must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other 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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those change whenever it is required to do so by applicable
law. It may be required to provide 60 days' notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class
of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request.
When you exchange some or all of your shares from one fund to another, any
special account feature such as an Asset Builder Plan or Automatic Withdrawal
Plan, will be switched to the new fund account unless you tell the Transfer
Agent not to do so. However, special redemption and exchange features such as
Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an
account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares 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. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
<PAGE>
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up 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.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
The Fund has no fixed dividend rate for Class B and Class C shares, and
the rate can change for Class A shares. There can be no assurance as to the
payment of any dividends or the realization of any capital gains. The dividends
and distributions paid by a class of shares will 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. Dividends are
calculated in the same manner, at the same time, and on the same day for each
class of shares. However, dividends on Class B and Class C shares are expected
to be lower than dividends on Class A shares. That is because of the effect of
the asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in the net asset values
of the different classes of shares.
Dividends, distributions and 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.
Reinvestment will be made 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. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
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. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
<PAGE>
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. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
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 Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). 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. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
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 above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
<PAGE>
Additional Information About the Fund
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 Fund's
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. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as 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 on the back cover.
The Custodian. The Bank of New York is the custodian of the Fund's assets. The
custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. 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. Those
uninsured balances at times may be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and for certain other funds
advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
TO 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, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1999
and 1998 and the financial highlights for the period October 1, 1994, to
September 30, 1999. 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 as of
September 30, 1999, 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 as of September 30, 1999, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1999
STATEMENT OF INVESTMENTS September 30, 1999
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
=====================================================================================================================
<S>
<C> <C>
MORTGAGE-BACKED OBLIGATIONS--25.8%
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--17.2%
- ---------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--14.2%
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Gtd. Multiclass Mtg. Participation Certificates:
11.50%, 10/1/16
$ 2,615,885 $ 2,886,786
Series 1092, Cl. K, 8.50%,
6/15/21 5,779,016
5,961,403
Series 1252, Cl. J, 8%,
5/15/22 7,000,000
7,192,500
Series 1295, Cl. J, 7.50%,
3/15/07 7,769,240
7,868,764
Series 1343, Cl. LA, 8%, 8/15/22
17,100,000 17,522,028
Series 1455, Cl. J, 7.50%, 12/15/22
18,527,500 18,741,678
Series 1562, Cl. C, 7%, 3/15/21
10,000,000 9,962,500
Series 2121, Cl. QF, 6%, 1/15/24
10,000,000 9,456,200
Series 2145, Cl. UJ, 6.50%, 7/15/26
29,266,572 28,178,221
Series 2155, Cl. PM, 6%, 4/15/25
21,808,000 20,588,115
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Multiclass
Mtg. Participation Certificates:
10%,
5/1/20
1,162,295 1,257,313
10.50%,
5/1/20
2,538,941 2,758,306
12%,
6/1/17
5,248,776 5,903,194
Series 2075, Cl. PL, 6.25%, 3/15/28
15,000,000 13,635,900
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Securities:
Series 176, Cl. IO, 14.002%,
6/1/26(2) 5,919,212
1,753,567
Series 183, Cl. IO, 18.529%,
4/1/27(2) 9,306,102
2,771,473
Series 192, Cl. IO, 12.721%-18.844%, 2/1/28(2)
107,203,160 32,797,467
Series 194, Cl. IO, 10.380%-10.87%, 4/1/28(2)
31,519,030 9,962,968
Series 197, Cl. IO, 9.524%-14.649%, 4/1/28(2)
272,777,790 85,243,062
Series 199, Cl. IO, 13.542%-22.218%, 8/1/28(2)
384,013,846 122,284,410
Series 202, Cl. IO, 10.166%-10.575%, 4/1/29(2)
32,876,582 10,844,135
Series 2036, Cl. PF, 12.33%,
3/15/28(2) 7,795,984
3,033,125
Series 2048, Cl. PJ, 11.896%, 4/15/28(2)
11,232,514 4,577,249
Series 2178, Cl. PI, 10.383%, 8/15/29(2)
22,989,733 5,747,433
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Mtg.-Backed Certificates, 10%,
4/1/20 1,479,102 1,586,618
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.-Government National Mortgage Assn.,
Gtd. Multiclass Mtg. Participation Certificates, Series 32, Cl. TG, 7%, 1/25/21
17,965,500 18,044,009
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6%, 8/1/13
24,133,704 23,228,691
6.50%,
1/1/29
6,109,669 5,859,967
6.50%, 10/25/13(3)
190,000,000 186,437,500
7%, 10/25/27(3)
85,000,000 83,526,100
7.50%, 10/1/29(3)
95,900,000 96,169,479
7.50%,
11/1/25-7/1/26
7,941,236 7,973,164
9.50%,
4/1/20-11/25/27
1,147,963 1,230,928
10.50%,
10/1/19
1,034,421 1,130,747
11%,
10/15/15-2/1/26
2,966,065 3,302,389
12%,
2/15/16
2,313,328 2,625,628
15%,
4/15/13
1,792,727 2,190,069
</TABLE>
14 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
FHLMC/FNMA/SPONSORED CONTINUED
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Multiclass Mtg. Participation Certificates:
Trust 1993-102, Cl. H, 6.80%, 9/25/22 $
23,350,000 $ 23,174,875
Trust 1998-19, Cl. PK, 6%, 9/18/26
16,200,000 14,939,316
Trust 1998-30, Cl. QB, 6.50%, 4/18/19
8,805,000 8,793,994
Trust 1999-19, Cl. TC, 6.50%, 11/25/11
9,233,000 9,131,991
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1990-18, Cl. K, 9.60%, 3/25/20
6,979,981 7,368,209
Trust 1993-38, Cl. U, 7.50%, 8/25/21
10,000,000 10,118,700
Trust 1994-27, Cl. PH, 6.50%, 9/25/22
4,045,000 3,988,087
Trust 1997-63, Cl. PC, 6.50%, 3/18/26
8,470,400 8,327,420
Trust 1998-36, Cl. PA, 6.25%, 7/18/13
10,000,000 9,968,700
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates:
Trust 1989-4, Cl. D, 10%, 2/25/19
6,129,398 6,531,610
Trust 1995-4, Cl. PC, 8%, 5/25/25
8,692,100 8,941,998
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Trust 249, Cl. 2, 14.441%, 10/25/23(2)
8,875,770 2,573,974
Trust 252, Cl. 2, 11.599%, 11/1/23(2)
26,161,996 7,574,716
Trust 276, Cl. 2, 12.061%, 10/1/24(2)
20,604,900 6,010,836
Trust 294, Cl. 1, 11.972%-25.189%, 2/1/28(2)
166,716,342 50,978,733
Trust 302, Cl. 2, 9.827%-9.867%, 6/2/29(2)
36,980,286 11,926,143
Trust 1997-9, Cl. H, 8.789%, 3/25/27(2)
25,000,000 8,843,750
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only
Stripped Mtg.-Backed Security:
Trust 1996-4, Cl. L, 4.446%, 1/25/24(4)
10,000,000 4,762,500
Trust 1997-44, Cl. B, 5.912%, 6/25/08(4)
15,904,036 12,027,427
- -----------------
1,080,216,065
- --------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--3.0%
Government National Mortgage Assn.:
7%, 1/15/28-8/15/28
68,388,478 67,141,770
7.50%, 7/15/25-9/15/28
55,482,829 55,759,486
8%, 5/15/26-9/15/28
39,698,176 40,612,833
12.50%, 12/15/13-11/15/15
11,977,692 13,647,263
13%, 10/15/15
16,481,308 19,356,525
13.50%, 6/15/15
20,752,783 24,665,008
- --------------------------------------------------------------------------------------------------------------------
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, 4.089%, 9/1/22(2)
106,112,038 2,752,281
Series 1995-2B, Cl. 2-IO, 12.679%, 6/1/25(2)
10,808,557 264,303
Series 1995-3, Cl. 1-IO, 5.858%, 9/1/25(2)
283,198,102 3,783,350
- -----------------
227,982,819
</TABLE>
15 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
PRIVATE--8.6%
- -------------------------------------------------------------------------------------------------------------------
AGRICULTURAL--0.1%
Prudential Agricultural Credit, Inc., Farmer Mac Agricultural Real Estate
Trust Sr. Sub. Mtg. Pass-Through Certificates, Series 1992-2:
Cl. B2, 9.451%, 1/15/03(5,6) $
2,795,105 $ 2,323,431
Cl. B3, 9.395%, 4/15/09(5,6)
5,773,280 4,218,103
- --------------
6,541,534
- -------------------------------------------------------------------------------------------------------------------
COMMERCIAL--6.6%
Ameriquest Technology, Inc., Series 1999-I, 9.75%, 3/25/29(5)
25,494,649 25,255,637
- -------------------------------------------------------------------------------------------------------------------
AMRESCO Commercial Mortgage Funding I Corp., Multiclass Mtg.
Pass-Through Certificates, Series 1997-C1:
Cl. G, 7%, 6/17/29(5)
1,550,000 1,234,187
Cl. H, 7%, 6/17/29(5)
1,600,000 1,075,000
- -------------------------------------------------------------------------------------------------------------------
Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates:
Series 1995-MD4, Cl. A-4, 7.384%, 8/13/29
5,000,000 4,707,812
Series 1995-MD4, Cl. A-5, 7.384%, 8/13/29
20,000,000 17,943,750
Series 1997-D4, Cl. B1, 7.525%, 4/14/29(6)
11,875,000 8,984,180
Series 1997-D4, Cl. B2, 7.525%, 4/14/29(6)
24,582,312 18,075,681
Series 1997-D4, Cl. B3, 7.525%, 4/14/29(4)
5,532,925 3,615,421
Series 1997-D5, Cl. B1, 6.93%, 2/14/41
7,700,000 5,454,969
Series 1997-D5, Cl. B2, 6.93%, 2/14/41
21,050,000 14,360,047
- -------------------------------------------------------------------------------------------------------------------
CBA Mortgage Corp., Mtg. Pass-Through Certificates, Series 1993-C1:
Cl. E, 6.72%, 12/25/03(5,6)
2,609,000 2,242,109
Cl. F, 6.72%, 12/25/03(5,6)
14,300,000 12,181,812
- -------------------------------------------------------------------------------------------------------------------
Citicorp Mortgage Securities, Inc., Collateralized Mortgage Obligation,
Series 1999-3, Cl. A4, 6.50%, 5/25/29
41,752,593 39,456,201
- -------------------------------------------------------------------------------------------------------------------
Citicorp Mortgage Securities, Inc., Sub. Bonds, Series 1993-5:
Cl. B3, 7%, 4/25/23(5)
1,192,197 1,080,056
Cl. B4, 7%,
4/25/23(5)
901,838 447,538
- -------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., Collateralized Mtg. Obligations,
Series 1996-C1, Cl. E, 8.074%, 12/25/20(6,7)
3,000,000 2,845,312
- -------------------------------------------------------------------------------------------------------------------
CRIMMI MAE Trust I, Collateralized Mtg. Obligations,
Series 1996-C1, Cl. A2, 7.56%, 8/30/05(7)
6,300,000 5,943,164
- -------------------------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through Certificates,
Series 1998-C1, Cl. F, 6%, 5/17/40(5)
5,500,000 3,169,375
- -------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25
2,500,000 2,448,437
Cl. 2-E, 8.70%, 9/25/25
2,500,000 2,435,937
Cl. 2-G, 8.70%, 9/25/25(5)
4,870,000 4,694,984
- -------------------------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust, Interest-Only
Stripped Mtg.-Backed Security, Series 1998-C2, Cl. IO, 9.569%, 5/18/28(2)
118,162,494 4,435,709
- -------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Collateralized Mtg. Obligations:
Series 1997-C1, Cl. G, 7.414%, 11/15/11
19,440,000 14,154,750
Series 1997-C2, Cl. F, 6.75%, 4/16/29
17,785,500 11,688,408
</TABLE>
16 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
COMMERCIAL Continued
General Motors Acceptance Corp., Commercial Mtg. Securities, Inc.,
Sub. Bonds, Series 1998-C2, Cl. D, 6.50%,
7/15/10 $ 14,583,523 $ 12,993,008
- ---------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Interest-Only Stripped Mtg.-Backed
Security, Series 1997-C1, Cl. X, 8.996%,
7/15/27(2) 172,274,895 13,351,304
- ---------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group LP, Collateralized Bond Obligations, Sub. Bonds,
Series 1A, Cl. D, 12.54%,
6/13/01
6,000,000 5,745,000
- ---------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only
Stripped Mtg.-Backed Security, Series 1999-C2, Cl. C, 8.996%,
10/15/32(2) 9,070,000 8,973,631
- ---------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates,
Series 1995-C2, Cl. D, 7.883%,
6/15/21(6) 2,213,385
2,198,688
- ---------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates:
Series 1996-C1, Cl. E, 7.425%,
3/15/06(5,6) 9,365,000
7,887,086
Series 1996-C1, Cl. F, 7.425%,
2/15/28(5,6) 13,360,980
9,853,723
Series 1997-HF1, Cl. F, 6.86%,
2/15/10(5) 3,475,000
2,737,105
Series 1997-RR, Cl. D, 7.671%,
4/30/39(5) 2,950,158
2,230,136
Series 1997-RR, Cl. E, 7.75%,
4/30/39(5,6) 9,200,495
6,132,705
Series 1997-RR, Cl. F, 7.649%,
4/30/39(5) 30,801,658
16,647,334
Series 1997-XL1, Cl. F, 7.411%,
10/3/30(6) 7,000,000
6,501,250
Series 1997-XL1, Cl. G, 7.695%,
10/3/30(5) 14,358,000
11,966,496
- ---------------------------------------------------------------------------------------------------------------------------
NC Finance Trust, Collateralized Mtg. Obligations, Series 1999-I,
Cl. ECFD, 8.75%,
12/25/28(5)
15,172,057 14,811,721
- ---------------------------------------------------------------------------------------------------------------------------
Norwest Asset Securities Corp.:
Series 1998-12, Cl. A3, 6.75%,
6/25/28 21,334,225
21,047,494
Mtg. Pass-Through Certificates, Series 1998-15, Cl. A-13, 6.75%,
7/25/28 10,000,000 9,393,750
- ---------------------------------------------------------------------------------------------------------------------------
Nykredit AS, 7% Cv. Bonds, 10/1/29
[DKK] 220,143,000
30,623,600
- ---------------------------------------------------------------------------------------------------------------------------
Option One Mortgage Trust, Collateralized Mtg. Obligations,
Series 1999-1A, 10.06%,
3/1/29(5)
9,555,296 9,471,687
- ---------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1993-C1, Cl. D, 9.45%,
5/25/24 5,590,534
5,535,503
Series 1993-C1, Cl. E, 9.50%,
5/25/24
58,505 58,053
Series 1994-C1, Cl. C, 8%,
6/25/26
8,000,000 7,961,875
Series 1994-C1, Cl. E, 8%,
6/25/26
5,462,906 5,283,228
Series 1994-C2, Cl. E, 8%,
4/25/25 17,829,679
17,498,159
Series 1994-C2, Cl. G, 8%,
4/25/25
5,632,975 5,360,128
Series 1995-C1, Cl. F, 6.90%,
2/25/27 6,019,025
5,483,427
- ---------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Series 1996-C1, Cl. E, 9.184%,
1/20/06 4,550,000 4,277,000
- ---------------------------------------------------------------------------------------------------------------------------
Salomon, Inc., Commercial Mtg. Pass-Through Certificates,
Series 1997-A3, 5%,
8/25/27(5)
5,032,461 4,651,882
- ---------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 1997-LLI:
Cl. E, 7.30%,
4/12/12
3,000,000 2,649,375
Cl. F, 7.30%,
4/12/12(5)
8,000,000 5,935,000
- ---------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through Certificates:
Series 1995-C4, Cl. E, 8.731%,
6/25/26(5,6) 9,453,000
9,122,145
Series 1996-C3, Cl. E, 8.256%,
6/25/30(7) 9,350,000
8,768,547
</TABLE>
17 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
COMMERCIAL Continued
Series 1996-CFL, Cl. D, 7.034%,
2/25/28 $ 14,220,000 $
14,108,906
Series 1999-1, 10%,
8/25/28
4,148,897 4,130,746
- -----------------------------------------------------------------------------------------------------------------------------
TIAA Retail Commercial Mortgage Trust, Series 1999-1, Cl. A, 7.17%,
1/15/32 5,000,000 5,000,000
- ----------------
506,320,168
- -----------------------------------------------------------------------------------------------------------------------------
MULTIFAMILY--0.3%
Countrywide Funding Corp., Mtg. Pass-Through Certificates:
Series 1993-11, Cl. B1, 6.25%,
2/25/09(5)
1,040,955 945,643
Series 1993-11, Cl. B3, 6.25%,
2/25/09(5)
607,227 232,644
Series 1993-12, Cl. B1, 6.625%,
2/25/24 3,342,790
3,071,711
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., Commercial Mtg. Pass-Through Certificates,
Series 1997-MC1, Cl. F, 7.452%,
5/20/07(5) 2,939,000
2,297,012
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., Multifamily Mtg. Pass-Through Certificates,
Series 1996-MC1, Cl. G, 7.15%,
6/15/06(7) 9,700,000
7,625,109
- -----------------------------------------------------------------------------------------------------------------------------
Multifamily Capital Access One, Inc., Series 1, Cl. D, 8.82%,
1/15/24(5,6) 3,576,000 2,957,464
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Series 1996-CL, Cl. F, 9.092%,
1/20/06(6) 9,632,000 7,350,420
- ----------------
24,480,003
- -----------------------------------------------------------------------------------------------------------------------------
OTHER--0.2%
DLJ Ltd., Collateralized Bond Obligations, Series 1A, Cl. C2, 11.96%,
4/15/11(5) 15,000,000 13,521,094
- -----------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--1.4%
Chase Mortgage Finance Corp., Sub. Mtg. Pass-Through Certificates,
Series 1999-S10, Cl. A-1, 6.75%,
8/25/29 30,000,000
29,971,875
- -----------------------------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997:
Cl. D, 8.227%,
5/25/08(5,6)
8,500,000 6,802,656
Cl. E, 8.227%,
2/25/11(5,6)
14,500,000 10,032,187
- -----------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through Certificates,
Series 1997-QS8, Cl. M3, 7.50%,
8/25/27 3,205,529
2,919,035
- -----------------------------------------------------------------------------------------------------------------------------
Residential Asset Securitization Trust, Asset-Backed Pass-Through Certificates,
Series 1996-A1, Cl. A8, 7.35%,
3/25/26 11,830,697
11,509,020
- -----------------------------------------------------------------------------------------------------------------------------
Residential Asset Securitization Trust, Collateralized Mtg. Obligations,
Non-Accelerated Security, Series 1997-A2, Cl. A8, 7.75%,
4/25/27 13,300,000 13,408,062
- -----------------------------------------------------------------------------------------------------------------------------
Residential Funding Mortgage Series I, Inc., Mtg. Pass-Through Certificates,
Series 1998-S15, Cl. A10, 6.75%,
7/25/28 16,000,000
15,080,000
- -----------------------------------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp. Sub. Bonds, Series 1993-3,
Cl. B2, 6.713%,
8/25/08
942,084 892,110
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Series 1996-B, Cl. 1, 6.581%,
4/25/26(5) 14,277,220 9,753,126
- -----------------------------------------------------------------------------------------------------------------------------
Salomon, Inc., Commercial Mtg. Pass-Through Certificates,
Series 1998-A1, 5%,
12/25/00(5)
4,500,396 4,334,445
- ----------------
104,702,516
- ----------------
Total Mortgage-Backed Obligations (Cost
$1,976,735,154) 1,963,764,199
</TABLE>
18 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==================================================================================================================
<S>
<C> <C>
U.S. GOVERNMENT OBLIGATIONS--10.5%
- ------------------------------------------------------------------------------------------------------------------
AGENCY--2.7%
Federal National Mortgage Assn.:
Sr. Unsub. Medium-Term Nts., 6.50%, 7/10/02 [AUD]
12,075,000 $ 7,971,153
Sr. Unsub. Nts., 6.375%, 8/15/07 [AUD]
12,954,000 8,236,878
Unsec. Nts., 6.625%, 9/15/09
187,500,000 186,973,125
- ----------------
203,181,156
- ------------------------------------------------------------------------------------------------------------------
TREASURY--7.8%
U.S. Treasury Bonds:
6%, 8/15/04
5,700,000 5,757,000
6.125%, 11/15/27
100,300,000 97,479,063
11.25%, 2/15/15
58,000,000 85,096,904
STRIPS, 5.995%, 5/15/18(8)
433,200,000 129,981,660
STRIPS, 6.554%, 8/15/14(8)
39,500,000 15,103,220
STRIPS, 6.567%, 2/15/19(8)
175,000,000 50,210,475
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.875%, 8/15/09
20,000,000 20,162,500
6.50%, 10/15/06(9)
89,430,000 91,442,175
7%, 7/15/06
96,700,000 101,565,267
- ----------------
Total U.S. Government Obligations (Cost
$811,192,783) 799,979,420
==================================================================================================================
FOREIGN GOVERNMENT OBLIGATIONS--17.2%
- ------------------------------------------------------------------------------------------------------------------
ARGENTINA--2.2%
Argentina (Republic of) Bonds:
9.75%, 9/19/27
5,410,000 4,530,875
Bonos de Consolidacion de Deudas, Series I, 2.828%, 4/1/076 [ARP]
36,135,994 24,043,629
Series L, 6.812%, 3/31/05(6)
20,389,600 17,917,361
- ------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Global Unsec. Unsub. Bonds, Series BGL5,
11.375%, 1/30/17
40,421,000 38,096,792
- ------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Nts.:
11%, 12/4/05
19,775,000 18,860,406
11.75%, 2/12/07(7) [ARP]
3,100,000 2,651,030
Series REGS, 11.75%, 2/12/07 [ARP]
17,290,000 14,785,907
- ------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Unsec. Unsub. Medium-Term Nts., 8.75%, 7/10/02 [ARP]
36,680,000 31,138,378
- ------------------------------------------------------------------------------------------------------------------
Banco Hipotecario Nacional (Argentina) Medium-Term Unsec. Nts.,
Series 3, 10.625%, 8/7/06
15,000,000 14,962,500
- ------------------------------------------------------------------------------------------------------------------
City of Buenos Aires Bonds, Series 3, 10.50%, 5/28/04 [ARP]
5,490,000 4,035,957
- ----------------
171,022,835
</TABLE>
19 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
BRAZIL--2.0%
Brazil (Federal Republic of) Bonds:
10.125%,
5/15/27
$ 260,000 $ 194,350
11.625%,
4/15/04
23,370,000 21,852,118
Series RG, 5.938%,
4/15/12(6)
18,720,000 11,278,800
- ----------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Capitalization Bonds, 8%,
4/15/14 121,484,673 76,079,777
- ----------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Conversion Bonds, 5.938%,
4/15/12(6) 11,484,000 6,919,110
- ----------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Gtd. Disc. Bonds, 6.125%,
4/15/24(6) 12,010,000 7,671,387
- ----------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Interest Due & Unpaid Bonds, 6.50%,
1/1/01(6) 21,403,845 20,761,730
- ----------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Unsec. Bonds, 9.375%,
4/7/08 7,672,000 6,041,700
- ----------------------------------------------------------------------------------------------------------------------------
Telecomunicacoes Brasileiras SA Medium-Term Nts., 10.85%,
12/9/99(5,6) 500,000 498,750
- ------------------
151,297,722
- ----------------------------------------------------------------------------------------------------------------------------
BULGARIA--1.0%
Bulgaria (Republic of) Disc. Bonds, Tranche A, 6.50%,
7/28/24(6) 56,690,000 39,116,100
- ----------------------------------------------------------------------------------------------------------------------------
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.75%,
7/28/12(10)
51,230,000 32,274,900
- ----------------------------------------------------------------------------------------------------------------------------
Bulgaria (Republic of) Interest Arrears Bonds, 6.50%,
7/28/11(6) 6,800,000 4,836,500
- ------------------
76,227,500
- ----------------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.1%
Colombia (Republic of) Nts., 7.25%,
2/23/04 3,945,000
3,181,595
- ----------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) Unsec. Bonds, 10.875%,
3/9/04 3,310,000 3,263,706
- ------------------
6,445,301
- ----------------------------------------------------------------------------------------------------------------------------
ECUADOR--0.0%
Ecuador (Republic of) Debs., 6.75%,
2/27/15(6) 10,730,649
1,797,384
- ----------------------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Disc. Bonds, 6.75%,
2/28/25(6) 2,505,000 773,419
- ----------------------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Past Due Interest Bonds, 6.75%,
2/27/15(6) 3,015,666 505,124
- ------------------
3,075,927
- ----------------------------------------------------------------------------------------------------------------------------
FINLAND--0.3%
Finland (Republic of) Bonds, 9.50%, 3/15/04
[EUR] 15,305,101 19,436,529
- ----------------------------------------------------------------------------------------------------------------------------
FRANCE--0.3%
France (Government of) Bonds, Obligations Assimilables du Tresor, 5.50%,
10/25/07
[EUR]
18,212,513 19,910,329
- ----------------------------------------------------------------------------------------------------------------------------
GERMANY--0.9%
Germany (Republic of) Bonds:
6.75%, 5/13/04
[EUR]
15,780,000 18,301,407
Series 98, 5.25%, 1/4/08
[EUR]
49,820,000 53,435,014
- ------------------
71,736,421
</TABLE>
20 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
GREAT BRITAIN--0.4%
United Kingdom Treasury Nts., 8%, 6/10/03 [GBP]
15,390,000 $ 26,739,810
- ------------------------------------------------------------------------------------------------------------------
HUNGARY--0.3%
Hungary (Government of) Bonds, Series 01/H, 13.50%, 6/12/01 [HUF]
6,031,160,000 24,855,960
- ------------------------------------------------------------------------------------------------------------------
INDONESIA--0.0%
Perusahaan Listr, 17% Nts., 8/21/01(5) [IDR]
9,000,000,000 565,530
- ------------------------------------------------------------------------------------------------------------------
PT Hutama Karya Medium-Term Nts., Zero Coupon, 9/3/98(5,11) [IDR]
25,000,000,000 822,861
- ----------------
1,388,391
- ------------------------------------------------------------------------------------------------------------------
ITALY--1.1%
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali:
6%, 11/1/07 [EUR]
15,970,000 17,793,822
8.50%, 1/1/04 [EUR]
38,377,926 46,880,748
8.75%, 7/1/06 [EUR]
9,430,784 12,122,850
10.50%, 4/1/05 [EUR]
4,287,711 5,787,014
- ----------------
82,584,434
- ------------------------------------------------------------------------------------------------------------------
IVORY COAST--0.1%
Ivory Coast (Government of) Past Due Interest Bonds, 2%, 3/29/18(6,7)
21,662,025 6,011,212
- ------------------------------------------------------------------------------------------------------------------
JAPAN--0.6%
Japan (Government of) Bonds, Series 141, 6.50%, 6/20/01 [JPY]
4,375,000,000 45,422,419
- ------------------------------------------------------------------------------------------------------------------
JORDAN--0.1%
Hashemite (Kingdom of Jordan) Bonds, Series DEF, 5.50%, 12/23/23(10)
8,840,000 5,359,250
- ------------------------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.188%, 12/23/23(6)
3,710,000 2,430,050
- ----------------
7,789,300
- ------------------------------------------------------------------------------------------------------------------
MEXICO--1.7%
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(7)
8,000,000 7,140,000
- ------------------------------------------------------------------------------------------------------------------
Mexican Williams Sr. Nts., 5.83%, 11/15/08(6)
1,500,000 1,327,500
- ------------------------------------------------------------------------------------------------------------------
United Mexican States Bonds:
6.63%, 12/31/19 [FRF]
235,510,000 30,207,215
11.375%, 9/15/16
32,625,000 34,500,937
11.50%, 5/15/26
5,645,000 6,230,669
- ------------------------------------------------------------------------------------------------------------------
United Mexican States Collateralized Fixed Rate Par Bonds:
Series B, 6.25%, 12/31/19
50,550,000 37,343,812
Series W-A, 6.25%, 12/31/19
310,000 229,012
Series W-B, 6.25%, 12/31/19
1,750,000 1,292,813
- ------------------------------------------------------------------------------------------------------------------
United Mexican States Disc. Bonds, Series C, 5.874%, 12/31/19(6)
9,750,000 8,336,250
- ----------------
126,608,208
</TABLE>
21 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
NEW ZEALAND--0.2%
New Zealand (Government of) Bonds, 7%, 7/15/09
[NZD] 27,911,000 $ 14,471,852
- ----------------------------------------------------------------------------------------------------------------------
NIGERIA--0.3%
Central Bank of Nigeria Gtd. Bonds, Series WW, 6.25%,
11/15/20 8,500,000 5,100,000
- ----------------------------------------------------------------------------------------------------------------------
Nigeria (Federal Republic of) Promissory Nts., Series RC, 5.092%,
1/5/10 33,664,475 19,752,126
- -----------------
24,852,126
- ----------------------------------------------------------------------------------------------------------------------
NORWAY--0.9%
Norway (Government of) Bonds, 9.50%, 10/31/02 [NOK]
504,380,000 71,598,864
- ----------------------------------------------------------------------------------------------------------------------
PANAMA--0.3%
Panama (Republic of) Interest Reduction Bonds, 4.25%,
7/17/14(6) 15,604,000 11,312,900
- ----------------------------------------------------------------------------------------------------------------------
Panama (Republic of) Past Due Interest Debs., 5.819%,
7/17/16(6) 20,493,074 14,703,781
- -----------------
26,016,681
- ----------------------------------------------------------------------------------------------------------------------
PERU--0.7%
Peru (Republic of) Sr. Nts., Zero Coupon, 4.533%, 2/28/16(8)
121,826,375 52,105,141
- ----------------------------------------------------------------------------------------------------------------------
POLAND--1.0%
Poland (Republic of) Bonds:
12%, 6/12/01 [PLZ]
225,350,000 53,388,289
Series 0600, 14%, 6/12/00
[PLZ] 15,000,000
3,638,804
Series 1003, 12%, 10/12/03
[PLZ] 31,680,000
7,530,523
Series 2 yr., 14%, 2/12/00
[PLZ] 14,000,000
3,392,800
- ----------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Treasury Bills, Series 52, Zero Coupon,
14.857%, 10/13/99(8)
[PLZ]
25,180,000 6,024,088
- -----------------
73,974,504
- ----------------------------------------------------------------------------------------------------------------------
RUSSIA--0.6%
Russia (Government of) Debs.,
12/15/15(11) 1,025,618
112,818
- ----------------------------------------------------------------------------------------------------------------------
Russia (Government of) Principal Loan Debs., Series 24 yr., 12/15/20(11)
165,220,000 15,386,113
- ----------------------------------------------------------------------------------------------------------------------
Russia (Government of) Sr. Unsec. Unsub. Nts., 11.75%,
6/10/03 13,912,000 7,324,668
- ----------------------------------------------------------------------------------------------------------------------
Russia (Government of) Unsec. Bonds, 11%,
7/24/18 16,920,000 7,148,700
- ----------------------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%,
7/24/05
23,260,000 9,652,900
12.75%,
6/24/28
18,550,000 8,770,440
- -----------------
48,395,639
- ----------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--0.5%
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR]
244,586,000 36,420,078
- ----------------------------------------------------------------------------------------------------------------------
SPAIN--0.3%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
4.50%, 7/30/04
[EUR]
13,098,249 13,868,240
6%, 1/31/08
[EUR]
5,853,857 6,532,361
- -----------------
20,400,601
</TABLE>
22 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
TURKEY--0.0%
Export Credit Bank of Turkey Bonds, 8.385%, 8/18/00(5,6)
$ 250,000 $ 240,000
- ---------------------------------------------------------------------------------------------------------------------
VENEZUELA--1.3%
Venezuela (Republic of) Bonds, 9.25%, 9/15/27
32,770,000 21,711,764
- ---------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Disc. Bonds:
Series DL, 6.312%, 12/18/07(6)
64,803,189 50,303,476
Series W-A, 5.875%,
3/31/20(6)
4,450,000 2,942,563
- ---------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Discount Bonds, Series W-B, 6%,
3/31/20(6) 7,250,000 4,794,063
- ---------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Front-Loaded Interest Reduction Bonds,
Series B, 6.875%,
3/31/07(6)
2,635,714 1,996,554
- ---------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) New Money Bonds:
Series A, 6.437%, 12/18/05(6)
12,044,117 9,420,758
Series B, 6.312%,
12/18/05(6)
9,176,470 7,177,721
Series P, 6.312%,
12/18/05(6)
2,485,294 1,929,986
- ----------------
100,276,885
- ---------------------------------------------------------------------------------------------------------------------
VIETNAM--0.0%
Vietnam (Government of) Bonds, 3%,
3/12/28(6) 1,932,000 543,375
- ----------------
Total Foreign Government Obligations (Cost
$1,397,174,243) 1,309,848,044
=====================================================================================================================
LOAN PARTICIPATIONS--1.0%
Algeria (Republic of) Reprofiled Debt Loan Participation Nts.,
Tranche 1, 6.812%,
9/4/06(5,6)
7,731,535 5,759,994
- ---------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Trust III Nts., Tranche 3:
1.063%, 3/4/10(5,6) [JPY]
1,363,918,000 5,164,172
6.812%, 3/4/10(5,6)
11,305,000 7,941,763
- ---------------------------------------------------------------------------------------------------------------------
Central Bank of Indonesia Gtd. Nts.:
Series 3, 9.156%,
8/25/01(5,6)
9,000,000 7,605,000
Series 4, 8.625%,
8/25/02(5,6)
1,620,000 1,320,300
- ---------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing Agreement Nts.,
Tranche A, 6.125%,
10/16/00(5,6)
349,457 332,858
- ---------------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 5.906%, 1/1/09(5,6)
36,020,476 30,527,353
Tranche B, 5.906%,
1/1/09(5,6)
4,630,000 4,190,150
- ---------------------------------------------------------------------------------------------------------------------
PT Bank Ekspor Impor Indonesia Nts.:
Series 2 yr., 8.91%,
8/25/00(5,6)
900,000 801,000
Series 3 yr., 9.156%,
8/25/01(5,6) 1,350,000
1,140,750
- ---------------------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 2 yr., 8.906%,
8/25/00(5,6) 3,000,000
2,670,000
Series 3 yr., 9.156%,
8/25/01(5,6) 2,500,000
2,112,500
- ---------------------------------------------------------------------------------------------------------------------
PT Lippo Bank Nts.:
8.906%,
8/25/00(5,6)
2,400,000 2,136,000
9.156%,
8/25/01(5,6)
3,600,000 3,042,000
9.406%,
8/25/02(5,6)
550,000 448,250
- ----------------
Total Loan Participations (Cost
$71,391,740) 75,192,090
</TABLE>
23 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
=========================================================================================================================
<S>
<C> <C>
CORPORATE BONDS AND NOTES--40.2%
- -------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--0.9%
Amtran, Inc.:
9.625% Nts.,
12/15/05 $
4,000,000 $ 3,840,000
10.50% Sr. Nts.,
8/1/04
7,800,000 7,722,000
- -------------------------------------------------------------------------------------------------------------------------
Atlas Air, Inc.:
9.25% Sr. Nts.,
4/15/08
7,700,000 7,199,500
9.375% Sr. Unsec. Nts.,
11/15/06
7,000,000 6,615,000
10.75% Sr. Nts.,
8/1/05
8,183,000 8,223,915
- -------------------------------------------------------------------------------------------------------------------------
Constellation Finance LLC, 9.80% Airline Receivable Asset-Backed Nts.,
Series 1997-1, 9.80%,
1/1/01(5)
7,500,000 7,031,250
- -------------------------------------------------------------------------------------------------------------------------
Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts.,
4/15/09 9,400,000 8,037,000
- -------------------------------------------------------------------------------------------------------------------------
GPA Holland BV, 9.75% Sr. Nts., Series C,
12/10/01(5) 2,000,000 2,027,500
- -------------------------------------------------------------------------------------------------------------------------
Greater Toronto Airports Authority, 5.40% Debs., 12/3/02
[CAD] 10,005,000 6,707,946
- -------------------------------------------------------------------------------------------------------------------------
Pegasus Aircraft Lease Securitization Trust, 11.76% Sr. Nts.,
Series 1997-A, Cl. B,
6/15/04(5)
3,833,979 3,975,836
- -------------------------------------------------------------------------------------------------------------------------
SC International Services, Inc., 9.25% Sr. Sub. Nts., Series B,
9/1/07 10,150,000 9,896,250
- ---------------
71,276,197
- -------------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.5%
Brunner Mond Group plc, 12.50% Sr. Unsec. Sub. Nts., 7/15/08
[GBP] 3,885,000 3,551,005
- -------------------------------------------------------------------------------------------------------------------------
ClimaChem, Inc., 10.75% Sr. Unsec. Nts., Series B,
12/1/07 2,500,000 2,087,500
- -------------------------------------------------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co. plc:
10.125% Sr. Unsec. Sub. Nts.,
7/1/09(7) 6,650,000
6,550,250
10.125% Sr. Unsec. Sub. Nts., 7/1/09
[EUR] 12,500,000 13,112,813
Zero Coupon Sr. Disc. Nts., 13.087%,
12/31/09(7,8) 26,140,000 7,057,800
- -------------------------------------------------------------------------------------------------------------------------
ICO, Inc., 10.375% Sr. Nts.,
6/1/07 1,300,000
1,111,500
- -------------------------------------------------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.875% Sec. Nts., Series B,
5/1/07 18,450,000
18,380,812
10.875% Sr. Sub. Nts.
5/1/09
9,775,000 9,872,750
- -------------------------------------------------------------------------------------------------------------------------
NL Industries, Inc., 11.75% Sr. Sec. Nts.,
10/15/03 9,560,000 9,966,300
- -------------------------------------------------------------------------------------------------------------------------
PCI Chemicals Canada, Inc., 9.25% Sec. Nts.,
10/15/07 4,375,000 3,303,125
- -------------------------------------------------------------------------------------------------------------------------
Pioneer Americas Acquisition Corp., 9.25% Sr. Nts.,
6/15/07 4,395,000 3,384,150
- -------------------------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 9% Sr. Sub. Nts.,
7/1/07 2,990,000 2,855,450
- -------------------------------------------------------------------------------------------------------------------------
Polytama International Finance BV, 11.25% Sec. Nts.,
6/15/07(5) 6,512,761 1,204,861
- -------------------------------------------------------------------------------------------------------------------------
Reliance Industries Ltd.:
10.25% Unsec. Debs., Series B,
1/15/2097 3,000,000
2,404,932
10.25% Unsec. Nts., Series B,
1/15/2097(7) 2,000,000
1,603,288
10.50% Bonds,
8/6/46
4,750,000 3,951,876
- -------------------------------------------------------------------------------------------------------------------------
Sovereign Specialty Chemicals, Inc., 9.50% Sr. Unsec. Sub. Nts., Series B,
8/1/07 8,615,000 8,550,387
- -------------------------------------------------------------------------------------------------------------------------
Sterling Chemicals Holdings, Inc., 0%/13.50% Sr. Disc. Nts.,
8/15/08(12) 4,000,000 700,000
</TABLE>
24 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
CHEMICALS Continued
Sterling Chemicals, Inc.:
11.25% Sr. Sub. Nts., 4/1/07 $
2,510,000 $ 1,443,250
11.75% Sr. Unsec. Sub. Nts., 8/15/06
10,610,000 6,631,250
12.375% Sec. Nts.,
7/15/06(7)
700,000 658,000
- --------------------------------------------------------------------------------------------------------------------
ZSC Specialty Chemical plc, 11% Sr. Nts., 7/1/09(7)
7,500,000 7,565,625
- --------------
115,946,924
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--0.2%
Holmes Products Corp.:
9.875% Sr. Sub. Nts., Series C, 11/15/07
2,000,000 1,810,000
9.875% Sr. Unsec. Sub. Nts., Series B, 11/15/07
6,110,000 5,529,550
- --------------------------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc., 12% Unsec. Nts., 7/15/05
3,596,400 1,978,020
- --------------------------------------------------------------------------------------------------------------------
TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(5)
4,705,000 5,241,840
- --------------
14,559,410
- --------------------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.1% AKI Holdings, Inc.:
0%/13.50% Sr. Disc. Debs., 7/1/09(12)
3,850,000 1,482,250
10.50% Sr. Unsec. Nts., 7/1/08
3,350,000 2,998,250
- --------------------------------------------------------------------------------------------------------------------
American Pad & Paper Co., 13% Sr. Sub. Nts., Series B, 11/15/05
6,112,000 1,803,040
- --------------------------------------------------------------------------------------------------------------------
Bell Sports, Inc., 11% Sr. Unsec. Sub. Nts., Series B, 8/15/08
9,555,000 9,722,212
- --------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 8.875% Sr. Unsec. Nts., 4/15/06
8,500,000 3,102,500
- --------------------------------------------------------------------------------------------------------------------
Globe Manufacturing Corp., 10% Sr. Unsec. Sub. Nts., Series B, 8/1/08
4,550,000 2,980,250
- --------------------------------------------------------------------------------------------------------------------
Indorayon International Finance Co. BV, 10% Gtd. Unsec.
Unsub. Nts., 3/29/01(5,11)
1,850,000 462,500
- --------------------------------------------------------------------------------------------------------------------
Phillips-Van Heusen Corp., 9.50% Sr. Unsec. Sub. Nts., 5/1/08
4,745,000 4,412,850
- --------------------------------------------------------------------------------------------------------------------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 (5,11)
4,025,000 774,812
- --------------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp.:
8.625% Sr. Unsec. Sub. Nts., 2/1/08
23,100,000 18,999,750
9% Sr. Nts., 11/1/06
5,485,000 5,059,912
- --------------------------------------------------------------------------------------------------------------------
Revlon Worldwide Corp., Zero Coupon Sr. Sec. Disc. Nts.,
Series B, 17.163%, 3/15/01(8)
6,675,000 3,637,875
- --------------------------------------------------------------------------------------------------------------------
Salton, Inc., 10.75% Sr. Unsec. Sub. Nts., 12/15/05
10,300,000 10,506,000
- --------------------------------------------------------------------------------------------------------------------
Styling Technology Corp., 10.875% Sr. Unsec. Sub. Nts., 7/1/08
6,340,000 6,054,700
- --------------------------------------------------------------------------------------------------------------------
William Carter Co., 10.375% Sr. Sub. Nts., Series A, 12/1/06
2,890,000 2,846,650
- --------------------------------------------------------------------------------------------------------------------
Williams (J. B.) Holdings, Inc., 12% Sr. Nts., 3/1/04
6,300,000 6,363,000
- --------------
81,206,551
</TABLE>
25 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
ENERGY--1.9%
AEI Resources, Inc., 11.50% Sr. Sub. Nts., 12/15/06(7)
$ 5,000,000 $ 4,425,000
- ------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp.:
8.50% Sr. Nts.,
3/15/12
2,000,000 1,630,000
9.125% Sr. Unsec. Nts.,
4/15/06
1,491,000 1,382,902
9.625% Sr. Unsec. Nts., Series B,
5/1/05 5,300,000 5,101,250
- ------------------------------------------------------------------------------------------------------------------------
Clark Refinancing & Marketing, Inc., 8.875% Sr. Sub. Nts.,
11/15/07 9,795,000 8,080,875
- ------------------------------------------------------------------------------------------------------------------------
Clark USA, Inc., 10.875% Sr. Nts., Series B,
12/1/05 3,600,000 3,006,000
- ------------------------------------------------------------------------------------------------------------------------
Denbury Management, Inc., 9% Sr. Sub. Nts.,
3/1/08 4,450,000 4,094,000
- ------------------------------------------------------------------------------------------------------------------------
Empresa Electric Del Norte, 10.50% Sr. Debs.,
6/15/05(7) 1,300,000 814,125
- ------------------------------------------------------------------------------------------------------------------------
Forcenergy, Inc., 9.50% Sr. Sub. Nts.,
11/1/06(11) 8,150,000 6,886,750
- ------------------------------------------------------------------------------------------------------------------------
Gothic Energy Corp., 0%/14.125% Sr. Disc. Nts.,
5/1/06(12) 18,450,000 6,365,250
- ------------------------------------------------------------------------------------------------------------------------
Gothic Production Corp., 11.125% Sr. Sec. Nts., Series B,
5/1/05(7) 11,825,000 10,228,625
- ------------------------------------------------------------------------------------------------------------------------
Grant Geophysical, Inc., 9.75% Sr. Unsec. Nts., Series B,
2/15/08 5,925,000 3,406,875
- ------------------------------------------------------------------------------------------------------------------------
Leviathan Gas Pipeline Partners LP/Leviathan Financial Corp.,
10.375% Sr. Sub. Nts.,
6/1/09(7)
7,000,000 7,175,000
- ------------------------------------------------------------------------------------------------------------------------
National Energy Group, Inc., 10.75% Sr. Nts., Series D,
11/1/06 9,720,000 3,936,600
- ------------------------------------------------------------------------------------------------------------------------
Ocean Rig Norway AS, 10.25% Sr. Sec. Nts.,
6/1/08 13,000,000 10,205,000
- ------------------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B,
5/15/08 13,000,000 12,577,500
- ------------------------------------------------------------------------------------------------------------------------
Parker Drilling Co., 9.75% Sr. Unsec. Nts., Series D,
11/15/06 4,500,000 4,365,000
- ------------------------------------------------------------------------------------------------------------------------
Pogo Producing Co., 8.75% Sr. Sub. Nts.,
5/15/07(5) 9,185,000 8,817,600
- ------------------------------------------------------------------------------------------------------------------------
R&B Falcon Corp., 12.25% Sr. Unsec. Nts.,
3/15/06(7) 8,000,000 8,480,000
- ------------------------------------------------------------------------------------------------------------------------
RAM Energy, Inc., 11.50% Sr. Unsec. Nts.,
2/15/08 20,215,000 10,208,575
- ------------------------------------------------------------------------------------------------------------------------
RBF Finance Co., 11% Sr. Sec. Nts.,
3/15/06 7,275,000 7,693,312
- ------------------------------------------------------------------------------------------------------------------------
Statia Terminals International/Statia Terminals (Canada), Inc., 11.75%
First Mtg. Nts., Series B,
11/15/03 1,775,000
1,846,000
- ------------------------------------------------------------------------------------------------------------------------
Stone Energy Corp., 8.75% Sr. Sub. Nts.,
9/15/07 9,460,000 9,318,100
- ------------------------------------------------------------------------------------------------------------------------
Universal Compression Holdings, Inc.:
0%/9.875% Sr. Disc. Nts.,
2/15/08(12) 8,725,000
5,235,000
0%/11.375% Sr. Disc. Nts.,
2/15/09(12) 2,400,000
1,356,000
- --------------
146,635,339
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--2.6%
Aktiebolaget Spintab, 5.50% Bonds, Series 169, 9/17/03
[SEK] 110,100,000 13,204,681
- ------------------------------------------------------------------------------------------------------------------------
Allgemeine Hypotheken Bank AG, 5% Sec. Nts., Series 501, 9/2/09
[EUR] 42,840,000 43,605,712
- ------------------------------------------------------------------------------------------------------------------------
AMRESCO, Inc.:
9.875% Sr. Sub. Nts., Series 98-A,
3/15/05 4,960,000 3,050,400
10% Sr. Sub. Nts., Series 97-A,
3/15/04 7,050,000
4,335,750
- ------------------------------------------------------------------------------------------------------------------------
Bakrie Investindo, Zero Coupon Promissory Nts., 7/10/1998(5,11) [IDR]
27,000,000,000 484,740
- ------------------------------------------------------------------------------------------------------------------------
Banco Nacional de Mexico SA, 11% Sub. Exchangeable
Capital Debs.,
7/15/03(5)
9,750,000 9,530,625
- ------------------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts.,
7/18/07 4,167,000
3,604,455
</TABLE>
26 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
FINANCIAL Continued
Bayerische Vereinsbank AG, 5% Sec. Nts., Series 661, 7/28/04
[EUR] 12,196,867 $ 13,114,365
- -----------------------------------------------------------------------------------------------------------------------
Deutsche Pfandbrief & Hypobank, 5.50% Sec. Nts., 1/15/10
[EUR] 16,735,000 17,692,669
- -----------------------------------------------------------------------------------------------------------------------
Dresdner Funding Trust II, 5.79% Sub. Nts., 6/30/11(5)
[EUR] 16,230,000 15,938,452
- -----------------------------------------------------------------------------------------------------------------------
ECM Fund, LPI, 14% Sub. Nts.,
6/10/02(5) 29,658
29,251
- -----------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.625%, 6/10/03
[GBP] 3,555,000 5,625,224
- -----------------------------------------------------------------------------------------------------------------------
IBJ Preferred Capital Co. (The) LLC, 8.79% Bonds,
12/29/49(6,7) 6,550,000 6,258,191
- -----------------------------------------------------------------------------------------------------------------------
Local Financial Corp., 11% Sr. Nts.,
9/8/04(7) 10,000,000 10,350,000
- -----------------------------------------------------------------------------------------------------------------------
Ocwen Capital Trust I, 10.875% Capital Nts.,
8/1/27 5,350,000 3,504,250
- -----------------------------------------------------------------------------------------------------------------------
Ocwen Financial Corp., 11.875% Nts.,
10/1/03(5) 9,275,000 8,672,125
- -----------------------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Gtd. Nts.,
3/29/04(5,11) 4,970,000 173,950
- -----------------------------------------------------------------------------------------------------------------------
Parametric RE Ltd., 9.434% Nts.,
11/19/07(6,7) 2,400,000 2,457,000
- -----------------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
11% Nts.,
6/18/03(5,11)
11,350,000 1,475,500
24% Nts., 6/19/03(11) [IDR]
6,484,800,000 100,901
- -----------------------------------------------------------------------------------------------------------------------
PTC International Finance BV, 0%/10.75% Gtd. Sr. Unsec.
Sub. Bonds,
7/1/07(5,12)
6,532,000 4,458,090
- -----------------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 9.75% Sr. Sec. Nts., Series B,
4/1/08 20,585,000 19,195,512
- -----------------------------------------------------------------------------------------------------------------------
SBS Agro Finance BV Bonds, 10.25%,
7/21/00(5,11) 14,961,000 748,050
- -----------------------------------------------------------------------------------------------------------------------
Southern Pacific Funding Corp., 11.50% Sr. Nts.,
11/1/04(11) 7,580,000 3,676,300
- -----------------------------------------------------------------------------------------------------------------------
Veritas Capital Trust, 10% Nts.,
1/1/28 3,525,000 2,652,562
- -----------------------------------------------------------------------------------------------------------------------
Veritas Holdings, Inc., 9.625% Sr. Nts.,
12/15/03 6,117,000 5,872,320
- -----------------------------------------------------------------------------------------------------------------------
Washington Mutual Capital I, 8.375% Sub. Capital Income Nts.,
6/1/27(9) 2,000,000 1,951,982
- ----------------
201,763,057
- -----------------------------------------------------------------------------------------------------------------------
FOOD & DRUG--0.9%
AmeriKing, Inc., 10.75% Sr. Nts.,
12/1/06 7,600,000 6,802,000
- -----------------------------------------------------------------------------------------------------------------------
Family Restaurants, Inc.:
9.75% Sr. Nts.,
2/1/02
21,100,000 10,180,750
10.875% Sr. Sub. Disc. Nts.,
2/1/04 4,800,000
2,484,000
- -----------------------------------------------------------------------------------------------------------------------
Fleming Cos., Inc.:
10.50% Sr. Sub. Nts., Series B,
12/1/04 5,450,000
5,150,250
10.625% Sr. Sub. Nts., Series B,
7/31/07 18,625,000 17,321,250
- -----------------------------------------------------------------------------------------------------------------------
Pathmark Stores, Inc.:
0%/10.75% Jr. Sub. Deferred Coupon Nts.,
11/1/03(12) 12,160,000 11,977,600
12.625% Sub. Nts.,
6/15/02
3,000,000 2,962,500
- -----------------------------------------------------------------------------------------------------------------------
Randall's Food Markets, Inc., 9.375% Sr. Sub. Nts., Series B,
7/1/07(5) 10,810,000 11,836,950
- -----------------------------------------------------------------------------------------------------------------------
Shoppers Food Warehouse Corp., 9.75% Sr. Nts.,
6/15/04 3,225,000 3,466,875
- ----------------
72,182,175
</TABLE>
27 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
FOOD/TOBACCO--0.5%
Aurora Foods, Inc., 8.75% Sr. Sub. Nts., Series B, 7/1/08
$ 2,100,000 $ 1,989,750
- -----------------------------------------------------------------------------------------------------------------------
Canadaigua Brands, Inc., 8.50% Sr. Unsec. Sub. Nts.,
3/1/09 1,500,000 1,402,500
- -----------------------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., 10% Sr. Nts.,
6/15/09 3,000,000 2,505,000
- -----------------------------------------------------------------------------------------------------------------------
Del Monte Foods Co., 0%/12.50% Sr. Disc. Nts., Series B,
12/15/07(12) 6,581,000 5,001,560
- -----------------------------------------------------------------------------------------------------------------------
Doane Pet Care Co., 9.75% Sr. Unsec. Sub. Nts.,
5/15/07 2,197,000 2,166,791
- -----------------------------------------------------------------------------------------------------------------------
Packaged Ice, Inc., 9.75% Sr. Unsec. Nts., Series B,
2/1/05 7,560,000 6,879,600
- -----------------------------------------------------------------------------------------------------------------------
Purina Mills, Inc., 9% Sr. Unsec. Sub. Nts.,
3/15/10(11) 2,000,000 430,000
- -----------------------------------------------------------------------------------------------------------------------
SmithField Foods, Inc., 7.625% Sr. Unsec. Sub. Nts.,
2/15/08 2,800,000 2,520,000
- -----------------------------------------------------------------------------------------------------------------------
Sparkling Spring Water Group Ltd., 11.50% Sr. Sec. Sub. Nts.,
11/15/07 12,550,000 10,040,000
- -----------------------------------------------------------------------------------------------------------------------
Triarc Consumer Products Group LLC, 10.25% Sr. Sub. Nts.,
2/15/09(7) 4,500,000 4,387,500
- ---------------
37,322,701
- -----------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS/CONTAINERS--1.1%
Ainsworth Lumber, Inc., 12.50% Sr. Nts.,
7/15/07(13) 1,000,000 1,107,500
- -----------------------------------------------------------------------------------------------------------------------
Ball Corp.:
7.75% Sr. Unsec. Nts.,
8/1/06
3,300,000 3,234,000
8.25% Sr. Unsec. Sub. Nts.,
8/1/08 3,300,000
3,209,250
- -----------------------------------------------------------------------------------------------------------------------
Consumers International, Inc., 10.25% Sr. Sec. Nts.,
4/1/05 5,875,000 5,610,625
- -----------------------------------------------------------------------------------------------------------------------
Domtar, Inc., 10.85% Debs., 8/5/17
[CAD] 1,700,000 1,429,377
- -----------------------------------------------------------------------------------------------------------------------
Fletcher Challenge Finance U.S.A., Inc., 8.05% Debs., 6/15/03
[NZD] 4,755,000 2,479,885
- -----------------------------------------------------------------------------------------------------------------------
Fletcher Challenge Ltd.:
10% Cv. Unsec. Sub. Nts., 4/30/05
[NZD] 4,900,000 2,617,421
14.50% Cv. Sub. Nts., 9/30/00
[NZD] 4,900,000
2,702,830
- -----------------------------------------------------------------------------------------------------------------------
Gaylord Container Corp., 9.75% Sr. Nts.,
6/15/07 4,800,000 4,536,000
- -----------------------------------------------------------------------------------------------------------------------
Mail-Well Corp., 8.75% Sr. Unsec. Sub. Nts., Series B,
12/15/08(5) 2,335,000 2,229,925
- -----------------------------------------------------------------------------------------------------------------------
Packaging Corp. of America, 9.625% Sr. Sub. Nts.,
4/1/09(7) 2,000,000 2,030,000
- -----------------------------------------------------------------------------------------------------------------------
Repap Enterprises (New Brunswick), 9% First Priority Sr. Sec. Nts.,
6/1/04 4,000,000 3,840,000
- -----------------------------------------------------------------------------------------------------------------------
Repap New Brunswick, Inc., 10.625% Second Priority Sr. Sec. Nts.,
4/15/05 1,650,000 1,435,500
- -----------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.625% Sr. Unsec. Nts.,
8/1/07 11,290,000
11,261,775
10.875% Sr. Sub. Nts.,
4/1/08
9,330,000 8,770,200
- -----------------------------------------------------------------------------------------------------------------------
SD Warren Co.:
12% Sr. Sub. Nts., Series B,
12/15/04 5,250,000
5,565,000
14% Unsec. Nts.,
12/15/06(13)
16,327,710 18,368,674
- -----------------------------------------------------------------------------------------------------------------------
Tembec Finance Corp., 9.875% Gtd. Sr. Nts.,
9/30/05 1,000,000 1,037,500
- -----------------------------------------------------------------------------------------------------------------------
U.S. Timberlands Co. LP, 9.625% Sr. Nts.,
11/15/07 3,850,000 3,522,750
- ---------------
84,988,212
</TABLE>
28 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
GAMING/LEISURE--2.2%
AP Holdings, Inc., 0%/11.25% Sr. Disc. Nts., 3/15/08(12)
$ 2,150,000 $ 1,091,125
- -----------------------------------------------------------------------------------------------------------------------
Apcoa, Inc., 9.25% Sr. Unsec. Sub. Nts.,
3/15/08 4,875,000 4,180,312
- -----------------------------------------------------------------------------------------------------------------------
Aztar Corp.:
8.875% Sr. Unsec. Sub. Nts.,
5/15/07 6,000,000
5,670,000
13.75% Sr. Sub. Nts.,
10/1/04(5)
3,725,000 3,981,094
- -----------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc., 11.50% Promissory Nts.,
8/1/95(11) 3,500 --
- -----------------------------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% First Mtg. Nts., Series A,
11/15/00(5,11) 2,100,000 --
- -----------------------------------------------------------------------------------------------------------------------
Capstar Hotel Co., 8.75% Sr. Sub. Nts.,
8/15/07 10,475,000 9,453,687
- -----------------------------------------------------------------------------------------------------------------------
Casino Magic of Louisiana Corp., 13% First Mtg. Nts., Series B,
8/15/03 5,300,000 6,002,250
- -----------------------------------------------------------------------------------------------------------------------
Coast Hotel & Casinos, Inc., 9.50% Sr. Unsec. Sub. Nts.,
4/1/09 3,000,000 2,835,000
- -----------------------------------------------------------------------------------------------------------------------
Empress Entertainment, Inc., 8.125% Sr. Sub. Nts.,
7/1/06 4,290,000 4,290,000
- -----------------------------------------------------------------------------------------------------------------------
Florida Panthers Holdings, Inc., 9.875% Sr. Sub. Nts.,
4/15/09 6,800,000 6,324,000
- -----------------------------------------------------------------------------------------------------------------------
Hard Rock Hotel, Inc., 9.25% Sr. Sub. Nts.,
4/1/05 4,060,000 3,390,100
- -----------------------------------------------------------------------------------------------------------------------
Harveys Casino Resorts, 10.625% Sr. Unsec. Sub. Nts.,
6/1/06 450,000 463,500
- -----------------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C,
12/1/08 9,425,000 8,765,250
- -----------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp., 11.25% Sec. Nts.,
5/1/07(7) 6,000,000 6,060,000
- -----------------------------------------------------------------------------------------------------------------------
Hollywood Park, Inc., 9.25% Sr. Unsec. Sub. Nts., Series B,
2/15/07 8,000,000 7,760,000
- -----------------------------------------------------------------------------------------------------------------------
Horseshoe Gaming LLC, 9.375% Sr. Sub. Nts.,
6/15/07 13,350,000 13,333,312
- -----------------------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts.,
8/15/08 11,875,000 11,459,375
- -----------------------------------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 8.75% Sr. Unsec. Nts.,
4/15/09 7,000,000 6,457,500
- -----------------------------------------------------------------------------------------------------------------------
Jupiters Ltd., 8.50% Sr. Nts.,
3/1/06(5) 7,100,000
6,816,000
- -----------------------------------------------------------------------------------------------------------------------
Meristar Hospitality Corp., 8.75% Sr. Unsec. Sub. Nts.,
8/15/07 8,000,000 7,260,000
- -----------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority:
8.125% Sr. Nts.,
1/1/06
2,950,000 2,879,937
8.75% Sr. Unsec. Sub. Nts.,
1/1/09 12,050,000
11,884,312
- -----------------------------------------------------------------------------------------------------------------------
Premier Cruise Ltd., 11% Sr. Nts.,
3/15/08(7,11) 10,800,000 2,646,000
- -----------------------------------------------------------------------------------------------------------------------
Premier Parks, Inc.:
0%/10% Sr. Disc. Nts.,
4/1/08(12)
6,350,000 4,064,000
9.25% Sr. Nts.,
4/1/06
5,355,000 5,087,250
9.75% Sr. Nts.,
6/15/07
10,000,000 9,750,000
- -----------------------------------------------------------------------------------------------------------------------
Santa Fe Hotel, Inc., 11% Gtd. First Mtg. Nts.,
12/15/00 100,000 94,500
- -----------------------------------------------------------------------------------------------------------------------
Six Flags Entertainment Corp., 8.875% Sr. Nts.,
4/1/06 5,720,000 5,476,900
- -----------------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 8.875% Sr. Unsec. Sub. Nts.,
12/1/08 4,500,000 4,387,500
- -----------------------------------------------------------------------------------------------------------------------
Venetian Casino Resort LLC/Las Vegas Sands, Inc., 12.25% Mtg. Nts.,
11/15/04 3,015,000 2,427,075
- --------------
164,289,979
</TABLE>
29 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
HEALTHCARE--0.6%
Charles River Labs ONC, Units (each unit consists of $1,000
principal amount of 13.50% sr. sub. nts., 10/1/09 and one warrant to
purchase 3.942 shares of common stock)(5,14)
$ 5,950,000 $ 6,039,250
- -----------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 7.375% Nts., 2/1/08
[DEM] 5,250,000 2,815,879
- -----------------------------------------------------------------------------------------------------------------------
ICN Pharmaceutical, Inc.:
8.75% Sr. Nts.,
11/15/08(7)
5,500,000 5,094,375
8.75% Sr. Nts.,
11/15/08(5)
4,100,000 3,797,633
- -----------------------------------------------------------------------------------------------------------------------
Integrated Health Services, Inc., 9.50% Sr. Sub. Nts.,
9/15/07 2,000,000 310,000
- -----------------------------------------------------------------------------------------------------------------------
Kinetic Concepts, Inc., 9.625% Sr. Unsec. Sub. Nts., Series B,
11/1/07(5) 4,615,000 3,392,025
- -----------------------------------------------------------------------------------------------------------------------
King Pharmaceuticals, Inc., 10.75% Sr. Unsec. Sub. Nts.,
2/15/09 4,750,000 4,916,250
- -----------------------------------------------------------------------------------------------------------------------
Magellan Health Services, Inc., 9% Sr. Sub. Nts.,
2/15/08 5,050,000 4,317,750
- -----------------------------------------------------------------------------------------------------------------------
Oxford Health Plans, Inc., 11% Sr. Nts.,
5/15/05(7) 6,415,000 6,398,962
- -----------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.125% Sr. Unsec. Sub. Nts., Series B,
12/1/08 4,000,000 3,670,000
- -----------------------------------------------------------------------------------------------------------------------
Unilab Finance Corp., 12.75% Sr. Sub. Nts.,
10/1/09(7) 4,500,000 4,488,750
- ---------------
45,240,874
- -----------------------------------------------------------------------------------------------------------------------
HOUSING--0.8%
Building Materials Corp. of America, 8.625% Sr. Nts., Series B,
12/15/06 3,400,000 3,247,000
- -----------------------------------------------------------------------------------------------------------------------
CB Richard Ellis Services, Inc., 8.875% Sr. Unsec. Sub. Nts.,
6/1/06 8,250,000 7,837,500
- -----------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8% Sr. Nts.,
2/1/09 8,500,000
7,650,000
- -----------------------------------------------------------------------------------------------------------------------
Del Webb Corp., 10.25% Sr. Unsec. Sub. Nts.,
2/15/10 8,000,000 7,400,000
- -----------------------------------------------------------------------------------------------------------------------
Falcon Building Products, Inc., 9.50% Sr. Sub. Nts.,
6/15/07 1,830,000 1,793,400
- -----------------------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 7.75% Sr. Nts.,
10/15/04 13,800,000 12,903,000
- -----------------------------------------------------------------------------------------------------------------------
Nortek, Inc.:
8.875% Sr. Unsec. Nts., Series B,
8/1/08 3,000,000 2,835,000
9.125% Sr. Nts., Series B,
9/1/07 11,450,000
11,049,250
9.25% Sr. Nts., Series B,
3/15/07 5,100,000
4,972,500
- ---------------
59,687,650
- -----------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--1.0%
Amkor Technology, Inc.:
9.25% Sr. Nts.,
5/1/06(7)
3,000,000 2,992,500
10.50% Sr. Sub. Nts.,
5/1/09(7)
15,000,000 14,662,500
- -----------------------------------------------------------------------------------------------------------------------
Chippac International Ltd., 12.75% Sr. Sub. Nts.,
8/1/097 5,000,000 5,050,000
- -----------------------------------------------------------------------------------------------------------------------
Details, Inc., 10% Sr. Sub. Nts., Series B,
11/15/05 8,250,000 7,672,500
- -----------------------------------------------------------------------------------------------------------------------
DII Group, Inc., 8.50% Sr. Sub. Nts.,
9/15/07 925,000 878,750
- -----------------------------------------------------------------------------------------------------------------------
Dyncorp, Inc., 9.50% Sr. Sub. Nts.,
3/1/07 6,345,000 5,996,025
- -----------------------------------------------------------------------------------------------------------------------
Fairchild Semiconductor Corp., 10.375% Sr. Sub. Nts.,
10/1/07(7) 10,500,000 10,473,750
</TABLE>
30 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
=====================================================================================================================
<S>
<C> <C>
INFORMATION TECHNOLOGY Continued
Fisher Scientific International, Inc.:
9% Sr. Unsec. Sub. Nts., 2/1/08 $
8,760,000 $ 8,212,500
9% Sr. Unsec. Sub. Nts., 2/1/08
1,875,000 1,757,812
- ---------------------------------------------------------------------------------------------------------------------
Micron Technology, Inc., 6.50% Sub. Nts., 9/30/05(1)
14,000,000 11,130,000
- ---------------------------------------------------------------------------------------------------------------------
Unisys Corp., 11.75% Sr. Nts., 10/15/04
3,800,000 4,256,000
- ---------------------------------------------------------------------------------------------------------------------
Wavetek Corp., 10.125% Sr. Sub. Nts., 6/15/07
5,625,000 4,753,125
- ---------------------------------------------------------------------------------------------------------------------
77,835,462
- ---------------
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING--1.0%
Applied Power, Inc., 8.75% Sr. Sub. Nts., 4/1/09
8,000,000 7,540,000
- ---------------------------------------------------------------------------------------------------------------------
Axia, Inc., 10.75% Sr. Sub. Nts., 7/15/08
2,650,000 2,491,000
- ---------------------------------------------------------------------------------------------------------------------
Burke Industries, Inc., 10% Sr. Sub. Nts., 8/15/07
3,475,000 2,519,375
- ---------------------------------------------------------------------------------------------------------------------
Communications & Power Industries, Inc., 12% Sr. Sub. Nts., Series B, 8/1/05
12,553,000 10,481,755
- ---------------------------------------------------------------------------------------------------------------------
Eagle-Picher Industries, Inc., 9.375% Sr. Unsec. Sub. Nts., 3/1/08
1,050,000 939,750
- ---------------------------------------------------------------------------------------------------------------------
Grove Worldwide LLC, 9.25% Sr. Sub. Nts., 5/1/08
3,275,000 1,817,625
- ---------------------------------------------------------------------------------------------------------------------
Grupo Mexicano de Desarrollo SA, 8.25% Unsec. Unsub. Nts., 2/17/01(5)(11)
6,000,000 1,050,000
- ---------------------------------------------------------------------------------------------------------------------
Hydrochem Industrial Services, Inc., 10.375% Sr. Sub. Nts., 8/1/07
5,800,000 5,075,000
- ---------------------------------------------------------------------------------------------------------------------
Insilco Corp., 12% Sr. Sub. Nts., 8/15/07(5)
7,780,000 7,663,300
- ---------------------------------------------------------------------------------------------------------------------
International Wire Group, Inc., 11.75% Sr. Sub. Nts., Series B, 6/1/05
7,835,000 8,089,637
- ---------------------------------------------------------------------------------------------------------------------
Jordan Industries, Inc., 10.375% Sr. Unsec. Nts., Series D, 8/1/07
7,750,000 7,478,750
- ---------------------------------------------------------------------------------------------------------------------
Mechala Group Jamaica Ltd., 12.75% Gtd. Sr. Sec. Sub. Nts.,
Series B, 12/30/99(5)(11)
2,908,000 1,141,390
- ---------------------------------------------------------------------------------------------------------------------
Moll Industries, Inc., 10.50% Sr. Unsec. Sub. Nts., 7/1/08
2,600,000 1,937,000
- ---------------------------------------------------------------------------------------------------------------------
Roller Bearing Co. of America, Inc., 9.625% Sr. Sub. Nts., Series B, 6/15/07
10,400,000 9,620,000
- ---------------------------------------------------------------------------------------------------------------------
Terex Corp.:
8.875% Sr. Unsec. Sub. Nts., 4/1/08
2,500,000 2,362,500
8.875% Sr. Unsec. Sub. Nts., Series C, 4/1/08
5,100,000 4,870,500
- ---------------------------------------------------------------------------------------------------------------------
Unifrax Investment Corp., 10.50% Sr. Nts., 11/1/03
5,000,000 5,100,000
- ----------
80,177,582
- ---------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: BROADCASTING--1.2%
Allbritton Communications Co., 8.875% Sr. Sub. Nts., Series B, 2/1/08
2,375,000 2,280,000
- ---------------------------------------------------------------------------------------------------------------------
Azteca Holdings SA, 11% Sr. Sec. Nts., 6/15/02
5,730,000 4,440,750
- ---------------------------------------------------------------------------------------------------------------------
CBS Radio, Inc., 11.375% Unsec. Sub. Debs.,
1/15/09(13) 939,600 1,057,050
- ---------------------------------------------------------------------------------------------------------------------
Chancellor Media Corp.:
8.125% Sr. Sub. Nts., Series B, 12/15/07
10,000,000 9,575,000
8.75% Sr. Unsec. Sub. Nts., Series B, 6/15/07
6,000,000 5,910,000
9% Sr. Unsec. Sub. Nts., 10/1/08
1,600,000 1,628,000
10.50% Sr. Sub. Nts., Series B, 1/15/07
2,895,000 3,075,937
- ---------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09
13,725,000 13,073,062
- ---------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts., 10/1/02
9,425,000 9,802,000
</TABLE>
31 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
=====================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: BROADCASTING Continued
Radio One, Inc., 7% Sr. Sub. Nts., Series B, 5/15/04(10) $
3,000,000 $ 3,090,000
- ---------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8.75% Sr. Sub. Nts., 12/15/07
8,275,000 7,799,187
9% Sr. Unsec. Sub. Nts., 7/15/07
8,490,000 8,129,175
- ---------------------------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc.:
11% Sr. Nts., 3/15/04
2,400,000 2,592,000
12.50% Sr. Nts., 6/15/02
1,000,000 1,130,000
- ---------------------------------------------------------------------------------------------------------------------
TV Azteca SA de CV:
10.125% Sr. Nts., Series A, 2/15/04
3,300,000 2,681,250
10.50% Sr. Nts., Series B, 2/15/07
5,150,000 4,004,125
- ---------------------------------------------------------------------------------------------------------------------
Young Broadcasting, Inc.:
8.75% Sr. Sub. Debs., 6/15/07
13,125,000 12,895,312
9% Sr. Sub. Nts., Series B,
1/15/06 825,000 817,781
- ------------
93,980,629
- ---------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: CABLE/WIRELESS VIDEO--2.2%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09
1,400,000 1,281,000
8.125% Sr. Nts., Series B, 7/15/03
4,750,000 4,643,125
8.375% Sr. Nts., Series B, 2/1/08
5,150,000 4,866,750
9.25% Sr. Nts., 10/1/02
7,175,000 7,300,562
9.875% Sr. Nts., Series B, 3/1/07
2,000,000 2,045,000
10.50% Sr. Unsec. Nts., Series B, 7/15/04
6,040,000 6,326,900
- ---------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc., 14.50% Sr. Disc. Nts., 6/15/04
2,117,490 2,271,008
- ---------------------------------------------------------------------------------------------------------------------
Bresnan Communications, Inc.:
0%/9.25% Sr. Disc. Nts., 2/1/09(12)
9,590,000 6,353,375
8% Sr. Nts., 2/1/09
2,300,000 2,259,750
- ---------------------------------------------------------------------------------------------------------------------
Charter Communication Holdings LLC/Charter Communication
Holdings Capital Corp.:
0%/9.92% Sr. Disc. Nts., 4/1/117(12)
29,700,000 17,857,125
8.25% Sr. Nts., 4/1/07(7)
10,650,000 9,997,687
- ---------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc.:
9.875% Sr. Sub. Debs., 2/15/13
2,620,000 2,744,450
9.875% Sr. Sub. Nts., 5/15/06
2,215,000 2,320,212
10.50% Sr. Sub. Debs., 5/15/16
7,950,000 8,645,625
- ---------------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09
28,100,000 27,959,500
- ---------------------------------------------------------------------------------------------------------------------
EchoStar I, 8.25% Bonds, 2/26/01(5)
3,912,848 3,912,848
- ---------------------------------------------------------------------------------------------------------------------
EchoStar II, 8.25% Sinking Fund Bonds, 11/9/01(5)
4,275,826 4,275,826
- ---------------------------------------------------------------------------------------------------------------------
Falcon Holding Group LP:
0%/9.285% Sr. Disc. Debs., Series B, 4/15/10(12)
7,425,000 5,308,875
8.375% Sr. Unsec. Debs., Series B, 4/15/10
3,000,000 2,977,500
- ---------------------------------------------------------------------------------------------------------------------
Helicon Group LP/Helicon Capital Corp., 11% Sr. Sec. Nts., Series B, 11/1/03(6)
11,649,000 12,071,276
</TABLE>
32 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: CABLE/WIRELESS VIDEO Continued
Rogers Cablesystems Ltd., 10% Second Priority Sr. Sec. Debs.,
12/1/07 $ 4,350,000 $ 4,654,500
- --------------------------------------------------------------------------------------------------------------------------
Rogers Communications, Inc., 8.75% Sr. Nts., 7/15/07
[CAD] 20,000,000 13,729,160
- --------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs.,
10/30/07(9) 2,900,000 3,058,978
- --------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc., 0%/10.75% Sr. Disc. Nts., Series B,
2/15/08(12) 16,095,000 9,797,831
- ------------
166,658,863
- --------------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: DIVERSIFIED MEDIA--1.0%
AMC Entertainment, Inc., 9.50% Sr. Unsec. Sub. Nts.,
2/1/11 7,000,000 5,740,000
- --------------------------------------------------------------------------------------------------------------------------
GSP I Corp., 10.15% First Mtg. Bonds,
6/24/10(5) 759,890 721,820
- --------------------------------------------------------------------------------------------------------------------------
IPC Magazines Group plc:
0%/10.75% Bonds,
3/15/08(12)[GBP]
2,500,000 1,688,073
9.625% Bonds, 3/15/08
[GBP]
10,525,000 12,133,536
- --------------------------------------------------------------------------------------------------------------------------
Regal Cinemas, Inc.:
8.875% Sr. Unsec. Sub. Nts.,
12/15/10 6,300,000
4,189,500
9.50% Sr. Unsec. Sub. Nts.,
6/1/08 2,000,000
1,370,000
- --------------------------------------------------------------------------------------------------------------------------
SFX Entertainment, Inc., 9.125% Sr. Unsec. Sub. Nts., Series B,
2/1/08 13,725,000 12,901,500
- --------------------------------------------------------------------------------------------------------------------------
Sun Media Corp., 9.50% Sr. Sub. Nts.,
5/15/07 578,000 585,225
- --------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 8.375% Sr. Debs.,
3/15/23 8,209,000 8,799,958
- --------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc.:
9.125% Debs.,
1/15/13
2,000,000 2,259,956
9.15% Debs.,
2/1/23
9,000,000 10,371,735
- --------------------------------------------------------------------------------------------------------------------------
TV Guide, Inc., 8.125% Sr. Unsec. Sub. Nts.,
3/1/09 8,750,000 8,290,625
- --------------------------------------------------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts.,
2/15/09 5,000,000 4,725,000
- ------------
73,776,928
- --------------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS--8.5%
Allegiance Telecom, Inc., 12.875% Sr. Nts.,
5/15/08 2,000,000 2,170,000
- --------------------------------------------------------------------------------------------------------------------------
Amazon.com, Inc., 0%/10% Sr. Unsec. Disc. Nts.,
5/1/08(12) 20,435,000 13,384,925
- --------------------------------------------------------------------------------------------------------------------------
COLT Telecom Group plc:
0%/12% Sr. Unsec. Disc. Nts.,
12/15/06(12) 3,950,000
3,219,250
10.125% Sr. Nts., 11/30/07
[GBP] 6,290,000
10,721,566
7.625% Bonds, 7/31/08
[DEM]
10,800,000 5,728,859
8.875% Sr. Nts., 11/30/07
[DEM]
4,450,000 2,495,834
Units (each unit consists of $1,000 principal amount of 0%/12% sr. disc. nts.,
12/15/06 and one warrant to purchase 7.8 ordinary
shares)(12)(14) 17,325,000 14,336,438
- --------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partner Ltd., 0%/11.20% Sr. Disc. Debs.,
11/15/07(12) 6,260,000 5,696,600
- --------------------------------------------------------------------------------------------------------------------------
Concentric Network Corp., 12.75% Sr. Unsec. Nts.,
12/15/07 4,085,000 4,146,275
- --------------------------------------------------------------------------------------------------------------------------
Convergent Communications, Inc., 13% Sr. Nts.,
4/1/08 7,000,000 5,267,500
- --------------------------------------------------------------------------------------------------------------------------
Covad Communications Group, Inc., 0%/13.50% Sr. Disc. Nts.,
3/15/08(12) 28,025,000 14,573,000
- --------------------------------------------------------------------------------------------------------------------------
Diamond Cable Communications plc, 0%/11.75% Sr. Disc. Nts.,
12/15/05(12) 27,875,000 24,948,125
- --------------------------------------------------------------------------------------------------------------------------
Diamond Holdings plc, 9.125% Sr. Nts.,
2/1/08 2,050,000 2,050,000
- --------------------------------------------------------------------------------------------------------------------------
e.spire Communications, Inc., 13.75% Sr. Nts.,
7/15/07 4,215,000 3,561,675
</TABLE>
33 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS Continued
Exodus Communications, Inc.:
11.25% Sr. Nts.,
7/1/08(7) $
2,250,000 $ 2,300,625
11.25% Sr. Nts.,
7/1/08
4,255,000 4,350,738
- --------------------------------------------------------------------------------------------------------------------------
FirstWorld Communications, Inc., 0%/13% Sr. Disc. Nts.,
4/15/08(12) 7,000,000 3,605,000
- --------------------------------------------------------------------------------------------------------------------------
Focal Communications Corp., 0%/12.125% Sr. Unsec. Disc. Nts.,
2/15/08(12) 9,305,000 5,396,900
- --------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 9.625% Sr. Nts.,
5/15/08 13,285,000 13,749,975
- --------------------------------------------------------------------------------------------------------------------------
Globix Corp., 13% Sr. Unsec. Nts.,
5/1/05 11,590,000 10,257,150
- --------------------------------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., 0%/13.875% Cv. Sr. Sub. Disc. Nts.,
12/15/05(7)(12) 1,800,000 1,651,500
- --------------------------------------------------------------------------------------------------------------------------
GST Telecommunications, Inc./GST Network Funding Corp., Inc.,
0%/10.50% Sr. Disc. Nts.,
5/1/08(7)(12) 3,540,000
1,716,900
- --------------------------------------------------------------------------------------------------------------------------
GST USA, Inc., 0%/13.875% Gtd. Sr. Disc. Nts.,
12/15/05(12) 2,835,000 2,289,263
- --------------------------------------------------------------------------------------------------------------------------
Hyperion Telecommunications, Inc., 12% Sr. Sub. Nts.,
11/1/07 9,500,000 9,595,000
- --------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc., 0%/12.50% Sr. Sec. Disc. Nts.,
5/1/06(12) 2,800,000 2,142,000
- --------------------------------------------------------------------------------------------------------------------------
ICG Services, Inc., 0%/10% Sr. Exchangeable Unsec. Disc. Nts.,
2/15/08(12) 1,235,000 691,600
- --------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.:
0%/12.25% Sr. Disc. Nts., Series B,
3/1/09(12) 6,000,000 3,000,000
8.50% Sr. Nts., Series B,
1/15/08 18,015,000
15,492,900
8.60% Sr. Unsec. Nts., Series B,
6/1/08 5,245,000
4,523,813
8.875% Sr. Nts.,
11/1/07
7,815,000 6,896,738
- --------------------------------------------------------------------------------------------------------------------------
KMC Telecom Holdings, Inc.:
0%/12.50% Sr. Unsec. Disc. Nts.,
2/15/08(12) 27,316,000
14,887,220
13.50% Sr. Nts.,
5/15/09(5)
4,000,000 3,940,000
- --------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc.:
0%/10.50% Sr. Disc. Nts.,
12/1/08(12) 23,100,000
13,080,375
9.125% Sr. Unsec. Nts.,
5/1/08
7,580,000 6,888,325
- --------------------------------------------------------------------------------------------------------------------------
Long Distance International, Inc., 12.25% Sr. Unsec. Nts.,
4/15/08(5) 4,160,000 2,516,800
- --------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc.:
8.125% Sr. Unsec. Nts.,
2/15/09
10,090,000 9,434,150
8.375% Sr. Nts.,
3/15/08
5,000,000 4,725,000
9.25% Sr. Nts.,
7/15/07
1,725,000 1,733,625
- --------------------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc., 10% Sr. Unsec. Nts., Series B,
11/15/08 17,200,000 16,684,000
- --------------------------------------------------------------------------------------------------------------------------
Netia Holdings BV:
0%/11% Sr. Disc. Nts., 11/1/07(12)
[DEM] 13,850,000 4,694,698
0%/11% Sr. Disc. Nts., Series B,
11/1/07(12)[DEM] 9,750,000
3,304,932
0%/11.25% Sr. Disc. Nts., Series B,
11/1/07(12) 4,900,000 3,087,000
10.25% Sr. Nts., Series B,
11/1/07 2,425,000
2,073,375
- --------------------------------------------------------------------------------------------------------------------------
Netia Holdings II BV, 13.50% Sr. Nts.,
6/15/09(7)[EUR] 7,750,000 8,202,164
- --------------------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc.:
9% Sr. Nts.,
3/15/08
8,150,000 7,599,875
9.625% Sr. Nts.,
10/1/07
15,130,000 14,373,500
10.75% Sr. Unsec. Nts.,
11/15/08
7,300,000 7,354,750
10.75% Sr. Unsec. Nts.,
6/1/09
4,990,000 5,027,425
- --------------------------------------------------------------------------------------------------------------------------
NorthEast Optic Network, Inc., 12.75% Sr. Nts.,
8/15/08 3,800,000 3,895,000
</TABLE>
34 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS Continued
NTL, Inc.:
0%/9.75% Sr. Deferred Coupon Nts., Series B, 4/1/08
(12) $ 5,850,000 $ 3,919,500
0%/9.75% Sr. Nts., 4/15/09(12)
[GBP] 39,800,000
37,443,507
0%/10.75% Sr. Unsec. Unsub. Nts., Series B,
4/1/08(12)[GBP] 7,590,000 8,187,481
0%/12.375% Sr. Unsec. Nts., Series B,
10/1/08(12) 14,010,000 9,561,825
7% Cv. Unsec. Sub. Nts.,
12/15/08
7,900,000 13,430,000
10% Sr. Nts., Series B,
2/15/07
7,725,000 7,918,125
11.50% Sr. Unsec. Nts., Series B,
10/1/08 2,850,000
3,088,688
- --------------------------------------------------------------------------------------------------------------------------
Optel, Inc., 13% Sr. Nts., Series B,
2/15/05(5) 21,200,000 14,946,000
- --------------------------------------------------------------------------------------------------------------------------
Petersburg Long Distance, Inc., 9% Cv. Sub. Nts.,
6/1/06(7) 1,500,000 697,500
- --------------------------------------------------------------------------------------------------------------------------
PLD Telekom, Inc., 14% Sr. Disc. Nts.,
6/1/04(5) 16,650,000 12,404,250
- --------------------------------------------------------------------------------------------------------------------------
PSINet, Inc., 10% Sr. Unsec. Nts., Series B,
2/15/05 22,250,000 21,387,813
- --------------------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc.:
0%/8.29% Sr. Unsec. Disc. Nts., Series B,
2/1/08(12) 15,355,000 11,362,700
0%/9.47% Sr. Disc. Nts.,
10/15/07(12)
14,290,000 11,181,925
- --------------------------------------------------------------------------------------------------------------------------
RSL Communications plc:
0%/10% Bonds, 3/15/08(12)
[DEM]
9,100,000 2,867,813
0%/10.125% Sr. Disc. Nts.,
3/1/08(12) 5,425,000
3,092,250
10.50% Gtd. Sr. Nts.,
11/15/08
9,000,000 8,235,000
- --------------------------------------------------------------------------------------------------------------------------
Shaw Communications, Inc., 8.54% Debs., 9/30/27
[CAD] 14,580,000 9,327,331
- --------------------------------------------------------------------------------------------------------------------------
Tele1 Europe BV, 13% Sr. Unsec. Nts., 5/15/09(5)
[EUR] 5,000,000 5,245,125
- --------------------------------------------------------------------------------------------------------------------------
Telewest Communications plc:
0%/9.25% Sr. Nts.,
4/15/09(7)(12)
12,750,000 7,777,500
0%/9.875% Sr. Nts.,
4/15/09(7)(12)[GBP]
12,000,000 11,857,680
0%/11% Sr. Disc. Debs.,
10/1/07(12)
10,975,000 9,850,063
- --------------------------------------------------------------------------------------------------------------------------
Time Warner Telecom LLC, 9.75% Sr. Nts.,
7/15/08 4,000,000 4,040,000
- --------------------------------------------------------------------------------------------------------------------------
United Pan-Europe Communications NV:
10.875% Sr. Nts.,
8/1/09(7)
14,900,000 15,123,500
10.875% Sr. Nts., 8/1/09(7)
[EUR] 13,250,000
14,190,626
- --------------------------------------------------------------------------------------------------------------------------
US Xchange LLC, 15% Sr. Unsec. Nts.,
7/1/08 3,465,000 3,547,294
- --------------------------------------------------------------------------------------------------------------------------
Verio, Inc.:
10.375% Sr. Unsec. Nts.,
4/1/05
10,115,000 10,089,713
11.25% Sr. Unsec. Nts.,
12/1/08
9,250,000 9,504,375
13.50% Sr. Unsec. Nts.,
6/15/04
1,960,000 2,146,200
- --------------------------------------------------------------------------------------------------------------------------
Versatel Telecom International BV, 11.875% Sr. Nts., 7/15/09
[EUR] 6,500,000 6,576,375
- --------------------------------------------------------------------------------------------------------------------------
Viatel, Inc., 11.25% Sr. Sec. Nts.,
4/15/08 14,250,000 13,252,500
- --------------------------------------------------------------------------------------------------------------------------
WAM!NET, Inc., 0%/13.25% Sr. Unsec. Disc. Nts., Series B,
3/1/05(5)(12) 16,895,000 10,052,525
- --------------------------------------------------------------------------------------------------------------------------
Winstar Equipment Corp., 12.50% Gtd. Sr. Sec. Exchangeable Nts.,
3/15/04 3,000,000 3,045,000
- --------------------------------------------------------------------------------------------------------------------------
Worldwide Fiber, Inc., 12% Sr. Nts.,
8/1/09(7) 7,900,000 7,781,500
- ------------
646,594,047
</TABLE>
35 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: WIRELESS COMMUNICATIONS--3.8%
Arch Communications, Inc., 12.75% Sr. Nts.,
7/1/07 $ 2,125,000 $ 1,503,438
- --------------------------------------------------------------------------------------------------------------------------
Celcaribe SA, 13.50% Sr. Sec. Nts.,
3/15/04 12,750,000 9,243,750
- --------------------------------------------------------------------------------------------------------------------------
CellNet Data Systems, Inc., 0%/14% Sr. Disc. Nts.,
10/1/07(12) 21,148,000 8,353,460
- --------------------------------------------------------------------------------------------------------------------------
Clearnet Communications, Inc., 0%/14.75% Sr. Disc. Nts.,
12/15/05(12) 2,040,000 1,932,900
- --------------------------------------------------------------------------------------------------------------------------
Comunicacion Celular SA, 0%/14.125% Sr. Unsec. Deferred Bonds,
3/1/05(7)(12) 16,359,000 8,711,168
- --------------------------------------------------------------------------------------------------------------------------
Crown Castle International Corp.:
0%/10.375% Sr. Disc. Nts.,
5/15/11(12) 9,600,000
5,520,000
0%/10.625% Sr. Unsec. Disc. Nts.,
11/15/07(12) 14,510,000
10,157,000
9% Sr. Nts.,
5/15/11
3,800,000 3,581,500
- --------------------------------------------------------------------------------------------------------------------------
CTI Holdings SA, 0%/11.50% Sr. Deferred Coupon Nts.,
4/15/08(12) 8,600,000 4,300,000
- --------------------------------------------------------------------------------------------------------------------------
Dobson Communications Corp., 11.75% Sr. Nts.,
4/15/07 6,900,000 7,245,000
- --------------------------------------------------------------------------------------------------------------------------
Geotek Communications, Inc.:
0%/15% Sr. Sec. Disc. Nts., Series B,
7/15/05(11)(12) 6,475,000 2,687,125
12% Cv. Sr. Sub. Nts.,
2/15/01(11)
625,000 3,906
- --------------------------------------------------------------------------------------------------------------------------
ICO Global Communications (Holdings) Ltd., Units (each unit consists of $1,000
principal amount of 15% sr. nts., 8/1/05 and one warrant to purchase 19.85
shares of common
stock)(11)(14)
4,600,000 897,000
- --------------------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd., 9.50% Sr. Nts.,
1/15/06 3,600,000 3,087,000
- --------------------------------------------------------------------------------------------------------------------------
Metrocall, Inc., 10.375% Sr. Sub. Nts.,
10/1/07 7,470,000 4,892,850
- --------------------------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc.:
0%/11.125% Sr. Disc. Nts., Series B,
10/15/07(5)(12)[CAD] 11,545,000 5,047,746
0%/12% Sr. Unsec. Disc. Nts.,
6/1/09(12) 10,000,000
6,075,000
0%/14% Sr. Disc. Nts., Series B,
6/1/06(12) 3,100,000
2,604,000
- --------------------------------------------------------------------------------------------------------------------------
Millicom International Cellular SA, 0%/13.50% Sr. Disc. Nts.,
6/1/06(12) 8,715,000 6,231,225
- --------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc.:
0%/9.75% Sr. Disc. Nts.,
10/31/07(12)
10,780,000 7,680,750
0%/9.95% Sr. Disc. Nts.,
2/15/08(12) 17,290,000
12,146,225
0%/10.65% Sr. Disc. Nts.,
9/15/07(12) 17,125,000
12,758,125
9.75% Sr. Disc. Nts.,
8/15/04
5,000,000 5,068,750
- --------------------------------------------------------------------------------------------------------------------------
Omnipoint Corp.:
11.50% Sr. Nts.,
9/15/09(7)
4,350,000 4,502,250
11.625% Sr. Nts.,
8/15/06
12,950,000 13,403,250
11.625% Sr. Nts., Series A,
8/15/06 14,135,000
14,629,725
- --------------------------------------------------------------------------------------------------------------------------
Orange plc:
8% Sr. Nts.,
8/1/08
13,200,000 12,771,000
8.75% Sr. Unsec. Bonds,
6/1/06(7)
5,250,000 5,341,875
- --------------------------------------------------------------------------------------------------------------------------
ORBCOMM Global LP/ORBCOMM Capital Corp., 14% Sr. Nts.,
8/15/04 15,930,000 14,098,050
- --------------------------------------------------------------------------------------------------------------------------
Orion Network Systems, Inc., 0%/12.50% Sr. Disc. Nts.,
1/15/07(12) 11,975,000 5,568,375
- --------------------------------------------------------------------------------------------------------------------------
Pinnacle Holdings, Inc., 0%/10% Sr. Unsec. Disc. Nts.,
3/15/08(12) 10,985,000 6,316,375
- --------------------------------------------------------------------------------------------------------------------------
Price Communications Wireless, Inc.:
9.125% Sr. Sec. Nts., Series B,
12/15/06 10,825,000
11,068,563
11.75% Sr. Sub. Nts.,
7/15/07
10,240,000 11,238,400
- --------------------------------------------------------------------------------------------------------------------------
Real Time Data Co., 11% Disc. Nts.,
5/31/09(7)(13) 6,939,156 6,869,209
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
36 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
MEDIA/ENTERTAINMENT: WIRELESS COMMUNICATIONS Continued
Rural Cellular Corp., 9.625% Sr. Sub. Nts., Series B,
5/15/08 $ 9,550,000 $ 9,836,500
- --------------------------------------------------------------------------------------------------------------------------
Satelites Mexicanos SA, 10.125% Sr. Nts.,
11/1/04 3,510,000 2,746,575
- --------------------------------------------------------------------------------------------------------------------------
SBA Communications Corp., 0%/12% Sr. Unsec. Disc. Nts.,
3/1/08(12) 28,875,000 15,592,500
- --------------------------------------------------------------------------------------------------------------------------
Spectrasite Holdings, Inc.:
0%/11.25% Sr. Disc. Nts.,
4/15/09(7)(12)
6,900,000 3,450,000
0%/12% Sr. Disc. Nts.,
7/15/08(7)(12)
10,410,000 5,881,650
- --------------------------------------------------------------------------------------------------------------------------
Sprint Spectrum LP/Sprint Spectrum Finance Corp., 0%/12.50%
Sr. Disc. Nts.,
8/15/06(12)
610,000 564,250
- --------------------------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II:
9.50% Sr. Nts.,
2/1/04
6,120,000 4,620,600
14% Sr. Nts.,
11/1/04
9,965,000 8,819,025
- ------------
287,046,090
- --------------------------------------------------------------------------------------------------------------------------
METALS/MINERALS--1.3%
AK Steel Corp.:
7.875% Sr. Unsec. Nts.,
2/15/09
18,000,000 16,650,000
9.125% Sr. Nts.,
12/15/06
13,360,000 13,360,000
- --------------------------------------------------------------------------------------------------------------------------
California Steel Industries Corp., 8.50% Sr. Nts.,
4/1/09(7) 4,400,000 4,180,000
- --------------------------------------------------------------------------------------------------------------------------
Centaur Mining & Exploration Ltd., 11% Sr. Nts.,
12/1/07 7,025,000 6,708,875
- --------------------------------------------------------------------------------------------------------------------------
Great Lakes Carbon Corp., 10.25% Sr. Sub. Nts., Series B,
5/15/08 7,250,000 6,851,250
- --------------------------------------------------------------------------------------------------------------------------
International Utility Structures, Inc., 10.75% Sr. Sub. Nts.,
2/1/08 2,000,000 1,870,000
- --------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 12.75% Sr. Sub. Nts.,
2/1/03 2,950,000 2,950,000
- --------------------------------------------------------------------------------------------------------------------------
Keystone Consolidated Industries, Inc., 9.625% Sr. Sec. Nts.,
8/1/07 5,700,000 5,386,500
- --------------------------------------------------------------------------------------------------------------------------
Metallurg Holdings, Inc., 0%/12.75% Sr. Disc. Nts.,
7/15/08(12) 18,300,000 6,130,500
- --------------------------------------------------------------------------------------------------------------------------
Metallurg, Inc., 11% Sr. Nts.,
12/1/07 10,845,000
10,031,625
- --------------------------------------------------------------------------------------------------------------------------
National Steel Corp., 9.875% First Mtg. Bonds, Series D,
3/1/09 12,750,000 12,622,500
- --------------------------------------------------------------------------------------------------------------------------
Republic Technologies International/RTI Capital Corp., Units (each unit
consists of $1,000 principal amount of 13.75% sr. nts., 7/15/09 and one
warrant to purchase Cl. D common stock at $0.01 per
share)(14) 9,400,000 8,977,000
- ------------
95,718,250
- --------------------------------------------------------------------------------------------------------------------------
RETAIL--0.4%
Boyds Collection Ltd. (The), 9% Sr. Unsec. Sub. Nts., Series B,
5/15/08 4,296,000 4,215,450
- --------------------------------------------------------------------------------------------------------------------------
Central Termica Guemes, 12% Bonds,
11/26/01(5)(11) 6,025,000
858,563
- --------------------------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 9.125% Sr. Unsec. Sub. Nts.,
5/1/08 6,670,000 5,369,350
- --------------------------------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 9% Debs.,
5/1/08 4,000,000 3,660,000
- --------------------------------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 8.375% Sr. Nts.,
5/1/08 3,125,000 2,945,313
- --------------------------------------------------------------------------------------------------------------------------
Home Interiors & Gifts, Inc., 10.125% Sr. Sub. Nts.,
6/1/08 6,850,000 6,028,000
- --------------------------------------------------------------------------------------------------------------------------
Just For Feet, Inc., 11% Sr. Sub. Nts.,
5/1/09(7) 4,300,000 924,500
- --------------------------------------------------------------------------------------------------------------------------
Pantry, Inc. (The), 10.25% Sr. Sub. Nts.,
10/15/07 3,450,000 3,458,625
- ------------
27,459,801
</TABLE>
37 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
SERVICE--2.3%
Allied Waste North America, Inc.:
7.875% Sr. Unsec. Nts., Series B,
1/1/09 $ 9,055,000 $
7,968,400
10% Sr. Sub. Nts.,
8/1/09(7)
9,000,000 8,280,000
- --------------------------------------------------------------------------------------------------------------------------
American Plumbing & Mechanical, Inc., 11.625% Gtd. Sr. Sub. Nts.,
10/15/08(7) 8,500,000 7,607,500
- --------------------------------------------------------------------------------------------------------------------------
Blount, Inc., 13% Sr. Sub. Nts.,
8/1/09(7) 9,500,000
9,844,375
- --------------------------------------------------------------------------------------------------------------------------
Coinstar, Inc., 0%/13% Sr. Disc. Nts.,
10/1/06(12) 2,525,000 2,638,625
- --------------------------------------------------------------------------------------------------------------------------
Comforce Operating, Inc., 12% Sr. Nts., Series B,
12/1/07 2,920,000 2,007,500
- --------------------------------------------------------------------------------------------------------------------------
Formica Corp., 10.875% Sr. Sub. Nts.,
3/1/09(7) 5,000,000 4,575,000
- --------------------------------------------------------------------------------------------------------------------------
Great Lakes Dredge & Dock Corp., 11.25% Sr. Unsec. Sub. Nts.,
8/15/08 5,900,000 5,988,500
- --------------------------------------------------------------------------------------------------------------------------
Insight Midwest LP/Insight Capital, Inc., 9.75% Sr. Nts.,
10/1/09(3)(7) 4,000,000 4,035,000
- --------------------------------------------------------------------------------------------------------------------------
Integrated Electric Services, Inc., 9.375% Sr. Sub. Nts., Series B,
2/1/09 2,000,000 1,970,000
- --------------------------------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.75% Sr. Sub. Nts.,
9/30/09 9,800,000 9,261,000
- --------------------------------------------------------------------------------------------------------------------------
IT Group, Inc., 11.25% Sr. Sub. Nts.,
4/1/09(7) 5,000,000 4,750,000
- --------------------------------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts.,
2/15/09 4,630,000 4,386,925
- --------------------------------------------------------------------------------------------------------------------------
Lamar Advertising Co., 8.625% Sr. Sub. Nts.,
9/15/07 4,250,000 4,207,500
- --------------------------------------------------------------------------------------------------------------------------
Lamar Media Corp., 9.625% Sr. Unsec. Sub. Nts.,
12/1/06 8,575,000 8,703,625
- --------------------------------------------------------------------------------------------------------------------------
Panolam Industries International, Inc., 11.50% Sr. Sub. Nts.,
2/15/09(5) 4,000,000 4,020,000
- --------------------------------------------------------------------------------------------------------------------------
Pentacon, Inc., 12.25% Sr. Unsec. Nts., Series B,
4/1/09(5) 9,350,000 9,022,750
- --------------------------------------------------------------------------------------------------------------------------
Premier Graphics, Inc., 11.50% Sr. Unsec. Nts.,
12/1/05(5) 7,450,000 6,928,500
- --------------------------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc.:
6.75% Cv. Sr. Sub. Nts.,
9/15/03
11,090,000 7,693,688
13.625% Sr. Sub. Disc. Nts.,
6/30/05 3,155,000
2,886,825
- --------------------------------------------------------------------------------------------------------------------------
Protection One, Inc., 7.375% Gtd. Sr. Unsec. Nts.,
8/15/05 1,000,000 785,000
- --------------------------------------------------------------------------------------------------------------------------
Royster-Clark, Inc., 10.25% First Mtg. Nts.,
4/1/09(7) 5,200,000 4,680,000
- --------------------------------------------------------------------------------------------------------------------------
Safety-Kleen Corp., 9.25% Sr. Unsec. Nts.,
5/15/09 13,100,000 12,641,500
- --------------------------------------------------------------------------------------------------------------------------
Tembec Industries, Inc., 8.625% Sr. Nts.,
6/30/09 6,000,000 5,910,000
- --------------------------------------------------------------------------------------------------------------------------
United Rentals, Inc.:
9% Sr. Unsec. Sub. Nts., Series B,
4/1/09 6,900,000
6,537,750
9.25% Sr. Unsec. Sub. Nts., Series B,
1/15/09 7,300,000 7,026,250
- --------------------------------------------------------------------------------------------------------------------------
United Stationers Supply Co., 12.75% Sr. Sub. Nts.,
5/1/05 3,304,000 3,568,320
- --------------------------------------------------------------------------------------------------------------------------
URS Corp., 12.25% Sr. Sub. Nts.,
5/1/09(7) 14,375,000
14,734,375
- ------------
172,658,908
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.7%
Aftermarket Technology Corp., 12% Sr. Sub. Nts., Series B,
8/1/04 3,700,000 3,774,000
- --------------------------------------------------------------------------------------------------------------------------
America West Airlines, Inc., 10.75% Sr. Nts.,
9/1/05 22,273,000 21,771,858
- --------------------------------------------------------------------------------------------------------------------------
Budget Group, Inc., 9.125% Sr. Unsec. Nts.,
4/1/06 12,125,000 10,730,625
- --------------------------------------------------------------------------------------------------------------------------
Cambridge Industries, Inc., 10.25% Sr. Sub. Nts., Series B,
7/15/07 4,775,000 3,127,625
- --------------------------------------------------------------------------------------------------------------------------
Chrysler Financial LLC, 13.25% Debs.,
10/15/99(15) 4,500,000 4,509,590
- --------------------------------------------------------------------------------------------------------------------------
Coach USA, Inc., 9.375% Sr. Sub. Nts., Series B,
7/1/07 4,695,000 5,000,175
</TABLE>
38 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
TRANSPORTATION Continued
Collins & Aikman Products Co., 11.50% Sr. Unsec. Sub. Nts.,
4/15/06 $ 5,325,000 $ 5,138,625
- --------------------------------------------------------------------------------------------------------------------------
Dura Operating Corp., 9% Sr. Sub. Nts.,
5/1/09(7)[EUR] 8,600,000 8,494,973
- --------------------------------------------------------------------------------------------------------------------------
Federal-Mogul Corp., 7.875% Nts.,
7/1/10 6,500,000
5,931,764
- --------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Nts., Series EC, 9/9/04
[GBP] 15,135,000 24,513,309
- --------------------------------------------------------------------------------------------------------------------------
Hayes Wheels International, Inc.:
9.125% Sr. Sub. Nts.,
7/15/07
5,550,000 5,244,750
11% Sr. Sub. Nts.,
7/15/06
6,690,000 6,907,425
- --------------------------------------------------------------------------------------------------------------------------
HDA Parts System, Inc., 12% Sr. Sub. Nts.,
8/1/05(7) 3,650,000 3,522,250
- --------------------------------------------------------------------------------------------------------------------------
Key Plastics, Inc., 10.25% Sr. Sub. Nts., Series B,
3/15/07(5) 4,335,000 3,663,075
- --------------------------------------------------------------------------------------------------------------------------
Lear Corp., 9.50% Sub. Nts.,
7/15/06 2,825,000
2,867,375
- --------------------------------------------------------------------------------------------------------------------------
Millenium Seacarriers, Inc., Units (each unit consists of $1,000 principal
amount of 12% first priority ship mtg. sr. sec. nts., 7/15/05 and one
warrant to purchase five shares of common
stock)(14) 4,400,000 2,112,000
- --------------------------------------------------------------------------------------------------------------------------
Navigator Gas Transport plc:
10.50% First Priority Ship Mtg. Nts.,
6/30/07(5) 13,175,000 6,258,125
Units (each unit consists of $1,000 principal amount of 12% second
priority ship mtg. nts., 6/30/07 and 7.66
warrants)(7)(14) 11,325,000 2,151,750
- --------------------------------------------------------------------------------------------------------------------------
Oxford Automotive, Inc., 10.125% Sr. Unsec. Sub. Nts., Series D,
6/15/07 23,250,000 21,506,250
- --------------------------------------------------------------------------------------------------------------------------
Pycsa Panama SA, 10.28% Sr. Sec. Bonds,
12/15/12(5) 8,663,105 5,652,677
- --------------------------------------------------------------------------------------------------------------------------
TFM SA de CV, 10.25% Sr. Nts.,
6/15/07 5,225,000
4,558,813
- --------------------------------------------------------------------------------------------------------------------------
Trans World Airlines, Inc., 11.50% Sr. Sec. Nts.,
12/15/04 14,545,000 11,708,725
- --------------------------------------------------------------------------------------------------------------------------
Trans World Airlines Lease, 14% Equipment Trust,
7/2/08(5) 3,105,983 3,105,983
- --------------------------------------------------------------------------------------------------------------------------
Transtar Holdings LP/Transtar Capital Corp., 0%/13.375% Sr. Disc. Nts.,
Series B,
12/15/03(12)
27,791,000 27,096,225
- --------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A,
12/1/11(5) 11,490,032 6,003,542
- --------------
205,351,509
- --------------------------------------------------------------------------------------------------------------------------
UTILITY--0.5%
Beaver Valley II Funding Corp., 9% Second Lease Obligation Bonds,
6/1/17 956,000 963,170
- --------------------------------------------------------------------------------------------------------------------------
Calpine Corp.:
7.75% Sr. Nts.,
4/15/09
8,500,000 8,053,750
8.75% Sr. Nts.,
7/15/07
4,000,000 3,965,000
10.50% Sr. Nts.,
5/15/06
910,000 954,363
- --------------------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Sec. Nts., Series E,
5/1/11 9,300,000 10,123,627
- --------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 0%/8.50% Sr. Unsec. Nts., Series H,
7/1/10(12) 8,000,000 5,910,368
- --------------------------------------------------------------------------------------------------------------------------
Subic Power Corp.:
9.50% Sr. Sec. Nts.,
12/28/08
5,320,000 4,788,000
9.50% Sr. Sec. Nts.,
12/28/08(7)
4,548,862 4,093,976
- --------------
38,852,254
- --------------
Total Corporate Bonds and Notes (Cost
$3,421,773,418) 3,061,209,392
</TABLE>
39 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
PREFERRED STOCKS--2.6%
- --------------------------------------------------------------------------------------------------------------------------
AmeriKing, Inc., 13% Cum. Sr. Exchangeable,
Non-Vtg.(13) 242,389 $ 3,938,821
- --------------------------------------------------------------------------------------------------------------------------
BankUnited Capital Trust, 10.25% Gtd. Bonds,
12/31/26(5) 10,050,000 9,572,625
- --------------------------------------------------------------------------------------------------------------------------
Capstar Communications, Inc., 12.625% Cum. Exchangeable,
Series E,
Non-Vtg.(5)(13)
13,935 1,647,814
- --------------------------------------------------------------------------------------------------------------------------
CGA Group Ltd., Series
A(5)(13)(17)
160,595 4,014,875
- --------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7% Cv.,
Non-Vtg.(7)(16) 146,175
4,823,775
- --------------------------------------------------------------------------------------------------------------------------
Clark USA, Inc., 11.50% Cum. Sr.
Exchangeable(13) 5,693
3,401,567
- --------------------------------------------------------------------------------------------------------------------------
Concentric Network Corp., 13.50% Sr. Redeemable Exchangeable,
Series B,
Non-Vtg.(5)(13)
8,153 7,521,142
- --------------------------------------------------------------------------------------------------------------------------
Contour Energy Co., $2.625 Cum.
Cv.(16) 159,100
914,825
- --------------------------------------------------------------------------------------------------------------------------
CRIIMI MAE, Inc., 10.875% Cum. Cv., Series B,
Non-Vtg.(16) 278,000 5,073,500
- --------------------------------------------------------------------------------------------------------------------------
Crown American Realty Trust, 11% Cum., Series A,
Non-Vtg 49,500 2,041,875
- --------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc.:
8.50% Cum. Cv., Series I,
Non-Vtg 36,500
3,955,687
11.125% Cum., Series
M(13)
74,451 7,984,870
- --------------------------------------------------------------------------------------------------------------------------
Doane Products Co., 14.25% Exchangeable,
Non-Vtg.(5)(16) 255,000 11,347,500
- --------------------------------------------------------------------------------------------------------------------------
Dobson Communications Corp.:
12.25% Sr.
Exchangeable(13)
8,384 7,734,240
13% Sr.
Exchangeable(13)(16)
8,408 8,134,740
- --------------------------------------------------------------------------------------------------------------------------
e.spire Communications, Inc., 12.75% Jr. Redeemable,
Non-Vtg.(13) 10,016 3,280,240
- --------------------------------------------------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc., 11.75% Cum. Exchangeable,
Series B, 3/1/08,
Non-Vtg.(16)
39,000 1,881,750
- --------------------------------------------------------------------------------------------------------------------------
Earthwatch, Inc., $8.50 Cv. Sr., Series C,
Non-Vtg.(5) 269,508 673,770
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Federal Bank FSB Glendale California, l2% Non-Cum
Exchangeable Perpetual, Series
A(5)
20 325
- --------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 10.50% Sr. Exchangeable,
12/1/08(13) 20,000 2,115,000
- --------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc., 14.25% Exchangeable,
Non-Vtg.(13) 6,125 5,956,562
- --------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.:
13.50% Exchangeable, Series
B(13) 5,863
5,291,358
Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr.,
Series E,
Non-Vtg.(7)
116,450 2,547,344
- --------------------------------------------------------------------------------------------------------------------------
International Utility Structures, Inc.:
13% Preferred,
Non-Vtg.(7)(13)
223 209,063
Units (each unit consists of $1,000 principal amount of 13% sr. exchangeable
preferred stock and one warrant to purchase 30 shares of common
stock)(5)(13)(14) 1,090 1,036,863
- --------------------------------------------------------------------------------------------------------------------------
Nebco Evans Holdings, Inc., 11.25% Sr. Redeemable Exchangeable
Preferred Stock,
Non-Vtg.(5)(13)
94,339 3,514,128
- --------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 11.125% Exchangeable , Series E,
Non-Vtg.(5)(13) 7,482 7,351,065
- --------------------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc., 14% Cum.,
Non-Vtg.(5)(13) 299,832 14,916,642
- --------------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 13.25% Cum. Jr. Exchangeable,
Non-Vtg.(13) 936 10,038,600
</TABLE>
40 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
PREFERRED STOCKS Continued
PRIMEDIA, Inc.:
8.625% Exchangeable, Series H,
Non-Vtg 165,600 $
14,945,400
9.20% Exchangeable, Series F,
Non-Vtg 46,400
4,326,800
- --------------------------------------------------------------------------------------------------------------------------
Rural Cellular Corp., 11.375% Cum. Sr., Series B,
Non-Vtg.(13) 12,557 12,839,533
- --------------------------------------------------------------------------------------------------------------------------
SF Holdings Group, Inc.:
13.75% Cum. Nts., Series B, 3/15/09,
Non-Vtg.(13) 300 847,500
13.75%
Exchangeable(7)(13)
53 149,725
- --------------------------------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., 14.25% Cum. Exchangeable,
Non-Vtg.(7)(13) 6,943 7,316,186
- --------------------------------------------------------------------------------------------------------------------------
Star Gas Partners,
LP
7,147 115,692
- --------------------------------------------------------------------------------------------------------------------------
Supermarkets General Holdings Corp., $3.52
Exchangeable(5)(13)(16) 200,000 6,850,000
- --------------------------------------------------------------------------------------------------------------------------
Walden Residential Properties, Inc.:
9.16% Cv., Series B,
Non-Vtg.(17)
280,000 6,930,000
9.20%
Sr.(17)
387,400 6,004,700
- -----------
Total Preferred Stocks (Cost
$240,943,376)
201,246,102
==========================================================================================================================
COMMON STOCKS--0.6%
- --------------------------------------------------------------------------------------------------------------------------
Celcaribe
SA(7)(16)
1,658,520 1,865,835
- --------------------------------------------------------------------------------------------------------------------------
Coinstar,
Inc.(16)
35,000 347,813
- --------------------------------------------------------------------------------------------------------------------------
ECM Fund,
LPI(5)
525 460,031
- --------------------------------------------------------------------------------------------------------------------------
El Paso Electric
Co.(16)
300,000 2,700,000
- --------------------------------------------------------------------------------------------------------------------------
Equitable Bag,
Inc.(5)(16)
68,985 68,985
- --------------------------------------------------------------------------------------------------------------------------
GST Telecommunications,
Inc.(16)
96,400 677,813
- --------------------------------------------------------------------------------------------------------------------------
Horizon Group Properties,
Inc.(16)
19,435 68,022
- --------------------------------------------------------------------------------------------------------------------------
Intermedia Communications,
Inc.(16)
2,342 50,939
- --------------------------------------------------------------------------------------------------------------------------
Ladish Co.,
Inc.(16)
134,333 873,164
- --------------------------------------------------------------------------------------------------------------------------
MCI WorldCom,
Inc.(16)
40,000 2,875,000
- --------------------------------------------------------------------------------------------------------------------------
Omnipoint
Corp.(16)
130,000 7,263,750
- --------------------------------------------------------------------------------------------------------------------------
Optel,
Inc.(16)
11,560 116
- --------------------------------------------------------------------------------------------------------------------------
Premier Holdings
Ltd.(5)(16)(17)
799,833 2,699,436
- --------------------------------------------------------------------------------------------------------------------------
Price Communications
Corp.(16)
420,000 10,526,255
- --------------------------------------------------------------------------------------------------------------------------
Qwest Communications International,
Inc.(16) 30,000 886,875
- --------------------------------------------------------------------------------------------------------------------------
SF Holdings Group, Inc., Cl.
C(16)
11,100 111
- --------------------------------------------------------------------------------------------------------------------------
Sheridan Energy,
Inc.(16)(17)
394,283 2,143,914
- --------------------------------------------------------------------------------------------------------------------------
Unisys
Corp.(16)
36,874 1,663,939
- --------------------------------------------------------------------------------------------------------------------------
Vail Resorts,
Inc.(16)
150,000 3,478,125
- --------------------------------------------------------------------------------------------------------------------------
Walter Industries,
Inc.(16)
119,583 1,614,371
- --------------------------------------------------------------------------------------------------------------------------
Weatherford International,
Inc. 65,000
2,080,000
- --------------------------------------------------------------------------------------------------------------------------
Wilshire Financial Services Group,
Inc.(16) 568,825 693,255
- -----------
Total Common Stocks (Cost
$19,121,695)
43,037,749
</TABLE>
41 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.3%
- --------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp.
8/10/00(5) 8,000 $ 80
- --------------------------------------------------------------------------------------------------------------------------
Ames Department Stores, Inc., Litigation Trust, Exp.
1/31/00(5) 118,975 1,190
- --------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Wts., Exp.
12/3/99 33,605 12,602
- --------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Wts., Exp.
2/25/00 41,770 41,770
- --------------------------------------------------------------------------------------------------------------------------
Australis Holdings PTY Ltd./Australia Media Ltd. Wts., Exp.
5/15/00(5) 780 5
- --------------------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp.
11/15/00(5)
262,500 --
- --------------------------------------------------------------------------------------------------------------------------
CellNet Data Systems, Inc. Wts., Exp.
10/1/07(7) 13,893 53,835
- --------------------------------------------------------------------------------------------------------------------------
Central Bank of Nigeria Wts., Exp.
11/15/20 8,500 --
- --------------------------------------------------------------------------------------------------------------------------
CGA Group Ltd. Wts., Exp.
12/31/49(5)(17)
130,000 39,000
- --------------------------------------------------------------------------------------------------------------------------
Clearnet Communications, Inc. Wts., Exp.
9/15/05 7,425 128,040
- --------------------------------------------------------------------------------------------------------------------------
Comunicacion Celular SA Wts., Exp.
11/15/03(5) 8,109 487,554
- --------------------------------------------------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp.
12/15/07(5) 4,650 909,656
- --------------------------------------------------------------------------------------------------------------------------
Covergent Communications, Inc. Wts., Exp.
4/1/08 30,000 363,750
- --------------------------------------------------------------------------------------------------------------------------
e.spire Communications, Inc. Wts., Exp.
11/1/05 5,225 364,732
- --------------------------------------------------------------------------------------------------------------------------
FirstWorld Communications, Inc. Wts., Exp.
4/15/08(5) 7,000 490,875
- --------------------------------------------------------------------------------------------------------------------------
Geotek Communications, Inc. Wts., Exp.
7/15/05(5) 690,000 6,900
- --------------------------------------------------------------------------------------------------------------------------
Globix Corp. Wts., Exp.
5/1/05(5)
12,340 1,480,800
- --------------------------------------------------------------------------------------------------------------------------
Golden State Bancorp, Inc. Wts., Exp.
1/1/01 48,080 57,095
- --------------------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp.
1/23/03
128,643 --
- --------------------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp.
1/23/03(5) 64,350
643
- --------------------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp.
5/1/05(5) 146,363
14,636
- --------------------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp.
9/1/04(5) 189,000
200,907
- --------------------------------------------------------------------------------------------------------------------------
Grand Union Co. Wts., Exp.
8/17/03
11,563 20,958
- --------------------------------------------------------------------------------------------------------------------------
HF Holdings, Inc. Wts., Exp.
9/27/00 34,425
516,375
- --------------------------------------------------------------------------------------------------------------------------
Hyperion Telecommunications Inc. Wts., Exp.
4/15/01 1,035 129,504
- --------------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp.
9/15/05 46,860 336,450
- --------------------------------------------------------------------------------------------------------------------------
IHF Capital, Inc. Series H Wts., Exp.
11/14/99(7) 1,750 18
- --------------------------------------------------------------------------------------------------------------------------
IHF Capital, Inc. Series I Wts., Exp.
11/14/99(5) 5,400 54
- --------------------------------------------------------------------------------------------------------------------------
In-Flight Phone Corp. Wts., Exp.
8/31/02 13,050
- --
- --------------------------------------------------------------------------------------------------------------------------
Insilco Corp. Wts., Exp.
8/15/07(5)
7,780 --
- --------------------------------------------------------------------------------------------------------------------------
KMC Telecom Holdings, Inc. Wts., Exp.
4/15/08(5) 23,200 59,462
- --------------------------------------------------------------------------------------------------------------------------
Long Distance International, Inc. Wts., Exp.
4/13/08(5) 4,160 4,160
- --------------------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp.
1/15/07(5) 6,250 75,781
- --------------------------------------------------------------------------------------------------------------------------
Mexican Value Rts., Exp.
6/30/03
69,150,000 --
- --------------------------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp.
6/1/06(5) 29,300 651,925
- --------------------------------------------------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts., Exp.
7/15/05(5) 5,800 7,975
- --------------------------------------------------------------------------------------------------------------------------
Occidente y Caribe Celular SA Wts., Exp.
3/15/04(5) 21,600 369,900
</TABLE>
42 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
UNITS SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
RIGHTS, WARRANTS AND CERTIFICATES Continued
Omnipoint Corp. Wts., Exp.
11/29/00(5) 102,500 $
5,727,187
- --------------------------------------------------------------------------------------------------------------------------
PLD Telekom, Inc. Wts., Exp.
6/1/06(5)
16,650 833
- --------------------------------------------------------------------------------------------------------------------------
PLD Telekom, Inc., 9% Cv. Sub. Nts. Wts., Exp.
3/31/03(5) 1,500 75
- --------------------------------------------------------------------------------------------------------------------------
PLD Telekom, Inc., 14% Sr. Disc. Nts. Wts., Exp.
3/31/03(5) 16,650 833
- --------------------------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp.
11/1/03(5) 182,000
2,275,000
- --------------------------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp.
6/30/05(5) 13,440
67,200
- --------------------------------------------------------------------------------------------------------------------------
Real Time Data Co. Wts., Exp.
5/31/04(5) 2,251,489
22,515
- --------------------------------------------------------------------------------------------------------------------------
Rocky Mountain Internet, Inc. Wts., Exp.
7/3/03(5) 55,000 357,500
- --------------------------------------------------------------------------------------------------------------------------
Tele1 Europe B.V. Wts., Exp.
5/15/09(5) 5,000
346,125
- --------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc. Wts., Exp.
11/15/99(5) 20,345 6,103,500
- --------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Oil Linked Payment Obligation Wts., Exp.
4/15/20 102,138 --
- --------------------------------------------------------------------------------------------------------------------------
Walden Residential Properties, Inc. Wts., Exp.
1/1/02(5)(17) 196,400 51,653
- --------------------------------------------------------------------------------------------------------------------------
WAM!NET, Inc. Wts., Exp.
3/1/05(7)
50,685 1,134,077
- ------------
Total Rights, Warrants and Certificates (Cost
$6,987,651) 22,913,130
<CAPTION>
FACE
AMOUNT(1)
==========================================================================================================================
STRUCTURED INSTRUMENTS--4.9%
- --------------------------------------------------------------------------------------------------------------------------
Bear Stearns High Yield Composite Index Linked Nts., 8%,
10/12/99 $ 30,000,000 28,450,200
- --------------------------------------------------------------------------------------------------------------------------
Citibank (New York) Mexican Linked Nts.:
27.40%,
9/20/01
14,033,000 14,004,934
29%,
3/17/00(5)[MXN]
187,528,500 20,064,035
- --------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch),
Russian OFZ Linked Nts.:
15%, 2/23/00(5)
[RUR]
273,777,000 3,849,260
15%, 2/23/00(5)
[RUR]
190,703,000 2,681,253
25%, 2/6/02(6)
[RUR]
10,781,020 87,923
25%, 2/6/02(6)
[RUR]
10,781,020 74,722
25%, 5/22/02(6)
[RUR]
10,781,020 82,454
25%, 6/5/02(6)
[RUR]
10,781,020 79,806
25%, 9/18/02(6)
[RUR]
10,781,020 74,465
25%, 10/9/02(6)
[RUR]
10,781,020 79,934
25%, 2/5/03(6)
[RUR]
10,781,020 73,055
25%, 5/21/03(6)
[RUR]
10,781,020 70,065
25%, 6/4/03(6)
[RUR]
10,781,020 68,612
25%, 9/17/03(6)
[RUR]
10,781,020 65,750
25%,
9/17/03(10)[RUR]
134,087,300 2,019,147
25%, 10/8/03(6)
[RUR]
10,781,020 71,517
25%, 1/21/04(6)
[RUR]
10,781,020 68,612
Series C, Zero Coupon, 51.243%, 12/15/01(8)0
[RUR] 36,963,000 157,168
</TABLE>
43 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT (1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
STRUCTURED INSTRUMENTS Continued
Deutsche Bank AG, Indonesian Rupiah Linked Nts., 13.667%,
6/30/00 $ 13,900,000 $ 10,939,300
- --------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, New York, Philippine Peso/Japanese Yen Linked Nts.,
10.55%,
5/12/00
4,830,000 3,896,361
- --------------------------------------------------------------------------------------------------------------------------
Deutsche Morgan Grenfell, Russian OFZ Linked Nts.:
14%, 9/27/00(5)
[RUR]
124,216,000 541,461
18.339%,
2/23/00(5)
9,630,000 96,300
18.598%,
10/25/00(5)
9,630,000 96,300
- --------------------------------------------------------------------------------------------------------------------------
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, 11.30%, 4/1/00 and an interest rate swap between Goldman Sachs and the
Trust](5) 3,091,303 3,014,021
- --------------------------------------------------------------------------------------------------------------------------
J.P. Morgan & Co., Inc. Emerging Market Bond Index Linked
Nts., 9.50%,
7/14/00
89,161,398 91,917,644
- --------------------------------------------------------------------------------------------------------------------------
J.P. Morgan & Co., 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, 14.75%,
9/1/02](5) 6,000,000 5,420,805
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. Turkey Treasury Bond Linked Nts.,
85.25%, 1/7/01(6) [TRL]
3,885,000,000,000 8,984,731
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Turkey Treasury Bill Linked Nts., Series 4,
Zero Coupon, 77.994%, 8/23/00(8)[TRL]
9,343,180,000,000 11,030,545
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Turkey Treasury Bond Linked Nts.,
81%, 1/9/01(6)[TRL]
1,313,600,000,000 3,037,926
- --------------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Co. of New York, The Emerging Market Bond
Index Linked Nts., 9.50%,
11/3/99 53,359,835
52,400,532
- --------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Brazil Credit Linked Nts.:
6%,
4/2/03(5)
11,866,500 7,742,891
Series 2, 6%,
4/2/03(5)
11,866,500 7,742,891
- --------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bill Linked Nts.:
91.50%,
8/24/00(6)
3,662,603 3,141,085
91.86%,
8/24/00(6)
9,363,958 8,080,253
92.10%,
8/24/00(6)
8,696,797 7,497,161
94.10%,
8/24/00(6)
14,398,301 12,382,396
- --------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bond Linked Nts.,
87.283%, 2/22/01(6)[TRL]
1,000,000,000,000 2,286,578
- --------------------------------------------------------------------------------------------------------------------------
Salomon, Inc. Indonesian Rupiah Linked Nts.:
29.55%,
4/12/00
1,440,000 1,564,762
32.65%,
4/6/00
4,830,000 5,279,721
- --------------------------------------------------------------------------------------------------------------------------
Salomon, Inc. Turkey Treasury Bill Linked Nts., 79%,
10/7/99(6) 4,064,312 3,650,524
</TABLE>
44 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
==========================================================================================================================
<S>
<C> <C>
STRUCTURED INSTRUMENTS Continued
Shoshone Partners Loan Trust Sr. Nts., 7.063%, 4/28/02 (representing
a basket of reference loans and a total return swap between
Chase Manhattan Bank and the
Trust)(5)(6) $ 39,790,000 $
36,194,875
- --------------------------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Indian Rupee/Japanese Yen Linked Nts.,
Zero Coupon, 12.56%,
8/17/01(8)
12,780,000 9,379,242
- --------------------------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Philippine Peso/Japanese Yen Linked Nts.,
16.04%,
5/10/00
4,830,000 3,620,085
- -------------
Total Structured Instruments (Cost
$472,649,370)
372,061,302
<CAPTION>
DATE
STRIKE CONTRACTS
==========================================================================================================================
<S> <C>
<C> <C> <C>
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Put Opt 1/11/00 [HKD]
7.894 151,564,800 13,641
- --------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index Futures,
11/99, Put Opt 11/19/99 $
1,230 100 717,500
- -----------
Total Options Purchased (Cost
$880,020)
731,141
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT(1)
============================================================================================================================
<S>
<C> <C>
REPURCHASE AGREEMENTS--0.1%
- ----------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 5.29%, dated 9/30/99,
to be repurchased at $9,201,352 on 10/1/99, collateralized by U.S. Treasury
Nts., 5.125%-8%, 10/31/99-2/15/07, with a value of $5,850,830, U.S. Treasury
Bonds, 5.25%-11.75%, 2/15/01-11/15/28, with a value of $3,538,975 (Cost
$9,200,000) $ 9,200,000 9,200,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$8,428,049,450) 103.2%
7,859,182,569
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (3.2)
(241,136,498)
- ---------------------------------
NET
ASSETS
100.0% $ 7,618,046,071
=================================
</TABLE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
ARP Argentine Peso IDR Indonesian Rupiah
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar MXN Mexican Nuevo Peso
DEM German Mark NOK Norwegian Krone
DKK Danish Krone NZD New Zealand Dollar
EUR Euro PLZ Polish Zloty
FRF French Franc RUR Russian Ruble
GBP British Pound Sterling SEK Swedish Krona
HKD Hong Kong Dollar TRL Turkish Lira
HUF Hungarian Forint ZAR South African Rand
2. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to
changes in 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.
3. When-issued security to be delivered and settled after September 30, 1999.
45 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
4. 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.
5. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
6. Represents the current interest rate for a variable rate security.
7. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $412,775,632 or 5.42% of the Fund's net
assets as of September 30, 1999.
8. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
9. Securities with an aggregate market value of $6,689,401 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
10. Represents the current interest rate for an increasing rate security.
11. Non-income-producing--issuer is in default.
12. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
13. Interest or dividend is paid in kind.
14. Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units which
represent debt securities, face amount disclosed represents total underlying
principal.
15. A sufficient amount of securities has been designated to cover outstanding
foreign currency exchange contracts. See Note 5 of Notes to Financial
Statements.
16. Non-income-producing security.
17. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended September 30,
1999. The aggregate fair value of securities of affiliated companies held by the
Fund as of September 30, 1999, amounts to $21,883,578. Transactions during the
period in which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
SHARES/UNITS
GROSS GROSS SHARES/UNITS DIVIDEND
SEPT. 30, 1998
ADDITIONS REDUCTIONS SEPT. 30, 1999 INCOME
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
CGA Group Ltd., Preferred Stock, Series A 130,000
30,595 -- 160,595 $ 764,942
CGA Group Ltd. Wts., Exp. 12/31/49 130,000
- -- -- 130,000 --
Kelley Oil & Gas Corp., $2.625 Cv., Vtg 159,100
- -- 159,100 -- --
Premier Holdings Ltd. --
799,833 -- 799,833 --
Sheridan Energy, Inc. 394,283
- -- -- 394,283 --
Walden Residential Properties, Inc., 9.16% Cv.,
Series B, Non-Vtg 280,000
- -- -- 280,000 641,200
Walden Residential Properties, Inc., 9.20% Sr. 387,400
- -- -- 387,400 891,020
Walden Residential Properties, Inc. Wts.,
Exp. 1/1/02 196,400
- -- -- 196,400 --
- ----------
$2,297,162
==========
</TABLE>
See accompanying Notes to Financial Statements.
46 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES September 30, 1999
<TABLE>
<CAPTION>
=====================================================================================================
ASSETS
- -----------------------------------------------------------------------------------------------------
<S>
<C>
Investments, at value--see accompanying statement:
Unaffiliated companies (cost
$8,406,042,833) $7,837,298,991
Affiliated companies (cost
$22,006,617) 21,883,578
- -----------------------------------------------------------------------------------------------------
Cash
5,926,215
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency exchange contracts--Note
5 6,961,172
- -----------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $184,232,500 sold on a when-issued basis)--Note
1 285,762,807
Interest, dividends and principal
paydowns 163,348,055
Shares of beneficial interest
sold 8,109,711
Daily variation on futures contracts--Note
6 730,933
Other
541,009
- --------------
Total
assets
8,330,562,471
=====================================================================================================
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency exchange contracts--Note
5 4,251,709
- -----------------------------------------------------------------------------------------------------
Options written, at value (premiums received $1,385,040)--
see accompanying statement--Note
7 --
- -----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $552,049,153 purchased on a
when-issued basis)--Note
1 673,130,742
Shares of beneficial interest
redeemed 15,241,893
Dividends
7,452,763
Distribution and service plan
fees 4,648,216
Daily variation on futures contracts--Note
6 1,620,195
Closed foreign currency exchange
contracts 1,429,580
Transfer and shareholder servicing agent
fees 1,115,404
Shareholder
reports
702,348
Trustees'
compensation
8,275
Other
2,915,275
- --------------
Total
liabilities
712,516,400
=====================================================================================================
NET
ASSETS
$7,618,046,071
==============
=====================================================================================================
Composition of Net Assets
- -----------------------------------------------------------------------------------------------------
Paid-in
capital
$8,730,516,454
- -----------------------------------------------------------------------------------------------------
Undistributed net investment
income 19,853,049
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (567,478,659)
- -----------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign
currencies (564,844,773)
- --------------
Net
assets
$7,618,046,071
==============
</TABLE>
47 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Continued
<TABLE>
<CAPTION>
=================================================================================================
NET ASSET VALUE PER SHARE
- -------------------------------------------------------------------------------------------------
<S>
<C>
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$3,578,105,311 and 826,937,325 shares of beneficial interest
outstanding) $ 4.33
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering
price) $ 4.55
- -------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$3,380,688,810 and 779,312,054 shares of beneficial interest
outstanding) $ 4.34
- -------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $610,685,732
and 141,307,047 shares of beneficial interest
outstanding) $ 4.32
- -------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $48,566,218 and 11,236,277 shares of beneficial interest
outstanding) $ 4.32
</TABLE>
See accompanying Notes to Financial Statements.
48 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended September 30, 1999
<TABLE>
<CAPTION>
===========================================================================================
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------
<S> <C>
Interest (net of foreign withholding taxes of $572,334) $
830,370,879
- -------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies
20,810,422
Affiliated companies
2,297,162
- -------------
Total income
853,478,463
===========================================================================================
EXPENSES
- -------------------------------------------------------------------------------------------
Management fees--Note 4
43,449,103
- -------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
9,366,471
Class B
38,357,095
Class C
6,503,018
- -------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4:
Class A
4,828,148
Class B
4,885,212
Class C
826,293
Class
Y 759
- -------------------------------------------------------------------------------------------
Shareholder reports
1,863,349
- -------------------------------------------------------------------------------------------
Custodian fees and expenses
1,094,795
- -------------------------------------------------------------------------------------------
Legal, auditing and other professional fees
145,994
- -------------------------------------------------------------------------------------------
Trustees' compensation
101,485
- -------------------------------------------------------------------------------------------
Other
387,308
- -------------
Total expenses
111,809,030
Less expenses paid indirectly--Note 1
(382,888)
- -------------
Net expenses
111,426,142
===========================================================================================
NET INVESTMENT INCOME
742,052,321
===========================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised)
(145,250,408)
Closing of futures contracts
(65,155,797)
Closing and expiration of option contracts written--Note 7
269,380
Foreign currency transactions
(197,505,612)
- -------------
Net realized loss
(407,642,437)
- -------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
(99,030,270)
Translation of assets and liabilities denominated in foreign currencies
(38,348,034)
- -------------
Net change
(137,378,304)
- -------------
Net realized and unrealized loss
(545,020,741)
===========================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $
197,031,580
=============
</TABLE>
See accompanying Notes to Financial Statements.
49 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
1999 1998
=======================================================================================================================
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Net investment income $
742,052,321 $ 687,314,690
- -----------------------------------------------------------------------------------------------------------------------
Net realized loss
(407,642,437) (48,281,873)
- -----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(137,378,304) (616,167,861)
- ----------------------------------------
Net increase in net assets resulting from operations
197,031,580 22,864,956
=======================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A
(332,524,983) (340,411,302)
Class B
(303,784,356) (292,816,126)
Class C
(51,672,509) (41,285,457)
Class Y
(2,954,830) (254,429)
=======================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions--Note 2:
Class A
(145,466,340) 286,365,951
Class B
(434,673,384) 839,747,928
Class
C
(832,561) 280,612,438
Class Y
43,909,649 7,299,336
=======================================================================================================================
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
(1,030,967,734) 762,123,295
- -----------------------------------------------------------------------------------------------------------------------
Beginning of period
8,649,013,805 7,886,890,510
- ----------------------------------------
End of period (including undistributed net investment
income of $19,853,049 and $8,969,641, respectively) $
7,618,046,071 $ 8,649,013,805
========================================
</TABLE>
See accompanying Notes to Financial Statements.
50 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995
=====================================================================================================================
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.59 $4.95
$4.84 $4.68 $4.75
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .42 .42
.43 .44 .41
Net realized and unrealized gain (loss) (.29) (.37)
.09 .15 (.03)
- -------------------------------------------------------------------
Total income (loss) from
investment operations .13 .05
.52 .59 .38
- ---------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.39) (.41)
(.41) (.41) (.41)
Distributions from net realized gain -- --
- -- -- (.01)
Tax return of capital distribution -- --
- -- (.02) (.03)
- -------------------------------------------------------------------
Total dividends and distributions
to shareholders (.39) (.41)
(.41) (.43) (.45)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.33 $4.59
$4.95 $4.84 $4.68
===================================================================
=====================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 2.91% 0.80%
11.29% 13.06% 8.62%
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3,578 $3,951
$3,969 $3,526 $3,219
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,798 $4,077
$3,735 $3,340 $3,085
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 9.34% 8.48%
8.77% 9.09% 9.63%
Expenses 0.94% 0.92%(3)
0.93%(3) 0.97%(3) 0.99%(3)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172% 104%
117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
See accompanying Notes to Financial Statements.
51 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS B YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995
============================================================================================================================
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.61 $4.96
$4.85 $4.69 $4.76
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39
.37 .39 .40 .37
Net realized and unrealized gain (loss) (.30)
(.35) .10 .15 (.03)
- ------------------------------------------------------------------------
Total income (loss) from
investment operations .09
.02 .49 .55 .34
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.36) (.37)
(.38) (.37) (.37)
Distributions from net realized gain --
- -- -- -- (.01)
Tax return of capital distribution --
- -- -- (.02) (.03)
- ------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.36) (.37)
(.38) (.39) (.41)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.34 $4.61
$4.96 $4.85 $4.69
============================================================================================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 1.92% 0.26%
10.43% 12.19% 7.79%
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $3,381 $4,041
$3,501 $2,590 $1,947
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,838 $3,871
$3,018 $2,250 $1,711
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 8.55% 7.73%
7.94% 8.30% 8.83%
Expenses 1.69% 1.67%(3)
1.69%(3) 1.72%(3) 1.75%(3)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172%
104% 117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
See accompanying Notes to Financial Statements.
52 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS C YEAR ENDED SEPTEMBER 30, 1999 1998
1997 1996 1995(5)
======================================================================================================================
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $4.59 $4.95
$4.83 $4.68 $4.68
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .37
.37 .38 .13
Net realized and unrealized gain (loss) (.30) (.36)
.13 .16 .01
- ----------------------------------------------------------------------
Total income (loss) from
investment operations .09 .01
.50 .54 .14
- ----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.36) (.37)
(.38) (.37) (.12)
Distributions from net realized gain -- --
- -- -- (.01)
Tax return of capital distribution -- --
- -- (.02) (.01)
- ----------------------------------------------------------------------
Total dividends and distributions
to shareholders (.36) (.37)
(.38) (.39) (.14)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.32 $4.59
$4.95 $4.83 $4.68
======================================================================
======================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 1.92% 0.05%
10.67% 11.96% 3.09%
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $611 $651
$417 $175 $67
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $650 $547
$291 $110 $24
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 8.58% 7.73%
7.73% 8.18% 8.28%
Expenses 1.69% 1.67%(3)
1.69%(3) 1.74%(3) 2.02%(3)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 172% 104%
117% 105% 142%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
5. For the period from May 26, 1995 (inception of offering) to September 30,
1995.
See accompanying Notes to Financial Statements.
53 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS Y YEAR ENDED SEPTEMBER 30,
1999 1998(6)
==================================================================================================
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------
<S>
<C> <C>
Net asset value, beginning of period
$4.59 $4.90
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.44 .29
Net realized and unrealized gain (loss)
(.30) (.32)
- -----------------------
Total income (loss) from
investment operations .
.14 (.03)
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.41) (.28)
Distributions from net realized gain
- -- --
Tax return of capital distribution
- -- --
- -----------------------
Total dividends and distributions
to shareholders
(.41) (.28)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period
$4.32 $4.59
=======================
==================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1)
3.07% (0.64)%
- --------------------------------------------------------------------------------------------------
==================================================================================================
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (in millions)
$49 $7
- --------------------------------------------------------------------------------------------------
Average net assets (in millions)
$32 $4
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income
10.16% 8.82%
Expenses
0.57% 0.58%(3)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(4)
172% 104%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1999, were $13,602,460,114 and
$13,814,171,199, respectively.
5. For the period from May 26, 1995 (inception of offering) to September 30,
1995.
6. For the period from January 26, 1998 (inception of offering) to September
30, 1998.
See accompanying Notes to Financial Statements.
54 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 objective is to seek high current income by investing mainly in debt
securities and by writing covered call options on them. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class
B, Class C and Class Y shares. Class A shares are sold with a front-end sales
charge on investments up to $1 million. Class B and Class C shares may be
subject to a contingent deferred sales charge (CDSC). Class Y shares are sold to
certain institutional investors without either a front-end sales charge or a
CDSC. All classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. No
such plan has been adopted for Class Y shares. 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.
- --------------------------------------------------------------------------------
SECURITIES 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
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 an
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. Foreign currency exchange contracts are valued based on the
closing prices of the foreign 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 is used.
55 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes may be leveraged, which increases the notes'
volatility relative to the face of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of September 30, 1999, the market value of these
securities comprised 4.90% of the Fund's net assets and resulted in realized and
unrealized losses of $58,973,666. The Fund also hedges a portion of the foreign
currency exposure generated by these securities, as discussed in Note 5.
- --------------------------------------------------------------------------------
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. Normally the
settlement date occurs within six months after the transaction date; however,
the Fund may, from time to time, purchase securities whose settlement date
extends beyond six months and possibly as long as two years or more beyond trade
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 segregated assets with a market value equal to or
greater than 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, 1999, the Fund had
entered into net outstanding when-issued or forward commitments of $367,816,653.
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. As of September 30, 1999, securities with an
aggregate market value of $40,819,279, representing 0.54% of the Fund's net
assets, were in default.
56 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
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 foreign 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.
- --------------------------------------------------------------------------------
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, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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. As of September 30, 1999, the Fund
had available for federal tax purposes an unused capital loss carryover of
approximately $131,000,000, which expires between 2004 and 2007.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
57 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its 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 fiscal year in which the income or realized gain was recorded by
the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended September 30, 1999, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $40,232,235. Accumulated net
realized loss on investments was decreased by the same amount.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of 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 periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
58 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
================================================================================
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, 1999 YEAR
ENDED SEPTEMBER 30, 1998(1)
SHARES AMOUNT
SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
CLASS A
Sold 210,357,994 $ 943,636,992
226,516,643 $ 1,102,213,098
Dividends and/or
distributions reinvested 49,300,561 220,865,642
47,696,173 231,314,549
Redeemed (292,545,647) (1,309,968,974)
(216,278,686) (1,047,161,696)
- ---------------------------------------------------------------------------------
Net increase (decrease) (32,887,092) $ (145,466,340)
57,934,130 $ 286,365,951
=================================================================================
- -----------------------------------------------------------------------------------------------------------------
CLASS B
Sold 138,220,468 $ 623,572,586
259,001,856 $ 1,262,505,059
Dividends and/or
distributions reinvested 39,440,826 177,208,187
35,407,600 171,947,410
Redeemed (275,663,259) (1,235,454,157)
(122,794,164) (594,704,541)
- ---------------------------------------------------------------------------------
Net increase (decrease) (98,001,965) $ (434,673,384)
171,615,292 $ 839,747,928
=================================================================================
- -----------------------------------------------------------------------------------------------------------------
CLASS C
Sold 45,604,390 $ 205,068,929
80,636,266 $ 391,857,497
Dividends and/or
distributions reinvested 7,740,800 34,637,921
5,966,978 28,828,647
Redeemed (53,776,931) (240,539,411)
(29,095,369) (140,073,706)
- ---------------------------------------------------------------------------------
Net increase (decrease) (431,741) $ (832,561)
57,507,875 $ 280,612,438
=================================================================================
- -----------------------------------------------------------------------------------------------------------------
CLASS Y
Sold 11,772,141 $ 52,994,761
1,871,062 $ 9,054,516
Dividends and/or
distributions reinvested 655,519 2,909,707
52,161 248,947
Redeemed (2,696,663) (11,994,819)
(417,943) (2,004,127)
- ---------------------------------------------------------------------------------
Net increase 9,730,997 $ 43,909,649
1,505,280 $ 7,299,336
=================================================================================
</TABLE>
1. For the year ended September 30, 1998 for Class A, Class B and Class C shares
and for the period from January 26, 1998 (inception of offering) to September
30, 1998 for Class Y shares.
================================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of September 30, 1999, net unrealized depreciation on securities and options
written of $567,481,841 was composed of gross appreciation of $164,868,735, and
gross depreciation of $732,350,576.
59 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.75% of
the first $200 million of average annual net assets of the Fund, 0.72% of the
next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million and 0.50% of the average annual net
assets in excess of $1 billion. The Fund's management fee for the year ended
September 30, 1999, was 0.52% of average annual net assets for each class of
shares.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
registered investment companies. OFS's total costs of providing such services
are allocated ratably to these companies.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A
ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES
SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY
ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1)
DISTRIBUTOR(1) DISTRIBUTOR(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
September 30, 1999 $9,786,050 $2,971,417 $547,997
$22,420,501 $1,887,953
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS
B CLASS C
CONTINGENT DEFERRED CONTINGENT
DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY
DISTRIBUTOR RETAINED BY DISTRIBUTOR
- -------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
September 30, 1999 $52,154
$11,656,313 $346,906
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
60 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended September 30, 1999, payments under
the Class A Plan totaled $9,366,471, all of which was paid by the Distributor to
recipients. That included $692,780 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
- --------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide 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 under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended September 30, 1999,
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED
EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $38,357,095 $31,023,782
$127,444,289 3.77%
Class C Plan 6,503,018 3,651,413
10,533,859 1.72
</TABLE>
61 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency exchange contract is a commitment to purchase or sell a
foreign currency at a future date, at a negotiated rate. The Fund may enter into
foreign currency exchange contracts for operational purposes and to seek to
protect against adverse exchange rate fluctuations. Risks to the Fund include
the potential inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates as provided by a reliable bank, dealer or pricing service. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of
the foreign currency transactions. Realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.
As of September 30, 1999, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
CONTRACT
EXPIRATION AMOUNT VALUATION AS
OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000S) SEPT. 30, 1999
APPRECIATION DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
CONTRACTS TO PURCHASE
British Pound Sterling (GBP) 11/22/99 GBP 4,470 $
7,362,165 $ 102,437 $ --
Euro (EUR) 11/24/99 EUR 34,470
36,872,736 745,749 --
Japanese Yen (JPY) 10/4/99-10/7/99 JPY 8,501,823
79,901,155 4,934,934 13,545
- ---------------------------
5,783,120 13,545
- ---------------------------
CONTRACTS TO SELL
Australian Dollar (AUD) 11/17/99 AUD 14,135
9,231,711 -- 56,258
British Pound Sterling (GBP) 10/12/99-12/2/99 GBP 71,050
117,021,939 -- 3,576,486
Euro (EUR) 10/1/99-11/22/99 EUR 6,933
7,415,002 -- 154,113
Hong Kong Dollar (HKD) 1/26/00-1/31/00 HKD 152,947
19,651,307 -- 451,307
Japanese Yen (JPY) 11/24/99 JPY 3,728,275
35,318,290 808,697 --
New Zealand Dollar (NZD) 11/24/99 NZD 42,390
21,915,068 369,355 --
- ---------------------------
1,178,052 4,238,164
- ---------------------------
Total Unrealized Appreciation and
Depreciation $6,961,172 $4,251,709
===========================
</TABLE>
62 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
================================================================================
6. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to 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.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount 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 may recognize 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
and/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.
As of September 30, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF
VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION EXPIRATION DATE CONTRACTS SEPT.
30, 1999 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
CONTRACTS TO PURCHASE
U.S. Treasury Bonds., 10 yr. 12/20/99 1,414
$155,716,750 $ 394,664
- -----------
CONTRACTS TO SELL
Canadian Bond, 10 yr. 12/20/99 150
12,547,125 (47,976)
United Kingdom Gilt 12/24/99 233
40,847,814 878,193
U.S. Treasury Bonds, 30 yr. 12/20/99 270
30,763,125 (92,188)
U.S. Treasury Nts., 5 yr. 12/20/99 3,275
355,235,156 (1,126,665)
U.S. Treasury Nts., 2 yr. 12/29/99 50
10,376,563 (10,937)
- -----------
(399,573)
- -----------
$ (4,909)
===========
</TABLE>
63 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in
the Statement of Investments where applicable. Shares subject to call,
expiration date, exercise price, premium received and market value are detailed
in a note to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the September 30, 1999, was as follows:
<TABLE>
<CAPTION>
CALL
OPTIONS PUT OPTIONS
- -----------------------------------------------------------------------------
NUMBER OF AMOUNT OF
NUMBER OF AMOUNT OF
OPTIONS
PREMIUMS OPTIONS PREMIUMS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Options outstanding as of
September 30, 1998 -- $
- -- 205,825 $ 5,480,781
Options written 15,446,138,995 1,913,443
761,720,472 10,576,863
Options closed or expired (15,446,138,995) (1,913,443)
(264,161,967) (10,170,501)
Options exercised -- --
(124,330) (4,502,103)
- -----------------------------------------------------------------------------
Options outstanding as of
September 30, 1999 -- $ --
497,640,000 $ 1,385,040
=============================================================================
</TABLE>
64 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
================================================================================
8. ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 1999, investments in securities included issues that are
illiquid or restricted. Restricted 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. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of September 30, 1999, was
$699,229,852, which represents 9.18% of the Fund's net assets, of which
$18,640,683 is considered restricted. Information concerning restricted
securities is as follows:
<TABLE>
<CAPTION>
VALUATION PER
UNIT AS OF
SECURITY ACQUISITION DATES COST
PER UNIT SEPT. 30, 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
BONDS
Capitol Queen & Casino, Inc., 12% First Mtg. Nts.,
Series A, 11/15/00
11/18/93-12/17/93 95.98% 0.00%
- ------------------------------------------------------------------------------------------------------------------
ECM Fund, LPI, 14% Sub. Nts., 6/10/02
4/14/92 100.00 98.63
- ------------------------------------------------------------------------------------------------------------------
Tag Heuer International SA, 12% Sr.
Sub. Nts., 12/15/05
12/8/95-8/13/96 102.00 111.41
- ------------------------------------------------------------------------------------------------------------------
Trans World Airlines Lease, 14%
Equipment Trust, 7/2/08
3/19/98 101.00 100.00
STOCKS AND WARRANTS
Becker Gaming, Inc. Wts., Exp. 11/15/00 11/18/93-12/9/93
$ 2.10 $ 0.00
- ------------------------------------------------------------------------------------------------------------------
CGA Group Ltd. Wts., Exp. 12/31/49
6/17/97 -- 0.30
- ------------------------------------------------------------------------------------------------------------------
CGA Group Ltd., Preferred Stock, Series A
6/17/97-12/29/98 25.00 25.00
- ------------------------------------------------------------------------------------------------------------------
ECM Fund, LPI 4/14/92
1,000.00 876.25
- ------------------------------------------------------------------------------------------------------------------
Omnipoint Corp. Wts., Exp. 11/29/00
11/29/95 -- 55.88
- ------------------------------------------------------------------------------------------------------------------
Real Time Data Wts., Exp. 5/31/04
6/30/99 0.01 0.01
</TABLE>
65 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
9. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended September
30, 1999.
66 OPPENHEIMER STRATEGIC INCOME FUND
<PAGE>
A-5
Appendix A
- --------------------------------------------------------------------------------
RATINGS DEFINITIONS
- --------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They 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 are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category. Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- --------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation. CCC: A bond rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
<PAGE>
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being made
on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the due
date. The rating may also be used if a bankruptcy petition has been filed or
similar actions jeopardize payments on the obligation.
- --------------------------------------------------------------------------------
Fitch IBCA, Inc.
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
<PAGE>
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and are
extremely speculative. "DDD" designates the highest potential for recovery of
amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- -------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free U.S.
Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
- --------------------------------------------------------------------------------
Industry Classifications
- --------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-11
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (1) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans3 (4)
Group Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."4 This waiver provision applies to: o
Purchases of Class A shares aggregating $1 million or more.
4 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases are
made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements with the
Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the following
record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the Retirement Plan.
On the date the plan sponsor signs the record-keeping service agreement
with Merrill Lynch, the Plan must have $3 million or more of its assets
invested in (a) mutual funds, other than those advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM"), that are made available
under a Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as "Applicable
Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided under a
contract or arrangement between the Retirement Plan and Merrill Lynch. On
the date the plan sponsor signs the record keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in Applicable
Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs that
agreement, the Plan has 500 or more eligible employees (as determined by
the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a cost-allocation
agreement with the Transfer Agent on or before May 1, 1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. 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 (and no commissions are paid by the Distributor on such
purchases):
o The Manager or its affiliates.
o Present or former officers, directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. 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, a spouse's siblings, aunts, uncles,
nieces and nephews; relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included.
o Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
o 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.
o 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 which are
identified as such 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).
o Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
o Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
o "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
o Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares for
their own accounts may also purchase shares without sales charge but only
if their accounts are linked to a master account of their investment
advisor or financial planner on the books and records of the broker, agent
or financial intermediary with which the Distributor has made such special
arrangements . Each of these investors may be charged a fee by the broker,
agent or financial intermediary for purchasing shares.
o 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.
o Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (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.
o A unit investment trust that has entered into an appropriate agreement
with the Distributor.
o Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
o
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
o 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 Class C TRAC-2000 program on November 24, 1995.
o A qualified Retirement Plan 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, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. 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 sales charges (and no commissions are paid by the Distributor on such
purchases):
o Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
o 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.
o Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to purchase
and pay for shares of Oppenheimer funds using the proceeds of shares
redeemed in the prior 30 days 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 shares of the Fund, and the
Distributor may require evidence of qualification for this waiver.
o Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
o To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
o Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
o For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following 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) To return excess contributions.
(3)
<PAGE>
To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.5
5 This provision does not apply to IRAs
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs
(10) Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the Manager)
if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service
distributions," if the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
o For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
o Shares redeemed involuntarily, as described in "Shareholder Account Rules
and Policies," in the applicable Prospectus.
o Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. 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.
o Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
o Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o
<PAGE>
Distributions from Retirement Plans or other employee benefit plans
for any of the following 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
in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.7
7 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic
Relations Order or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code. For loans to participants
or beneficiaries.8
8 This provision does not apply to loans from 403(b)(7)custodial
plans.
(9) On account of the participant's separation from service.9
9 This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if the
plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions, if the redemption proceeds are rolled over
directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as long as
the aggregate value of the distributions does not exceed 10% of the
account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate value of
the redeemed shares does not exceed 10% of the account's value,
adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the aggregate
value of the redeemed shares does not exceed 10% of the account's value
annually.
B. 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:
o Shares sold to the Manager or its affiliates.
o 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.
o Shares issued in plans of reorganization to which the Fund is a party.
o Shares sold to present or former officers, directors, trustees or employees
(and their "immediate families" as defined above in Section I.A.) of the
Fund, the Manager and its affiliates and retirement plans established by
them for their employees.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
o acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
o purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
<PAGE>
For purchases by 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders 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.
o Shareholders who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| 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 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.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
o withdrawals under an automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account value, adjusted annually, and
o 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
o redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account value; adjusted annually, and o
<PAGE>
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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a result
of direct purchases or purchases pursuant to the Fund's policies on
Combined Purchases or Rights of Accumulation, who still hold those shares
in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales charge.
<PAGE>
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at the
time of the initial purchase and such investment is still held in one or
more of the Former Connecticut Mutual Funds or a Fund into which such Fund
merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5)
<PAGE>
in whole or in part, in connection with shares sold to any state, county,
or city, or any instrumentality, department, authority, or agency
thereof, that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of
any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge: o the Manager and its
affiliates,
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o 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,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
o dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
- --------------------------------------------------------------------------------
Oppenheimer Strategic Income Fund
- --------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
67890
PX230.012000
