Registration No. 33-43795
File No. 811-6458
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 4 / X /
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231
(Address of Principal Executive Offices)
303-671-3200
(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation
Two World Trade Center, Suite 3400, New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On January 25, 1994, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / On ________________, pursuant to paragraph (a)
of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ending September 30, 1993 was filed on November 29, 1993.
<PAGE>
FORM N-1A
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Front Cover Page
2 Fund Expenses
3 Financial Highlights; Fund Performance Information
4 Front Cover Page; The Fund and Its Investment Policies; Special
Investment Methods; Investment Restrictions
5 Fund Expenses; Management of the Fund; Additional Information -
The Custodian and the Transfer Agent; Back Cover
5A Fund Performance Information
6 Management of the Fund; How to Redeem Shares; Dividends,
Distributions and Taxes; Additional Information
7 Fund Expenses; How to Buy Shares; Exchanges of Shares and
Retirement Plans; How to Redeem Shares; Back Cover Page
8 How to Redeem Shares; Exchanges of Shares and Retirement Plans
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Investment Restrictions
14 Trustees and Officers; Investment Management Services
15 Investment Objective and Policies; Trustees and Officers -
Major Shareholders; Investment Management Services
16 Investment Management Services; Distribution and Service Plans;
Additional Information
17 Brokerage
18 Additional Information - Description of the Fund
19 Purchase, Redemption and Pricing of Shares; Automatic
Withdrawal Plan Provisions; Letters of Intent
20 Performance, Dividend and Tax Information
21 Distribution and Service Plans; Additional Information -
General Distributor's Agreement; Investment Management
Services; Brokerage; Financial Statements
22 Performance, Dividend and Tax Information
23 Financial Statements
______________
* Not applicable or negative answer.
<PAGE>
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
Supplement dated January 25, 1994
to the Prospectus Dated January 25, 1994
For Use by Residents of the State of Missouri
In its operations, the Fund may utilize the following special techniques
when such use appears appropriate: leverage (borrowing to purchase
securities) and short-term trading. These techniques may be considered
to be speculative investment methods and subject an investment in the Fund
to relatively greater risks and costs that may not be present in a mutual
fund that does not utilize such techniques.
The Fund may retain debt securities which have been downgraded below
investment grade in an amount up to 35% of its total assets.
January 25, 1994 PS245
<PAGE>
OPPENHEIMER STRATEGIC
INVESTMENT GRADE BOND FUND
3410 South Galena Street, Denver, CO 80231
Telephone: 1-800-525-7048
Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") is an
investment company which seeks a high level of current income, consistent
with stability of principal, as is available from a portfolio of
investment grade debt securities. The Fund's assets are invested primarily
in (i) U.S. government bonds, (ii) foreign fixed income bonds, and (iii)
investment grade corporate bonds and debentures.
The Fund offers two classes of shares which may be purchased at a price
equal to their respective net asset value per share, plus a sales charge.
The investor may elect to purchase shares with a sales charge imposed (1)
at the time of purchase (the "Class A shares"), or (2) on a contingent
deferred basis (the "Class B shares"). Class B shares are also subject to
an additional asset-based sales charge. The contingent deferred sales
charge will be imposed on most redemptions of Class B shares within six
years of purchase. These alternatives permit an investor to choose the
method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. See "How to Buy Shares
- - Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement"), dated
January 25, 1994, has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon written request
to Oppenheimer Shareholder Services ("the Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free
number shown above. The Additional Statement (which is incorporated in its
entirety by reference in this Prospectus) contains more detailed
information about the Fund and its management.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the F.D.I.C.
or any other agency, and involve investment risks, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus is effective January 25, 1994.
<PAGE>
Table of Contents
Page
Fund Expenses
Financial Highlights
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Alternative Sales Arrangements
Class A Shares
Class A Sales Charge Table
Class A Contingent Deferred Sales Charge
Reduced Sales Charges for Class A Purchases
Class A Service Plan
Class B Shares
Class B Contingent Deferred Sales Charge
Class B Conversion Feature
Class B Distribution and Service Plan
Purchase Programs for Class A and Class B Shares
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
Check Writing
Distributions from Retirement Plans
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares and Retirement Plans
Dividends, Distributions and Taxes
Fund Performance Information
Additional Information
Appendix: Description of Ratings
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses paid by the Fund during its fiscal year ended
September 30, 1993 (as to Class A shares) and its fiscal period ended
September 30, 1993 (as to Class B shares). The public offering of Class
B shares of the Fund commenced on November 30, 1992.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales
Charge on Redemptions None(1) 5.0%(2)
Redemption Fee None None
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses (Restated)
(as a percentage of average net assets)
Class A Class B
Shares Shares
Management Fees .75% .75%
12b-1 (Distribution
and/or Service Plan) Fees .25% 1.00%
Other Expenses .46% .45%
Total Fund Operating Expenses 1.46% 2.20%
______________
(1)Certain Class A share purchases of $1 million or more are not
subject to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares - Class A Contingent
Deferred Sales Charge" below.
(2)A contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of their purchase, subject to
certain exceptions. That charge is imposed as a percentage of net asset
value at the time of purchase or redemption, whichever is less, and
declines from 5.0% in the first year that shares are held, to 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 eliminated thereafter. There is no charge on
Class B shares held for more than six years. See "How to Buy Shares -
Class B Contingent Deferred Sales Charge" below.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly
(Shareholder Transaction Expenses) or indirectly (Annual Fund Operating
Expenses). The sales charge rate shown for Class A shares is the current
maximum rate applicable to purchases of Class A shares of the Fund.
Investors in Class A shares may be entitled to reduced sales charges based
on the amount purchased or the value of shares already owned and may be
subject to a contingent deferred sales charge in limited circumstances
(see "How to Buy Shares - Class A Contingent Deferred Sales Charge"). The
"Annual Fund Operating Expenses" in the table above have been restated to
reflect the termination, effective November 24, 1993, of a voluntary
expense assumption by the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"). See "Investment Management
Services" in the Additional Statement. Such restatement shows what the
Fund's management fees and operating expenses would have been in the
Fund's fiscal year ended September 30, 1993 had the expense assumption
undertaking not been in effect during that year. As a result of the
effect of the voluntary expense undertaking by the Manager, the management
fee during the fiscal year ended September 30, 1993 for Class A shares and
Class B shares was .41% and .39%, respectively, of average net assets and
"Total Fund Operating Expenses" were 1.12% for Class A shares and 1.84%
for Class B shares. "Other Expenses" includes such expenses as custodial
and transfer agent fees, audit, legal and other business operating
expenses, but excludes extraordinary expenses. For further details, see
"Dual Class Methodology" and the Fund's financial statements, both
included in the Additional Statement.
The following examples apply the above-stated expenses and the current
maximum sales charge to a hypothetical $1,000 investment in shares of the
Fund over the time periods shown below, assuming a 5% annual rate of
return on the investment. The amounts shown below are the cumulative costs
of such hypothetical $1,000 investment for the periods shown and, except
as indicated in lines 3 and 4, assume that the shares are redeemed at the
end of each stated period.
1 year 3 years 5 years 10 years(1)
1. Class A shares $62 $91 $123 $214
2. Class B shares $72 $99 $138 $218
3. Class A shares, assuming
no redemption $62 $91 $123 $214
4. Class B shares, assuming
no redemption $22 $69 $118 $218
__________
(1) Class B shares convert to Class A shares under the terms and
conditions described under "How to Buy Shares - Class B Conversion
Feature." Therefore, years 7 through 10 reflect the Class A expenses
shown above. Long-term shareholders of Class B shares could pay the
economic equivalent, through the asset-based sales charge and contingent
deferred sales charge imposed on Class B shares, of more than the maximum
front-end sales charges permitted under applicable regulatory
requirements. The Class B Conversion Feature is intended to minimize the
likelihood that this will occur.
These examples should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a Class A share and Class B share of the Fund
outstanding throughout each period
The information in the table below has been audited by Deloitte &
Touche, independent auditors, whose report on the financial statements of
the Fund for the fiscal year ended September 30, 1993 (as to Class A
shares) and the fiscal period ended September 30, 1993 (as to Class B
shares) is included in the Additional Statement. The public offering of
Class B shares of the Fund commenced on November 30, 1992.
<TABLE>
<CAPTION>
CLASS A CLASS B
Period Ended
Year Ended September 30, September 30,
1993 1992+ 1993++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.16 $ 5.00 $ 4.95
Income from investment operations:
Net investment income .36 .14 .27
Net realized and unrealized gain (loss) on investments,
options written and foreign currencies (.01) .19 .19
Total income from investment operations .35 .33 .46
Dividends and distributions to shareholders:
Dividends from net investment income (.37) (.14) (.27)
Distributions from net realized gain on investments,
options written and foreign currency transactions - (.03) -
Total dividends and distributions to shareholders (.37) (.17) (.27)
Net asset value, end of period $ 5.14 $ 5.16 $ 5.14
Total Return, at Net Asset Value** 7.24% 6.67% 9.76%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $30,783 $16,099 $10,800
Average net assets (in thousands) $25,972 $ 4,939 $ 5,310
Number of shares outstanding at end of period
(in thousands) 5,989 3,117 2,103
Ratios to average net assets:
Net investment income 7.18% 7.28%* 6.28%*
Expenses, before voluntary reimbursement by the Manager 1.46% 2.00%* 2.20%*
Expenses, net of voluntary reimbursement by the Manager 1.12% .29%* 1.84%*
Portfolio turnover rate*** 90.3% 30.6% 90.3%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
***The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$48,899,885 and $25,226,794, respectively.
+For the period from April 27, 1992 (commencement of operations) to
September 30, 1992.
++For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
</TABLE>
<PAGE>
The Fund and Its Investment Policies
The Fund is an open-end diversified management investment company
organized as a Massachusetts business trust on October 30, 1991. The
Fund's investment objective is to seek a high level of current income,
consistent with the stability of principal, as is available from a
portfolio of investment grade debt securities. The Fund's investment
policies and practices are not "fundamental" policies (as defined below)
unless a particular policy is identified as fundamental. The Fund's Board
of Trustees (the "Board") may change non-fundamental investment policies
without shareholder approval.
The Fund intends to invest principally in: (i) U.S. government
securities; (ii) foreign fixed-income securities; and (iii) investment
grade corporate bonds and debentures. Investment grade debt securities are
rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or at
least "BBB" by Standard & Poor's Corporation ("Standard & Poor's") or, if
unrated, are determined by the Manager as offering risks comparable to
securities meeting those rating requirements. Factors that the Manager
will consider in selecting foreign obligations for the Fund's portfolio
are discussed below under "Foreign Fixed-Income Securities."
Under normal circumstances, the assets of the Fund will principally be
invested in each of the three respective sectors described above and at
least 65% of the Fund's total assets (the "65% Policy") will be invested
in U.S. government bonds or domestic or foreign bonds or debentures rated
at least "Baa" by Moody's or at least "BBB" by Standard & Poor's. Bonds
rated "Baa" or "BBB" may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity of the issuer to make principal and interest payments
than is the case with higher grade bonds. The Fund will not purchase any
bonds rated below "Baa" by Moody's or below "BBB" by Standard & Poor's.
Although the Fund is not obligated to dispose of securities that fall
below the above-stated ratings subsequent to purchase, no more than 35%
of the Fund's total assets will be invested in bonds which have been
downgraded below investment grade. Lower-rated securities, while generally
offering higher current income and greater opportunities for gain than
investments in higher-rated securities, are considered speculative and
involve greater volatility of price and risk of principal and income
default than securities in the higher-rated categories. The Appendix to
this Prospectus describes these rating categories and explains the degree
to which bonds in the lowest permitted rating categories have or may
develop speculative characteristics. The Manager will not rely solely on
the ratings assigned by rating services and may invest, without
limitation, in unrated securities which are, as determined by the Manager,
comparable to those rated securities in which the Fund may invest.
In seeking its objective of a high level of current income, consistent
with the stability of principal, as is available from a portfolio of
investment grade debt securities, the Fund's emphasis on securities with
short, intermediate or longer-term maturities will change over time in
response to changing market conditions. The Fund may from time to time
invest up to 35% of its total assets (including securities downgraded
below investment grade subsequent to purchase) in short-term debt
obligations issued by foreign governments or domestic or foreign
corporations denominated in U.S. dollars or selected foreign currencies
(including, among others, participation interests, commercial paper and
bank obligations, discussed below), if, in the Manager's judgment, the
Fund has the opportunity of seeking a high level of current income without
undue risk to principal. Distributable income will fluctuate as the Fund
shifts its assets among the three sectors. There can be no assurance that
the Fund will achieve its investment objective.
Domestic Fixed-Income Securities
The Fund may invest in fixed-income securities and dividend paying
common stocks issued by domestic corporations in any industry (e.g.,
industrial, financial or utility) which may be denominated in U.S. dollars
or in non-U.S. currencies. There is no restriction as to the size of the
issuer, although most will have total assets in excess of $100 million.
These investments may include debt obligations such as bonds, debentures
(i.e., unsecured bonds) and notes (including variable and floating rate
instruments), preferred stocks, zero coupon securities and sinking fund
and callable bonds. If a bond held by the Fund is selling at a premium (or
discount) and the issuer exercises the call or makes a mandatory sinking
fund payment, the Fund would realize a loss (or gain) in market value; the
income from the reinvestment of the proceeds would be determined by
current market conditions.
- Preferred Stocks. Preferred stock, unlike common stock, generally
offers a stated dividend rate payable from the corporation's earnings.
Such preferred stock dividends may be cumulative or non-cumulative, fixed,
participating, or auction rate. If interest rates rise, a fixed dividend
on preferred stocks may be less attractive, causing the price of preferred
stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. The rights to payment of
preferred stocks are generally subordinate to rights associated with a
corporation's debt securities.
- Participation Interests. The Fund may acquire participation
interests in loans that are made primarily to U.S. companies (the
"borrower"). The Fund currently intends to invest no more than 5% of its
net assets during the coming year in participation interests. Such
participation interests, which may take the form of interests in, or
assignments of, the loan, may be acquired from banks or other lenders who
have made loans or are members of a lending syndicate. The Fund's
investments in participation interests are subject to its limitation on
investments in illiquid securities (see "Illiquid and Restricted
Securities," below). Further details are set forth in the Additional
Statement under "Investment Objective and Policies - Domestic Securities
- - Participation Interests."
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by corporations or private issuers. These zero coupon
securities are (i) notes or debentures which do not pay current interest
and are issued at substantial discounts from par value, or (ii) notes or
debentures that pay no current interest until a stated date one or more
years into the future, after which the issuer is obligated to pay interest
until maturity, usually at a higher rate than if interest were payable
from the date of issuance. Such zero coupon securities, in addition to the
risks identified below under "U.S. Government Securities - Zero Coupon
Securities," are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the
obligation.
- Asset-Backed Securities. The Fund may invest in securities that
represent fractional undivided interests in pools of consumer loans,
similar in structure to the mortgage-backed securities in which the Fund
may invest, described below. Payments of principal and interest are passed
through to holders of asset-backed securities and are typically supported
by some form of credit enhancement, such as a letter of credit, surety
bond, or limited guarantee by another entity or having a priority to
certain of the borrower's other securities. The degree of credit
enhancement varies, and generally applies, until exhausted, to only a
fraction of the asset- backed security's par value. If the credit
enhancement of an asset-backed security held by the Fund has been
exhausted, and if any required payments of principal and interest are not
made with respect to the underlying loans, the Fund may then experience
losses or delays in receiving payment. Further details are set forth in
the Additional Statement under "Investment Objective and Policies -
Domestic Securities - Asset-Backed Securities."
U.S. Government Securities
The Fund may invest in debt obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"). Although U.S. Government Securities are considered among the
most creditworthy of fixed-income investments, their yields are generally
lower than the yields available from corporate debt securities, and the
values of U.S. Government Securities (and of most fixed-income securities
generally) will vary inversely to changes in prevailing domestic interest
rates. To compensate for the lower yields available on U.S. Government
Securities, the Fund will attempt to augment these yields by writing
covered call options against them. See "Special Investment Methods -
Writing Covered Calls," below.
Certain U.S. Government Securities, including U.S. Treasury notes and
bonds, and securities guaranteed by the Government National Mortgage
Association ("Ginnie Maes"), are supported by the full faith and credit
of the United States. Certain other U.S. Government Securities, issued or
guaranteed by Federal agencies or government- sponsored enterprises, are
not supported by the full faith and credit of the United States. These
latter securities may include obligations supported by the right of the
issuer to borrow from the U.S. Treasury (which is not under a legal
obligation to make such loans), such as obligations of the Federal Home
Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by
the credit of the instrumentality, such as Federal National Mortgage
Association bonds ("Fannie Maes"). U.S. Government Securities in which the
Fund may invest include, among others, zero coupon U.S. Treasury
securities, mortgage-backed securities and money market instruments.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury. Zero coupon Treasury securities
are U.S. Treasury notes and bonds which have been stripped of their
unmatured interest coupons and receipts. Because a zero coupon security
pays no interest to its holder during its life or for a substantial period
of time, it usually trades at a deep discount from its face or par value,
does not pay current cash income, and will be subject to greater
fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which make current distributions
of interest. Because the Fund accrues taxable income from zero coupon
securities issued by either the U.S. Treasury or corporations without
receiving cash, the Fund may be required to sell portfolio securities in
order to pay a dividend depending, among other things, upon the proportion
of shareholders who elect to receive dividends in cash rather than
reinvesting dividends in additional shares of the Fund. The Fund might
also sell portfolio securities to maintain portfolio liquidity. In either
case, cash distributed or held by the Fund and not reinvested in Fund
shares will hinder the Fund in seeking a high level of current income.
- Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities which represent participation interests in pools of
residential mortgage loans which may or may not be guaranteed by agencies
or instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie
Macs and Fannie Maes), including collateralized mortgage-backed
obligations ("CMOs"). Such securities differ from conventional debt
securities which provide for periodic payment of interest in fixed amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Mortgage-backed securities provide monthly payments which are,
in effect, a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans.
The Fund's reinvestment of scheduled principal payments and unscheduled
prepayments it receives may occur at lower rates than the original
investment, thus reducing the yield of the Fund. Mortgage-backed
securities may be less effective than debt obligations of similar maturity
at maintaining yields during periods of declining interest rates. The
issuer's obligation to make interest and principal payments is secured by
the underlying portfolio of mortgages or mortgage- backed securities.
Mortgage-backed securities created by private issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit,
which may be issued by governmental entities, private insurers or the
mortgage poolers. There can be no assurance that private issuers will be
able to meet their obligations.
The Fund may also enter into "forward roll" transactions under which
it sells the mortgage- backed securities in which it may invest to banks
or other permitted entities and simultaneously agrees to repurchase a
similar security from that party at a later date at an agreed-upon price.
Forward rolls are considered to be a borrowing by the Fund (see "Special
Investment Methods - Borrowing"). The Fund would be required to place
liquid assets (e.g., cash, U.S. Government securities or other high-grade
debt securities) in a segregated account with its Custodian in an amount
equal to its obligation under the roll; that amount is subject to the
limitation on borrowing described below. The principal risk of forward
rolls is the risk of default by the counterparty. As new types of
mortgage-related securities are developed and offered to investors, the
Manager will, subject to the direction of the Board and consistent with
the Fund's investment objective and policies, consider making investments
in such new types of mortgage-related securities.
Foreign Fixed-Income Securities
The Fund may invest in debt obligations (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities, and debt obligations
issued by U.S. corporations denominated in non-U.S. currencies. These
investments may include (i) U.S. dollar denominated debt obligations known
as "Brady Bonds", which are issued for the exchange of existing commercial
bank loans to foreign entities for new obligations that are generally
collateralized by zero coupon Treasury securities having the same
maturity, (ii) debt obligations such as bonds (including sinking fund and
callable bonds), (iii) debentures and notes (including variable and
floating rate instruments), and (iv) preferred stocks and zero coupon
securities. Further details on these various types of instruments are set
forth under "Domestic Fixed-Income Securities," above and "Investment
Objective and Policies" in the Additional Statement.
The percentage of the Fund's assets that will be allocated to such
foreign securities will vary depending on, among other things, the
relative yields of foreign and U.S. securities, the economies of foreign
countries, the condition of such countries' financial markets, the
interest rate climate of such countries, sovereign credit risk and the
relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and political data.
Subsequent foreign currency losses may result in the Fund having
previously distributed more income in a particular period than was
available from investment income, which could result in a return of
capital to shareholders. The Fund's portfolio of foreign securities may
include those of a number of foreign countries or, depending upon market
conditions, those of a single country.
No more than 25% of the Fund's total assets, at the time of purchase,
will be invested in government securities of any one foreign country or
in debt securities issued by companies organized under the laws of any one
foreign country. The Fund has no other restriction on the amount of its
assets that may be invested in foreign securities and may purchase
securities issued in any country, developed or underdeveloped. Investments
in securities of issuers in non-industrialized countries generally involve
more risk and may be considered highly speculative. Securities of foreign
issuers that are represented by American Depository Receipts, or that are
listed on a U.S. securities exchange, or are traded in the U.S.
over-the-counter market are not considered "foreign securities" because
they are not subject to many of the special considerations and risks
(discussed below and in the Additional Statement) that apply to foreign
securities traded and held abroad. If the Fund's securities are held
abroad, the countries in which such securities may be held and the
sub-custodians holding them must be, in most cases, approved by the Board
under applicable SEC rules. Investment in foreign securities involves
considerations and risks not associated with investment in securities of
U.S. issuers. For example, foreign issuers are not required to use
generally- accepted accounting principles ("G.A.A.P."). If foreign
securities are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), the issuer may not have to comply with the
disclosure requirements of the Securities Exchange Act of 1934, as
amended. The values of foreign securities investments will be affected by
a variety of factors, including among others, incomplete or inaccurate
information available as to foreign issuers, changes in currency rates,
exchange control regulations or currency blockage, expropriation or
nationalization of assets, application of foreign tax laws (including
withholding taxes), changes in governmental administration or economic or
monetary policy in the U.S. or abroad, or changed circumstances in
dealings between nations. In addition, it is generally more difficult to
obtain court judgments outside the United States. Additional costs may be
incurred in connection with investments in foreign securities because of
generally higher foreign commissions and the additional custodial costs
associated with monitoring foreign securities. See "Investment Objective
and Policies - Foreign Securities" in the Additional Statement for the
risks and possible rewards of investing in securities of foreign
corporations and governments.
Temporary Defensive Investments
In times of unstable economic or market conditions, when the Manager
determines it appropriate to do so, the Fund may assume a temporary
defensive position and invest an unlimited amount of its assets in U.S.
dollar-denominated debt obligations issued by the U.S. or foreign
governments and domestic or foreign corporations or banks maturing in one
year or less ("money market securities"). The Fund will purchase money
market securities to maintain liquidity deemed necessary by the Manager
for investment purposes, and to minimize the impact of fluctuating
interest rates on the net asset value of the Fund. To the extent the Fund
is so invested, it is not invested to achieve its investment objective of
seeking a high level of current income.
The Fund may invest in the following money market securities:
- U.S. Government Securities: Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
- Bank Obligations: Certificates of deposit, bankers' acceptances,
time deposits, and letters of credit if they are payable in the United
States or London, England, and are issued or guaranteed by a domestic or
foreign bank having total assets in excess of $1 billion.
- Commercial Paper: Obligations rated at least "A-3" by Standard &
Poor's or at least "Prime-3" by Moody's or, if not rated, issued by a
corporation having an existing debt security rated at least "BBB" or "Baa"
by Standard & Poor's or Moody's, respectively. The Fund's commercial paper
investments may include variable amount master demand notes and floating
rate or variable rate notes.
- Corporate Obligations: Corporate debt obligations (including master
demand notes and obligations other than commercial paper) if they are
issued by domestic corporations and are rated at least "BBB" or "Baa" by
Standard & Poor's or Moody's, respectively, or unrated securities which
are of comparable quality in the opinion of the Manager.
- Other Obligations: Other money market obligations of the type listed
above, but not satisfying the standards set forth therein, if they are (a)
subject to repurchase agreements or (b) guaranteed as to principal and
interest by a domestic or foreign bank having total assets in excess of
$1 billion, by a corporation whose commercial paper may be purchased by
the Fund, or by a foreign government having an existing debt security
rated at least "BBB" or "Baa."
- Board-Approved Instruments: Other short-term investments of a type
which the Board determines presents minimal credit risks and which are of
"high quality" as determined by any major rating service or, in the case
of an instrument that is not rated, of comparable quality as determined
by the Board.
Portfolio Characteristics
During periods of falling interest rates, the values of outstanding
fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Because the Fund will actively use
trading to benefit from short-term yield disparities among different
issues of fixed-income securities or otherwise to increase its income, the
Fund may be subject to a greater degree of portfolio turnover than might
be expected from investment companies which invest substantially all of
their assets on a long-term basis. The Fund anticipates that it will move
to securities of longer maturity as interest rates decline, and to
securities of shorter maturity as interest rates rise.
Higher portfolio turnover results in increased Fund expenses, including
brokerage commissions, dealer mark-ups and other transaction costs on the
sale of securities and on the reinvestment of sale proceeds in other
securities, and results in the acceleration of realization of capital
gains or losses for tax purposes. To the extent that increased portfolio
turnover results in gains from sales of securities held less than three
months, the Fund's ability to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), may be affected. Although changes in the value of the Fund's
portfolio securities subsequent to their acquisition are reflected in the
net asset value of the Fund's shares, such changes will not affect the
income received by the Fund from such securities. The dividends paid by
the Fund will increase or decrease in relation to the income received by
the Fund from its investments, which will in any case be reduced by the
Fund's expenses before being distributed to the Fund's shareholders.
Special Investment Methods
In pursuing its investment objectives, the Fund may use the following
special investment methods.
Special Risk Considerations -- Borrowing
From time to time, the Fund may increase its ownership of securities
by borrowing from banks on an unsecured basis and investing the borrowed
funds (on which the Fund will pay interest), provided that immediately
after any such borrowing, the Fund's total assets, less its liabilities
other than borrowings, are equal to at least 300% of all borrowings.
"Forward roll" transactions, discussed under "Mortgage-Backed Securities
and CMOs," are also a form of borrowing by the Fund, subject to that asset
coverage requirement. Purchasing securities with borrowed funds is a
speculative investment method known as "leverage." There are risks
associated with leveraging purchases of portfolio securities by borrowing,
including possible reduction of income and increased fluctuation of net
asset value per share. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have substantially reduced net
investment income during periods of substantial borrowings. Further
details are in "Special Investment Methods - Borrowing" in the Additional
Statement.
Repurchase Agreements
The Fund may acquire securities that are subject to repurchase
agreements, in order to generate income while providing liquidity. The
Fund's repurchase agreements will be fully collateralized. If the seller
of the securities fails to pay the agreed- upon repurchase price on the
delivery date, the Fund's risks may include any costs of disposing of the
collateral, and any losses that might result from any delay in foreclosing
on the collateral. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements maturing in seven days
or less. See "Special Investment Methods - Repurchase Agreements" in the
Additional Statement for more details.
Loans of Portfolio Securities
To attempt to increase its income and for liquidity purposes, the Fund
may lend its portfolio securities (other than in repurchase transactions)
to brokers, dealers and other financial institutions meeting certain
specified credit conditions if the loan is collateralized in accordance
with applicable regulatory requirements, and if, after any loan, the value
of securities loaned does not exceed 25% of the value of the Fund's total
assets. The Fund presently does not intend that the value of securities
loaned will exceed 5% of the value of the Fund's total assets during the
coming year. In connection with securities lending, the Fund might
experience risks of delay in receiving additional collateral, or risks of
delays in recovery of the securities, or loss of rights in the collateral
should the borrower fail financially. See "Special Investment Methods" in
the Additional Statement for further information on securities loans.
Restricted and Illiquid Securities
The Fund will not purchase or otherwise acquire any security, if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market, or because of legal or contractual
restrictions on resale ("restricted securities"). This limitation applies
to participation interests, bank time deposits, master demand notes,
repurchase agreements having a maturity beyond seven days,
over-the-counter options held by the Fund, and that portion of assets
used to cover over-the-counter options. This policy is not a fundamental
policy and does not limit the acquisition of restricted securities
eligible for resale to qualified institutional buyers pursuant to Rule
144A under the Securities Act that are determined to be liquid by the
Board, or by the Manager under Board-approved guidelines. Such guidelines
take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. If
there is a lack of trading interest in particular Rule 144A securities,
the Fund's holdings of those securities may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing
their fair value. See "Investment Objective and Policies - Restricted and
Illiquid Securities" in the Additional Statement for further details. The
Fund currently intends to invest no more than 10% of its net assets in
illiquid and restricted securities, excluding securities eligible for
resale pursuant to Rule 144A under the Securities Act that are determined
to be liquid by the Board or by the Manager under Board-approved
guidelines.
When-Issued and Delayed Delivery Transactions
The Fund may purchase securities on a "when- issued" basis, and may
purchase or sell such securities on a "delayed delivery" basis. "When-
issued" or "delayed delivery" refers to securities the terms and indenture
of which are available and for which a market exists, but which are not
available for immediate delivery. The Fund does not intend to make such
purchases for speculative purposes. During the period between the purchase
and settlement, no payment is made for the security and no interest
accrues to the buyer from the investment. The commitment to purchase a
security for which payment will be made on a future date may be deemed a
separate security and involves a risk of loss if the value of the security
declines prior to the settlement date. See "Investment Objective and
Policies -- When-Issued and Delayed Delivery Transactions" in the
Additional Statement for further details.
Short Sales Against-the-Box
The Fund may not sell securities short except in transactions referred
to as "short sales against-the-box." No more than 15% of the Fund's net
assets will be held as collateral for such short sales at any one time.
Short sales against-the-box may be made to defer, for Federal income tax
purposes, recognition of gain or loss on the sale of securities "in the
box" until the short position is closed out.
Writing Covered Calls
The Fund may write (i.e., sell) call options ("calls") on debt
securities, preferred stock, common stock and other securities that are
traded on U.S. and foreign securities exchanges and over- the-counter
markets, to enhance income through the receipt of premiums from expired
calls and any net profits from closing purchase transactions. After any
such sale, up to 100% of the Fund's total assets may be subject to calls.
All such calls written by the Fund must be "covered" while the call is
outstanding (i.e., the Fund must own the securities subject to the call
or other securities acceptable for applicable escrow requirements). The
Fund may also write calls on Futures (discussed below) which must be
covered by deliverable securities or by liquid assets (e.g., cash, U.S.
Government Securities or other high-grade debt securities) segregated to
satisfy the Futures (defined below) contract.
Hedging
For hedging purposes, the Fund may enter into contracts for the
purchase or sale for future delivery of fixed-income securities ("Interest
Rate Futures") or foreign currencies ("Forward Contracts") or contracts
based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities
("Financial Futures") (collectively, "Futures"); and call and put options
on debt securities, Futures and foreign currencies; and interest rate swap
transactions (all of the foregoing are referred to as "Hedging
Instruments"). Hedging Instruments may be used to attempt to: (i) protect
against possible declines in the market value of the Fund's portfolio
resulting from downward market trends (generally due to a rise in interest
rates), (ii) protect unrealized gains or limit unrealized losses in the
value of the Fund's securities which have appreciated, (iii) facilitate
selling debt securities for investment reasons, (iv) establish a position
in the debt securities markets as a temporary substitute for purchasing
particular debt securities, or (v) reduce the risk of adverse currency
fluctuations. A call or put may be purchased only if, after such purchase,
the value of all call and put options held by the Fund would not exceed
5% of the Fund's total assets. The Fund will not use Futures and options
on Futures for speculation. At present, the Fund does not intend to enter
into Futures, Forward Contracts and options on Futures if, after any such
purchase or sale, the sum of margin deposits on Futures and premiums paid
on Futures options exceeds 5% of the value of the Fund's total assets. The
Fund's potential liability under Futures contracts and options generally
will be significantly in excess of such amount. The Hedging Instruments
the Fund may use are described below.
- Interest Rate Futures and Financial Futures. The Fund may buy and
sell Futures. An Interest Rate Future obligates the seller to deliver and
the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
A financial index assigns relative values to the securities included in
that index and is used as a basis for trading Financial Futures contracts.
Financial Futures reflect the price movements of securities included in
the index. They differ from Interest Rate Futures in that settlement is
made in cash rather than by delivery of the underlying investment.
- Purchasing Calls on Securities and Futures. The Fund may purchase
calls on debt securities or on Futures that are traded on U.S. or foreign
securities exchanges or over-the-counter markets in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of long-term debt securities.
The value of debt securities underlying calls purchased by the Fund will
not exceed the value of the portion of the Fund's portfolio invested in
cash or cash equivalents (i.e., securities with maturities of less than
one year).
- Puts on Securities and Futures. The Fund may purchase put options
("puts") which relate to debt securities (whether or not it holds such
securities in its portfolio) or Futures. It may also write puts on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. Such options are traded on U.S. or foreign securities
exchanges or over-the-counter markets. 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 liquid assets.
- Foreign Currency Options. The Fund may purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or over-the-counter market or quoted by major recognized dealers
in such options, for the purpose of protecting against declines in the
dollar value of foreign securities and against increases in the dollar
cost of foreign securities to be acquired. If a rise is anticipated in the
dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset
by purchasing calls or writing puts on that foreign currency. If a decline
in the dollar value of a foreign currency is anticipated, the decline in
value of portfolio securities denominated in that currency may be
partially offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, the Fund would lose the premium it paid and
transactions costs.
- Forward Contracts. The Fund may enter into foreign currency exchange
contracts ("Forward Contracts"), which obligate the seller to deliver and
the purchaser to take a specific amount of foreign currency at a specific
future date for a fixed price. The Fund may enter into a Forward Contract
in order to "lock in" the U.S. dollar price of a security denominated in
a foreign currency which it has purchased or sold but which has not yet
settled, or to protect against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S.
dollar and a foreign currency. Forward Contracts include standardized
foreign currency futures contracts which are traded on exchanges and are
subject to procedures and regulations applicable to other Futures. The
Fund may also enter into a Forward Contract to sell a foreign currency
denominated in a currency other than that in which the underlying security
is denominated. This is done in the expectation that there is a greater
correlation between the foreign currency of the Forward Contract and the
foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. This technique is
referred to as "cross hedging". The success of cross hedging depends on
many factors, including the ability of the Manager to correctly identify
and monitor the correlation between foreign currencies and the U.S.
dollar. To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund will not speculate in foreign currency exchange contracts.
There is no limitation as to the percentage of the Fund's assets that may
be committed to foreign currency exchange contracts. The Fund does not
enter into such Forward Contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Hedging Instruments" in the Additional Statement for a discussion of the
tax treatment of foreign currency exchange contracts.
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps. In an interest rate swap, the Fund and another party exchange
their respective commitments to pay or receive interest on a security,
(e.g., an exchange of floating rate payments for fixed rate payments).
The Fund will not use interest rate swaps for leverage. Swap transactions
will be entered into only as to security positions held by the Fund. The
Fund may not enter into swap transactions with respect to more than 50%
of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal to the
net excess, if any, of its obligations over its entitlements under the
swap and will mark to market that amount daily. The interest rate risk
of a swap is that the Fund could be obligated to pay more under its swap
agreements than it receives, as a result of interest rate changes. The
credit risk of a swap depends on the counterparty's ability to perform.
The value of the swap may decline if the counterparty's creditworthiness
deteriorates. If the counterparty defaults, the Fund risks the loss of
the net amount of interest payments that it is contractually entitled to
receive. The Fund may be able to reduce or eliminate its exposure to
losses under swap agreements either by assigning them to another party,
or by entering into an offsetting swap agreement with the same
counterparty or another creditworthy counterparty. See "Special
Investment Methods - Covered Calls and Hedging" in the Additional
Statement for further details.
- Risks of Options and Futures Trading. "Special Investment Methods -
Covered Calls and Hedging" in the Additional Statement contains more
information about the characteristics, risks, tax effects and possible
benefits of options, Futures, Forward Contracts, segregation arrangements
for Forward Contracts and the Fund's other limitations (which are not
fundamental policies) relating to investment in Futures and options. There
are certain risks in writing calls. If a call written by the Fund is
exercised, the Fund foregoes any profit from any increase in the market
price above the call price of the underlying investment on which the call
was written. In addition, the Fund could experience capital losses which
might cause previously distributed short-term capital gains to be re-
characterized as a non-taxable return of capital to shareholders. In
writing puts, there is the risk that the Fund may be required to buy the
underlying security at a disadvantageous price. The principal risks of
Futures trading are: (a) possible imperfect correlation between the prices
of the Futures and the market value of the debt securities in the Fund's
portfolio; (b) possible lack of a liquid secondary market for closing out
a Futures position; (c) the need for additional skills and techniques
beyond those required for normal portfolio management; and (d) losses on
Futures resulting from interest rate movements not anticipated by the
Manager.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by the vote
of a "majority" (as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act")) of the Fund's outstanding voting
securities. Under some of those restrictions, the Fund cannot: (1)
Purchase securities issued or guaranteed by any one issuer (except the
U.S. Government or its agencies or instrumentalities), if, with respect
to 75% of its total assets, more than 5% of the Fund's total assets would
be invested in securities of that issuer or the Fund would then own more
than 10% of that issuer's voting securities; (2) Concentrate investments
to the extent that 25% or more of the value of its total assets is
invested in securities of issuers in the same industry (excluding the U.S.
Government, its agencies and instrumentalities); for purposes of this
limitation, utilities will be divided according to their services; for
example, gas, gas transmission, electric and telephone each will be
considered a separate industry; (3) Make loans, except by purchasing debt
obligations in accordance with its investment objectives and policies, or
by entering into repurchase agreements, or as described in "Loans of
Portfolio Securities"; (4) Buy securities of an issuer which, together
with any predecessor, has been in operation for less than three years, if
as a result, the aggregate of such investments would exceed 5% of the
value of the Fund's total assets; or (5) Make short sales of securities
or maintain a short position, unless at all times when a short position
is open it owns an equal amount of such securities or by virtue of
ownership of other securities has the right, without payment of any
further consideration, to obtain an equal amount of securities sold short
("short sales against-the-box").
The percentage restrictions described above and in the Additional
Statement, other than those described under "Special Investment Methods
- - Borrowing," are applicable only at the time of investment and require
no action by the Fund as a result of subsequent changes in value of the
investment or the size of the Fund. A supplementary list of investment
restrictions is contained in the Additional Statement, which also contains
further information regarding the Fund's investment policies.
Management of the Fund
The Board has overall responsibility for the management of the Fund
under the laws of Massachusetts governing the responsibilities of trustees
of business trusts. Subject to the authority of the Board, the Manager
is responsible for the day-to-day management of the Fund's business,
supervises the investment operations of the Fund and the composition of
its portfolio and furnishes the Fund advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities, pursuant to an investment advisory agreement with the Fund
(the "Agreement").
Subject to the Agreement, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager and its
affiliates as a factor in the selection of broker-dealers for the Fund's
portfolio transactions. Under the Agreement, the Fund pays a monthly
management fee to the Manager at the following annual rates, which are
higher than the rates paid by most other investment companies: 0.75% of
the first $200 million of average annual net assets, 0.72% of the next
$200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million, and 0.50% of net assets in excess
of $1 billion. "Investment Management Services" in the Additional
Statement contains further information about the Agreement and brokerage
practices.
Arthur P. Steinmetz and David P. Negri serve as Portfolio Managers and
Vice Presidents of the Fund and have been primarily responsible for the
day-to-day management of the Fund since its inception. During the past
five years, Mr. Steinmetz has served as a Senior Vice President of the
Manager and an officer of other OppenheimerFunds and Mr. Negri has served
as a Vice President of the Manager and an officer of other
OppenheimerFunds. For more information about the Fund's other officers
and Trustees, see "Trustees and Officers" in the Additional Statement.
The Manager has operated as an investment adviser since April 30, 1959.
The Manager and its affiliates currently advise U.S. investment companies
with assets aggregating over $25 billion as of September 30, 1993, and
having more than 1.8 million shareholder accounts. The Manager is owned
by Oppenheimer Acquisition Corp., a holding company owned in part by
senior management of the Manager, and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company that also advises pension plans and investment companies.
How to Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (1) at the time of purchase or on a
contingent deferred basis on redemptions of shares purchased in amounts
over $1 million (the "Class A shares"), or (2) on a contingent deferred
basis (the "Class B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within six years of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order of $1 million or more for Class B shares
of one or more of the "Eligible Funds" listed in "Right of Accumulation"
below on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because it generally will be more advantageous for
such investor to purchase Class A shares of such Eligible Fund(s) instead.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charges with respect to Class B shares
are the same as those of the initial sales charges with respect to the
Class A shares. Any financial intermediaries or other persons entitled to
receive compensation for selling or servicing Fund shares may receive
different compensation with respect to one class of shares than the other.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, as described in this
Prospectus, each class has different shareholder privileges and features.
The net income attributable to Class B shares and the dividends payable
on Class B shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker which has a sales agreement with the Distributor, a subsidiary
of the Manager. There are two ways to make an initial investment: either
(1) complete an OppenheimerFunds New Account Application and mail it with
payment to the Distributor at P.O. Box 5270, Denver, Colorado 80217 (if
no dealer or broker is named in the Application, the Distributor will be
listed as the dealer of record), or (2) order the shares through your
dealer or broker. Be certain to specify whether you intend to purchase
Class A shares or Class B shares. If no such instructions are provided,
initial investments will be made in Class A shares and the subsequent
investments will be made in the same class as the most recent previous
investment.
The minimum initial investment is $1,000, except as otherwise described
in this Prospectus. Subsequent purchases must be at least $25 and may be
made (1) through authorized dealers or brokers, (2) by forwarding payment
to the Distributor at the above address with the names of all account
owners, the account number and the name of the Fund, (3) automatically
through Asset Builder Plans or (4) by telephone using AccountLink,
described below. Under an Asset Builder Plan, Automatic Exchange Plan,
403(b)(7) custodial plan or military allotment plan, initial and
subsequent investments must be at least $25. The minimum initial and
subsequent purchase requirements are waived on purchases made by
reinvesting dividends from any of the "Eligible Funds" listed in "Right
of Accumulation" below, or by reinvesting distributions from unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. No share certificates will be issued for Class B shares,
and no share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day The New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of that class outstanding. The Board has established
procedures for valuing the Fund's securities. In general, those valuations
are based on market value, with special provisions for: (i) securities
(including restricted securities) not having readily-available market
quotations, (ii) short-term debt securities and (iii) covered calls and
Hedging Instruments. Further details are in "Purchase, Redemption and
Pricing of Shares" in the Additional Statement. The net asset values per
share of Class A and Class B shares are expected to be substantially the
same; however, from time to time the net asset values of each class may
differ due to differences in expenses borne by each class, as discussed
under "Purchase, Redemption and Pricing of Shares - Dual Class
Methodology" in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is
determined that day will receive such offering price if the order was
received by the dealer or broker from its customer prior to 4:00 P.M., and
was transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Purchase orders received on other
than a regular business day will be executed on the next regular business
day. The Distributor, in its sole discretion, may accept or reject any
order for purchase of the Fund's shares. The sale of shares will be
suspended during any period when the determination of net asset value is
suspended and may be suspended by the Board whenever the Board judges it
in the Fund's best interest to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject to a front-end sales charge, the
offering price is net asset value. The offering price is determined as of
4:00 P.M. each regular business day. Class A shares may not be converted
into Class B shares.
The following table shows the regular front-end sales charge rates for
Class A shares for a "single purchaser" (defined below), together with the
dealer discounts paid to authorized dealers and the agency commissions
paid to authorized brokers (collectively, "commissions"):
Front-End
Front-End Sales Charge
Sales Charge as Approximate Commission as
as Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more
but less than $100,000 4.50% 4.71% 3.75%
$100,000 or more
but less than $250,000 3.50% 3.63% 2.75%
$250,000 or more
but less than $500,000 2.50% 2.56% 2.00%
$500,000 or more
but less than $1 million 2.00% 2.04% 1.60%
$1 million and over None* None* None*
*See "Class A Contingent Deferred Sales Charge" below.
Under certain circumstances, commissions up to the amount of the
entire sales charge may be paid to dealers or brokers, who then may be
deemed to be "underwriters" as defined in the Securities Act. Commission
rates may vary among the funds for which the Manager and its affiliates
act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans. If
a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (as that term is defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative, that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales for
a specific period of time, shares of certain or all of the "Eligible
Funds" held by the dealer and/or its customers or some combination
thereof.
Dealers whose sales of Class A shares of "Eligible Funds" other than
"Money Market Funds" under OppenheimerFunds-sponsored 403(b)(7) custodial
plans exceed a rate of $5 million per year, calculated per calendar
quarter, will receive monthly one-half of the Distributor's retained
commissions on such sales. Dealers whose sales of such plans exceed a rate
of $10 million per year, calculated per calendar quarter, will receive the
Distributor's entire retained commission on such sales.
- Class A Contingent Deferred Sales Charge. On certain purchases of
Class A shares of any one or more "Eligible Funds" by a "single purchaser"
aggregating $1 million or more, the Distributor will pay authorized
dealers a commission equal to the sum of 1.0% of the first $2.5 million,
0.50% of the next $2.5 million, and 0.25% of share purchases in excess of
$5 million. However, that commission will be paid only on the amount of
those share purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission (the shares with
respect to which this commission is paid are called "Class A CDSC
Shares"). A contingent deferred sales charge (the "Class A CDSC") will
be deducted from the redemption proceeds of Class A CDSC Shares redeemed
within 18 months of the end of the calendar month of their purchase. The
Class A CDSC will be an amount equal to 1.0% of the lesser of either (1)
the aggregate net asset value of the Class A CDSC shares (not including
shares purchased by reinvestment of dividends or capital gains) or (2) the
original cost of such shares. However, the total Class A CDSC paid on the
redemptions of those shares will not exceed the aggregate commissions paid
to dealers on all Class A CDSC Shares of all "Eligible Funds" purchased
by that "single purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below and will be waived in the case
of redemptions of shares made for: (i) retirement distributions (or loans)
to participants or beneficiaries from retirement plans qualified under
Section 401(a) of the Internal Revenue Code or from Individual Retirement
Accounts ("IRAs"), 403(b)(7) custodial plans, deferred compensation plans
created under Section 457 of the Internal Revenue Code or other employee
benefit plans (collectively, "Retirement Plans"); (ii) returns of excess
contributions to such Retirement Plans; (iii) Automatic Withdrawal Plan
payments limited to no more than 12% of the original account value
annually; and (iv) involuntary redemptions of shares by operation of law
or under procedures set forth in the Fund's Declaration of Trust or as
adopted by the Board (collectively, "Involuntary Redemptions"). See
"Transfer of Shares" in "Purchase, Redemption and Pricing of Shares" in
the Additional Statement for further details.
Some or all of the proceeds of redeemed shares on which a Class A CDSC
was paid at the time of redemption and which are subsequently reinvested
under the "Reinvestment Privilege" (described below) may be reinvested
within six months of redemption without sales charge at net asset value
on the reinvestment date if the investor notifies the Distributor that the
privilege applies. Additionally, no Class A CDSC is charged on exchanges,
pursuant to the Fund's Exchange Privilege (described below), of shares
purchased subject to a Class A CDSC, except that if Class A shares
acquired by exchange are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged shares, the Class
A CDSC will apply. In determining whether a Class A CDSC is payable, and
the amount of any such charge, shares not subject to a Class A CDSC are
redeemed first, including shares purchased by reinvestment of dividends
and capital gains distributions, and then other shares are redeemed in the
order of purchase.
- Reduced Sales Charges for Class A Purchases. The Class A sales
charge rates in the table above may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate applicable
to current purchases of Class A shares, a "single purchaser" is entitled
to accumulate current purchases with the greater of: (1) amounts
previously paid for, or (2) the current value (at offering price) of Class
A shares of certain other "Eligible Funds" and the Fund if sold subject
to an initial sales charge and if the investment is still held in one of
the Eligible Funds. The Eligible Funds are those for which the Distributor
or an affiliate acts as the distributor and include the following: (i) the
Fund, Oppenheimer Time Fund, Oppenheimer Target Fund, Oppenheimer Tax-Free
Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer California
Tax-Exempt Fund, Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer
Florida Tax-Exempt Fund, Oppenheimer High Yield Fund, Oppenheimer Champion
High Yield Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Asset
Allocation Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Discovery
Fund, Oppenheimer U.S. Government Trust, Oppenheimer Global Bio-Tech Fund,
Oppenheimer Global Environment Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer Global Fund, Oppenheimer Fund, Oppenheimer Special Fund,
Oppenheimer Equity Income Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Investment Grade Bond Fund, Oppenheimer Value Stock Fund,
Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer Insured
Tax-Exempt Bond Fund, Oppenheimer Government Securities Fund, Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Short-Term Income Fund,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Main Street Income
& Growth Fund, and Oppenheimer Main Street California Tax-Exempt Fund and
(ii) the following "Money Market Funds": Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust, Centennial California Tax Exempt Trust, Centennial
America Fund, L.P., Oppenheimer Money Market Fund, Inc., Daily Cash
Accumulation Fund, Inc., Oppenheimer Cash Reserves and Oppenheimer
Tax-Exempt Cash Reserves. There is an initial sales charge on the purchase
of Class A shares of each Eligible Fund except Money Market Funds (under
certain circumstances described herein, redemption proceeds of Money
Market Fund shares may be subject to a CDSC). The reduced sales charge
applies only to current purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code, including related plans of the same employer. To
be entitled to a reduced sales charge under the Right of Accumulation, at
the time of purchase the purchaser must ask the Distributor for such
entitlement and provide the account number(s) for shares of Eligible Funds
owned by the "single purchaser," and the age of any minor children for
whom shares are held.
Letter of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent (the "Letter") to the Distributor, a "single
purchaser" may purchase Class A shares of the Fund and other Eligible
Funds (other than the Money Market Funds) during a 13-month period at the
reduced sales charge rates, or at net asset value but subject to the Class
A CDSC, if applicable, applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made up
to 90 days before the date of the Letter. The Fund and the Distributor
reserve the right to amend or terminate such program at any time without
prior notice. For further details, including escrow requirements, see
"Letters of Intent" in the Additional Statement.
Other Circumstances. No sales charge is imposed on Class A shares of
the Fund: (i) sold to the Manager or its affiliates, or to present or
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates, and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions which have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's spouse or minor children); (v) sold to dealers,
brokers or investment advisers that have entered into an agreement with
the Distributor providing specifically for the use of shares of the Fund
in particular investment products made available to the clients of the
dealer, broker or investment adviser; or (vi) purchased by the
reinvestment of (a) loan repayments by a participant in a retirement plan
for which the Manager or its affiliates act as sponsor, or (b) dividends
or other distributions received from the Fund or other "Eligible Funds"
(other than Cash Reserves Funds) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor. "Reduced
Sales Charges" in the Additional Statement discusses this policy.
- Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") pursuant to Rule 12b-1 of the Investment Company Act under
which the Fund will reimburse the Distributor quarterly for a portion of
its costs incurred in connection with the personal service and maintenance
of accounts that hold Class A shares of the Fund at an annual rate not to
exceed 0.25% of the average during each calendar quarter of the aggregate
net asset value of Class A shares of the Fund computed as of the close of
each business day. The Distributor will use such fees received from the
Fund in their entirety to: (i) compensate brokers, dealers, banks and
other institutions (collectively, "Recipients") each quarter for providing
personal service and maintenance of accounts that hold Class A shares; and
(ii) reimburse itself (to the extent authorized by the Board) for its
other expenditures under the Class A Plan and its direct costs for
personal service and maintenance of accounts. For the fiscal year ended
September 30, 1993, the Board has not presently authorized any
reimbursement to the Distributor under (ii) above. The services to be
provided under the Class A Plan include, but are not be limited to, the
following: answering routine inquiries from the Recipient's customers
concerning the Fund, providing such customers with information on their
investment in Class A shares, assisting in the establishment and
maintenance of accounts or sub-accounts in the Fund, making the Fund's
investment plans and dividend payment options available, and providing
such other information and customer liaison services and the maintenance
of accounts as the Distributor or the Fund may reasonably request.
Payments by the Distributor to Recipients will be made quarterly and
computed as of the close of business each day at an annual rate not to
exceed 0.25% of the average during the calendar quarter of the aggregate
net asset value of Class A shares of the Fund, computed as of the close
of each business day, held in accounts of the Recipient or its customers.
The Class A Plan has the effect of increasing annual expenses of Class
A shares of the Fund by up to 0.25% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the Manager
and the Distributor may, under the Class A Plan, from time to time from
their own resources (which, as to the Manager, may include profits derived
from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution and Service Plans" in the Additional
Statement.
Class B Shares
Class B shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
- Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B shares redeemed within six years of the end of the
calendar month of their purchase (not including shares purchased by
reinvestment of dividends or capital gains). The charge will be assessed
on an amount equal to the lesser of the then current net asset value or
the original purchase price of the Class B shares being redeemed.
Accordingly, no Class B CDSC will be imposed on amounts representing
increases in net asset value above the initial purchase price. In
determining whether a Class B CDSC applies to a redemption, Class B shares
are redeemed in the following order: (1) those acquired pursuant to
reinvestment of dividends or distributions, (2) those held for over six
years, and (3) those held longest during the six year period.
Proceeds from the Class B CDSC are paid to the Distributor and are used
by it to reimburse its expenses related to providing distribution-related
services to the Fund in connection with the sale of Class B shares. The
combination of the Class B CDSC and the distribution fee retained by the
Distributor (as described under "Class B Distribution and Service Plan")
facilitate the sale of Class B shares without a sales charge being
deducted at the time of purchase. Any Class B CDSC required to be imposed
on Class B share redemptions will be assessed according to the following
schedule:
Year(s) Since End Contingent Deferred
of Month in Which Sales Charge
Purchase Order In That Year (as %
Was Accepted of Applicable Proceeds
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 or more None
In the table above, a "year" is a period of twelve months. In
determining the amount of the Class B CDSC that applies and when Class B
shares convert as described in the following paragraph, all purchases
shall be considered as having been made on the first regular business day
of the month in which the purchase was made. The Class B CDSC will be
waived upon the request of the shareholder for redemptions for: (1)
distributions to participants or beneficiaries from Retirement Plans,
which distributions are made either (a) under an Automatic Withdrawal Plan
(described under "How to Redeem Shares") after the participant attains age
59-1/2, and which are limited to no more than 10% of the account value
annually (determined in the first year, as of the date the redemption
request is received by the Transfer Agent, and in subsequent years, as of
the most recent anniversary of that date) or (b) following the
participant's or beneficiary's (i) "disability" (as defined in the
Internal Revenue Code) that occurs since the account was established, or
(ii) death; (2) redemptions other than from Retirement Plans following the
(i) death or (ii) complete disability (as evidenced by a certificate from
the U.S. Social Security Administration), of all persons individually
owning such shares of record and not as fiduciaries or agents, that occurs
since the account was established, and (3) returns of excess contributions
to such Retirement Plans. In addition, no CDSC is imposed on shares of the
Fund (1) sold to the Manager or its affiliates; (2) sold to registered
investment companies or separate accounts of insurance companies having
an agreement with the Manager or the Distributor; (3) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers
to which the Fund is a party; or (4) redeemed in Involuntary Redemptions.
See "Transfer of Shares" in "Purchase, Redemption and Pricing of Shares"
in the Additional Statement for further details.
- Class B Conversion Feature. At the end of the month, seventy-two
months after the end of the month in which an investor's purchase order
for Class B shares is accepted, such "Matured Class B shares"
automatically will convert to Class A shares, on the basis of the relative
net asset value of the two classes, without the imposition of any sales
load or other charge. Each time any Matured Class B shares convert to
Class A shares, any Class B shares acquired by the reinvestment of
dividends or distributions on such Matured Class B shares that are still
held will also convert to Class A shares, on the same basis. The
conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Plan (as defined)
after such shares have been outstanding long enough that the Distributor
may have been compensated for distribution expenses related to such
shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or a tax adviser, to
the effect that the conversion of Matured Class B shares does not
constitute a taxable event for the holder under the Internal Revenue Code.
If such a private letter ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no further
conversions of Matured Class B shares would occur while such suspension
remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of
the two classes, without the imposition of a sales charge or fee, such
exchange could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
- Class B Distribution and Service Plan. The Fund has adopted a plan
of distribution (the "Class B Plan") under Rule 12b-1 of the Investment
Company Act, pursuant to which it will compensate the Distributor for its
services and costs incurred in connection with the distribution and
service of the Fund's Class B shares. Pursuant to the Class B Plan, the
Fund will pay the Distributor an asset-based sales charge of 0.75% per
annum on Class B shares outstanding for six years or less, plus a service
fee of 0.25% per annum, in each case on the average during the month (as
to the asset-based sales charge) and the calendar quarter (as to the
service fee) of the aggregate net asset value of Class B shares of the
Fund computed as of the close of each business day. Asset-based sales
charges and service fees will be paid by the Fund to the Distributor
monthly and quarterly, respectively.
The Distributor will use the service fee payment to compensate
Recipients for providing personal service and the maintenance of
shareholder accounts that hold Class B shares, examples of which are
described under "Class A Service Plan," above. Service fee payments by
the Distributor to Recipients will be made (i) in advance for the first
year Class B shares are outstanding, following the purchase of shares, in
an amount equal to 0.25% of the average during the calendar quarter of the
aggregate net asset value of the Class B shares, computed as of the close
of each business day, purchased by the Recipient or its customers and (ii)
thereafter, on a quarterly basis, at an annual rate of 0.25% of the
average during the calendar quarter of the aggregate net asset value of
the Class B shares, computed as of the close of each business day, held
in accounts of the Recipient or its customers. Other terms and options
under the Class B Plan for payment of the service fee by the Distributor
to Recipients, and other terms and conditions of the Class B Plan are
described under "Distribution and Service Plans" in the Additional
Statement.
The Distributor currently expects to pay sales commissions from its own
resources to authorized dealers or brokers at the time of sale equal to
3.75% of the purchase price of Fund shares sold by such dealer or broker,
and to advance the first year service fee of 0.25%. The asset-based sales
charge and service fee payments by the Fund to the Distributor under the
Class B Plan are intended to allow it to recoup such sales commissions and
service fee advances, as well as financing costs. The Distributor
anticipates that it will take a number of years to recoup the sales
commissions paid to authorized brokers or dealers from the Fund's payments
to the Distributor under the Class B Plan.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. Actual
distribution expenses for any given year may exceed the aggregate of
payments received pursuant to the Class B Plan and contingent deferred
sales charges, and such expenses will be carried forward and paid in
future years. The Fund will be charged only for interest expenses,
carrying charges or other financial costs that are directly related to the
carry-forward of actual distribution expenses. At September 30, 1993, the
end of the Class B Plan period, the Distributor had incurred unreimbursed
expenses under the Class B Plan of $464,392 (equal to 4.3% of the Fund's
net assets attributable to Class B shares of the Fund on that date) which
have been carried over into the present Class B Plan year.
The Class B Plan contains a provision that contractually obligates
the Fund to continue payments to the Distributor for certain expenses
incurred for Class B shares sold prior to termination of the Class B Plan.
If the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses (incurred prior to termination) from such
payments and from the Class B CDSC.
The Fund believes that under applicable accounting standards, its
obligation under the Class B Plan to pay any asset-based sales charges in
future periods is not required to be recognized as a liability. In the
future, if applicable accounting standards should be deemed to require
that obligation to be recognized as a liability, a decrease in the net
asset value per share of Class B shares could result. Were that to occur,
such decrease would affect all Class B shares regardless of how long the
shares were held. Furthermore, Class B shareholders would continue to
remain subject to the Class B CDSC. The accounting treatment of the
Fund's obligations under the Class B Plan for future payments is discussed
in "Distribution and Service Plans" in the Additional Statement. The
accounting standards now used are currently under review by the American
Institute of Certified Public Accountants and it is possible that those
standards will change and that the Class B Plan would be changed as a
result.
The Class B Plan has the effect of increasing annual expenses of Class
B shares of the Fund by up to 1.00% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the Manager
and the Distributor may, under the Class B Plan, from time to time from
their own resources (which, as to the Manager, may include profits derived
from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution and Service Plans" in the Additional
Statement.
Purchase Programs for Class A and Class B Shares
- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an ACH member. AccountLink can be used to
transmit funds by electronic funds transfers for account transactions,
including subsequent share purchases. The minimum investment by
AccountLink is $25. Purchases of up to $250,000 may be made by telephone
using AccountLink (the maximum is $100,000 if the transaction is done by
PhoneLink, described below). To speak to service operators to initiate
such purchases, call the Distributor at 1-800- 852-8457. All such calls
will be recorded. To initiate such purchases automatically using
PhoneLink, call 1-800-533-3310. Shares will be purchased on the regular
business day the Distributor is instructed to initiate the ACH transfer
to buy the shares. Dividends will begin to accrue on such shares on the
day the Fund receives Federal Funds for such purchase through the ACH
system before 4:00 P.M., which is normally three days after the ACH
transfer is initiated. If such Federal Funds are received after that time,
dividends will begin to accrue on the next regular business day after such
Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes - Dividends and Distributions").
AccountLink privileges must be requested on the application used to buy
shares or the dealer settlement instructions establishing the account, or
on subsequent signature-guaranteed instructions to the Transfer Agent from
all shareholders of record for an account, and such privileges thereupon
apply to each shareholder of record and the dealer representative of
record unless and until the Transfer Agent receives written instructions
from a shareholder of record cancelling such privileges. Changes of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent by all shareholders of record for an account. The
Transfer Agent, the Fund and the Distributor have adopted reasonable
procedures to confirm that telephone instructions under AccountLink
(described above) and "PhoneLink," "Telephone Redemptions" and the
"Exchange Privilege" (described below) are genuine, by requiring callers
to provide tax identification number(s) and other account data and by
recording calls and confirming such transactions in writing. If the
Transfer Agent and the Distributor do not use such procedures, they may
be liable for losses due to unauthorized transactions, but otherwise they
will not be responsible for losses or expenses arising out of telephone
instructions reasonably believed to be genuine. The Fund reserves the
right to amend, suspend or discontinue AccountLink privileges at any time
without prior notice.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege," below), redemptions (see "How
to Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink," above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
- Asset Builder Plans. Investors may purchase shares of the Fund (and
up to four other Eligible Funds) automatically under Asset Builder Plans.
With AccountLink, Asset Builder Plans may be used to make regular monthly
investments ($25 minimum) from the investor's account at a bank or other
financial institution. See "AccountLink" above for details. To establish
an Asset Builder Plan from a bank account, a check (minimum $25) for the
initial purchase must accompany the application. Shares purchased by Asset
Builder Plan payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "How To Redeem Shares."
Asset Builder Plans also enable shareholders of Oppenheimer Tax-Exempt
Cash Reserves or Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of the Fund and up to four other
Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds, and
an application should be obtained from the Transfer Agent and completed
and a prospectus of the selected fund(s) (available from the Distributor)
should be obtained before initiating payments. The amount of the Asset
Builder investment may be changed or the automatic investments terminated
at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not represented
by certificates) under the Fund's regular redemption procedures, a
shareholder must send the following to the Transfer Agent, Oppenheimer
Shareholder Services, P.O. Box 5270, Denver, Colorado 80217 (send courier
or express mail deliveries to 10200 E. Girard Avenue, Building D, Denver,
Colorado 80231): (1) a written request for redemption signed by all
registered owners exactly as the shares are registered, including
fiduciary titles, if any, and specifying the account number and the dollar
amount or number of shares to be redeemed; (2) a guarantee of the
signatures of all registered owners on the redemption request or on the
endorsement on the share certificate or accompanying stock power, by a
U.S. bank, trust company, credit union or savings association, or a
foreign bank having a U.S. correspondent bank, or by a U.S.-registered
dealer or broker in securities, municipal securities or government
securities, or by a U.S. national securities exchange, registered
securities association or clearing agency; (3) any share certificates
issued for any of the shares to be redeemed; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors,
administrators, trustees, custodians, or guardians, or from an
OppenheimerFunds-sponsored Retirement Plan, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waivers of the Class B CDSC on the grounds of
age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Shareholders owning shares of both classes must specify whether they
intend to redeem Class A or Class B shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852- 8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedure described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly-purchased (within the prior 15 days) shares, for
OppenheimerFunds-sponsored Retirement Plans, or for shares represented by
certificates.
Telephone redemption privileges apply automatically to each shareholder
and the dealer representative of record unless the Transfer Agent receives
cancellation instructions from a shareholder of record. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. Telephone redemption privileges may be amended, suspended or
discontinued by the Fund at any time without prior notice.
- Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in each
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
- Redemptions Paid Through AccountLink. If AccountLink privileges have
been established for an account, any amount may be redeemed by telephone,
wire or written instructions to the Transfer Agent, and the ACH transfer
of the redemption proceeds to the designated bank account normally will
be initiated by the Transfer Agent on the next bank business day after the
redemption. There are no dollar or frequency limitations on telephone
redemptions sent to a designated bank account through AccountLink. No
dividends are paid on the proceeds of redeemed shares awaiting transmittal
by ACH transfer. See "AccountLink" under "How to Buy Shares - Purchase
Programs for Class A and Class B Shares" for instructions on establishing
this privilege.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose shares
are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Check writing
privileges are not available for Class B shares or accounts holding shares
subject to a Class A CDSC. Checks may be written by a shareholder in any
amount not less than $100, payable to the order of anyone, and will be
subject to the Bank's rules and regulations governing checks. A check
should not be written in an amount close to the total value of the account
because the net asset value of the Fund's shares fluctuates from day to
day. If a check is presented for an amount greater than the account
value, it will not be paid. The Fund will charge a handling fee of $10
for any check that is not paid at the request of a shareholder or because
of an insufficient share balance or because the check was written for less
than the stated minimum. The Transfer Agent will arrange for check
writing after obtaining a specimen signature card from the shareholder(s).
Shareholders of joint accounts may elect to have checks honored with a
single signature. Checks issued for one account in the Fund must not be
used if the shareholder's account has been transferred to a new account
or if the account number or registration has changed. Shares purchased
by check or Asset Builder payments within the prior 15 days may not be
redeemed by check writing. A check that would require the redemption of
some or all of the shares so purchased is subject to non-payment.
The Bank will present checks to 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 procedure permits the shareholder to continue
receiving dividends on those shares equalling the amount being redeemed
by check until such time as the check is presented to the Fund. Checks may
not be presented for payment at the office 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 check-writing privileges at any
time without prior notice.
Distributions From Retirement Plans
Requests for distributions from OppenheimerFunds-sponsored IRAs,
403(b)(7) custodial plans, or pension or profit-sharing plans for which
the Manager or its affiliates act as sponsors should be addressed to
"First Interstate Bank of Denver, N.A., c/o Oppenheimer Shareholder
Services" at the above address, and must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's redemption requirements above. Participants (other
than self- employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from such plans are subject to additional requirements under
the Internal Revenue Code and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available
from the Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any penalties assessed.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholder for receipt of the payment. Automatic
withdrawals of up to $1,500 per month may be requested by telephone if
payments are by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored Retirement Plans may not be arranged on this
basis. Payments are normally made by check, but shareholders having
AccountLink privileges (see "How to Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account
designated on the OppenheimerFunds New Account Application or
signature-guaranteed instructions. The Fund cannot guarantee receipt of
the payment on the date requested and reserves the right to amend, suspend
or discontinue offering such plans at any time without prior notice.
Because of the sales charge assessed on share purchases, shareholders
should not make regular additional purchases while participating in an
Automatic Withdrawal Plan. Class B shareholders normally should not
establish withdrawal plans because of the imposition of the Class B CDSC
on such withdrawals (except where the Class B CDSC is waived as described
in "Class B Contingent Deferred Sales Charge"). For further details, refer
to "Automatic Withdrawal Plan Provisions" in the Additional Statement.
Shareholders can also authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for shares of up to five other
"Eligible Funds" (minimum $25 per fund account) automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are otherwise subject
to the conditions and terms applicable to exchanges described in "Exchange
Privilege" below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M. and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) guaranteed as
described above.
Reinvestment Privilege
Within six months of a redemption of Class A shares or Class B shares
on which a Class B CDSC was paid, the investor may reinvest all or part
of the redemption proceeds in Class A shares of the Fund or any of the
Eligible Funds into which shares of the Fund are exchangeable as described
below. The reinvestment price will be the net asset value next computed
after the Transfer Agent receives the reinvestment order, and will not be
subject to a sales charge, but only if the reinvestment order requests
this privilege. A realized gain on the redemption is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a loss on the redemption, some or all of the loss may
not be tax deductible, depending on the timing and amount of the
reinvestment in the Fund. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another Eligible Fund within 90 days
of payment of the sales charge, the shareholder's basis in the Fund shares
redeemed may not include the amount of the sales charge paid, thereby
reducing the loss or increasing the gain recognized from the redemption.
The Fund may amend, suspend or cease offering this reinvestment privilege
at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
General Information on Redemptions
The redemption price will be the Fund's net asset value per share of
the class next determined after the Transfer Agent receives redemption
instructions in proper form. The market value of the securities in the
Fund's portfolio is subject to daily fluctuations and the net asset value
of each class of the Fund's shares will fluctuate accordingly. Therefore,
the redemption value may be more or less than the investor's cost. Under
certain unusual circumstances, shares may be redeemed in kind (i.e., by
payment in portfolio securities). Under certain circumstances, the Fund
may involuntarily redeem small accounts (if the value of the account has
fallen below $200 for reasons other than market value fluctuations) and
may redeem shares in amounts sufficient to compensate the Distributor for
any loss due to cancellation of a share purchase order; for details, see
"Purchase, Redemption and Pricing of Shares" in the Additional Statement.
Under the Internal Revenue Code, the Fund may be required to impose
"backup" withholding of Federal income tax at the rate of 31% from
dividends, distributions and redemption proceeds (including exchanges),
if the shareholder has not furnished the Fund a certified tax
identification number or has not complied with provisions of the Internal
Revenue Code relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days after receipt by the Transfer Agent of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. the Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank upon which the purchase payment was drawn. The Fund makes no charge
for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such charge can be avoided by requesting the
redemption directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class B CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges of Shares and Retirement Plans
Exchange Privilege
Shares of the Fund and of the other Eligible Funds listed under "Right
of Accumulation" may be exchanged at net asset value per share at the time
of exchange, without sales charge, if all of the following conditions are
met: (1) shares of the fund selected for exchange are available for sale
in the shareholder's state of residence; (2) the respective prospectuses
of the funds whose shares are to be exchanged and acquired offer the
Exchange Privilege to the investor; (3) newly-purchased (by initial or
subsequent investment) shares are held in an account for at least seven
days and all other shares at least one day prior to the exchange; and (4)
the aggregate net asset value of shares surrendered for exchange is at
least equal to the minimum investment requirements of the fund the shares
of which are to be acquired.
In addition to the conditions stated above, shares of a particular
class of an Eligible Fund may be exchanged only for shares of the same
class of another Eligible Fund. If a Fund has only one class of shares
that is not otherwise denominated, its shares shall be consider "Class A"
shares for this purpose. Certain of the Eligible Funds offer Class A,
Class B and/or Class C shares, and a list can be obtained by calling the
Distributor at 1-800-525-7048, or by referring to "Purchase, Redemption
and Pricing of Shares" in the Additional Statement. Funds offering Class
C shares are referred to, as a group, as the "OppenheimerFunds Advisors
Portfolio." In addition, Class A shares of Eligible Funds may be
exchanged for shares of any Money Market Fund; shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Eligible Funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Eligible
Funds subject to a contingent deferred sales charge); and shares of the
Fund acquired by reinvestment of dividends or distributions from any
other Eligible Fund 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 Eligible Fund. No CDSC is
imposed on exchanges of shares of either class purchased subject to a
CDSC. However, when Class A shares acquired by exchange of Class A shares
purchased subject to a Class A CDSC are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A CDSC is imposed on the redeemed shares (see
"Contingent Deferred Sales Charge," above), and the Class B CDSC is
imposed on Class B shares redeemed within six years of the end of the
calendar month of the initial purchase of the exchanged Class B shares
(see "Class B Contingent Deferred Sales Charge," above).
- How to Exchange Shares. An exchange may be made by either (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time and will do
so on 60 days' notice if such notice is required by regulations adopted
under the Investment Company Act. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk on behalf of 10
or more accounts. Telephone and written exchange requests must be received
by the Transfer Agent by 4:00 P.M. on a regular business day to be
effected that day. The number of shares exchanged may be less than the
number requested if the number requested would include shares subject to
a restriction cited above or shares covered by a certificate that is not
tendered with such request. Only the shares available for exchange without
restriction will be exchanged.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How to Buy Shares" for the imposition of the Class B CDSC
for redeeming such shares will be followed in determining the order in
which shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any CDSC that may
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
- Telephone Exchanges. Telephone exchange requests may either be
placed through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is acknowledging
receipt of a prospectus of the fund to which the exchange is made and that
for full or partial exchanges, any special account features such as Asset
Builder Plans, Automatic Withdrawal or Exchange Plans and retirement plan
contributions will be switched to the new account unless the Transfer
Agent is otherwise instructed. Telephone exchange privileges automatically
apply to each shareholder of record and the dealer representative of
record unless and until the Transfer Agent receives written instructions
from a shareholder of record cancelling such privileges. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. The Transfer Agent reserves the right to require shareholders
to confirm in writing their election of telephone exchange privileges for
an account. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange.
- General Information on Exchanges. Shares to be exchanged are
redeemed on the regular business day the Transfer Agent receives an
exchange request in proper form (the "Redemption Date"). Normally, shares
of the fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. The Fund in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or price disadvantageous to the Fund.
No sales commissions are paid by the Distributor on exchanges of shares
(unless a front-end sales charge is assessed on the exchange).
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes an exchange is treated as a redemption and purchase of shares
(see "How to Redeem Shares -- Reinvestment Privilege" for a discussion
of certain tax effects of exchanges).
Retirement Plans
The Distributor has available forms of: (i) pension and profit-sharing
plans for corporations and self- employed individuals, (ii) IRAs,
including Simplified Employee Pension Plans ("SEP IRAs"), and (iii)
403(b)(7) tax-deferred custodial plans for employees of qualified
employers. Loans are permitted only from Oppenheimer 403(b)(7) plan
accounts holding Class A shares. The minimum initial investment for
pension and profit-sharing plans is $250, and also for IRAs unless they
are purchased under an Asset Builder Plan. The Fund and the Distributor
reserve the right to discontinue offering Fund shares to such plans at any
time without prior notice. For further details, including the
administrative fees, the appropriate retirement plan should be requested
from the Distributor.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and is not
exhaustive; a qualified tax adviser should be consulted. The Fund's
dividends and distributions may also be subject to state and local
taxation. See "Tax Aspects of Covered Calls and Hedging" and "Performance,
Dividend and Tax Information" in the Additional Statement for more
information on the tax aspects of the Fund's investments in Hedging
Instruments and other tax matters.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A and Class
B shares from net investment income, if any, on each regular business day,
and to pay such dividends monthly. Dividends for both classes of shares
will normally be paid on the fourth Wednesday of each month, or such other
day as the Board may select. In addition, distributions may be made
monthly out of any net short-term capital gains realized from the sale of
securities. The amount of a class's distributions may vary from time to
time depending upon market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund, or borne separately by that
class, as described under "Dual Class Methodology" in the Additional
Statement. Dividends are calculated in the same manner, at the same time,
and on the same day for shares of each class. However, dividends on Class
B shares are expected to be lower than on Class A shares on a pro rata
basis as a result of the asset-based sales charge on Class B shares, and
such dividends will also differ in amount as a consequence of any
difference between the net asset values of Class A and Class B shares.
Dividends will be payable on shares held of record at the time of the
previous determination of net asset value, or as otherwise described in
"How to Buy Shares." Daily dividends on newly purchased shares will not
be declared or paid until such time as Federal Funds (funds credited to
a member bank's account at the Federal Reserve Bank) are available from
the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day.
Dividends will be declared on shares repurchased by a dealer or broker for
four business days following the trade date (i.e., to and including the
day prior to settlement of the repurchase). If all shares in an account
are redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
In addition, distributions may be made annually in December out of any
net short-term or long-term capital gains realized from the sale of
securities, premiums from expired calls written by the Fund, and net
profits from Hedging Instruments and closing purchase transactions
realized in the twelve months ending on October 31 of that year. Any
difference in net asset values of Class A and Class B shares will be
reflected in such distributions. Distributions from net short-term capital
gains are taxable to shareholders as ordinary income and when paid are
considered "dividends." The Fund may make a supplemental distribution of
capital gains and ordinary income following the end of its fiscal year.
Any long-term capital gains distribution will be identified separately
when paid and when tax information is distributed by the Fund. If prior
distributions must be recharacterized at the end of the fiscal year as a
result of the effect of the Fund's investment policies, shareholders may
have a non-taxable return of capital which will be identified in notices
to shareholders. During the Fund's fiscal year ended September 30, 1993,
the Manager had undertaken to assume the Fund's expenses (other than
extraordinary non-recurring expenses) to enable the Fund to pay a dividend
of $.3738 per share, per annum, with the limitation that the dividend
could not exceed the Fund's annual gross earnings per share. As a result
of this undertaking, the net asset value of the Fund's Class A shares were
higher during the year than they otherwise would have been. This
undertaking terminated on November 24, 1993 and as of such date there is
no fixed dividend rate. Further, there can be no assurance as to the
payment of any dividends or the realization of any capital gains.
All dividends and capital gains distributions are automatically
reinvested in shares of the same class at net asset value, as of a date
selected by the Board, unless the shareholder notifies the Transfer Agent
in writing to pay dividends and capital gains distributions in cash, or
to reinvest them in another Eligible Fund, as described in "Additional
Information" in the Additional Statement. That request must be received
prior to the record date for a dividend to be effective as to that
dividend. Under AccountLink, dividends and distributions may be
automatically transferred to a designated account at a financial
institution. See "AccountLink" in "How to Buy Shares" and the
OppenheimerFunds New Account Application for more details. For existing
accounts, such privileges may be established only by signature- guaranteed
instructions from all shareholders to the Transfer Agent. Dividends,
distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service
as undeliverable will be invested in shares of Oppenheimer Money Market
Fund, Inc., as promptly as possible after the return of such checks to the
Transfer Agent, to enable the investor to earn a return on otherwise idle
funds.
Tax Status of the Fund's Dividends and Distributions
Dividends paid by the Fund derived from net investment income or net
short-term capital gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested. Long-term capital gains
distributions, if any, are taxable as long-term capital gains whether
received in cash or reinvested and regardless of how long Fund shares have
been held. A shareholder purchasing Fund shares immediately prior to the
declaration of a capital gains distribution will receive a distribution
subject to income tax, and the distribution will have the effect of
reducing a class's net asset value per share by the amount of the
distribution. For information as to "backup" withholding on dividends, see
"How to Redeem Shares."
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified
during its last fiscal year and intends to qualify in current and future
fiscal years, but reserves the right not to do so. The Internal Revenue
Code contains a number of complex tests relating to qualification which
the Fund might not meet in any particular year. For example, if the Fund
derives 30% or more of its gross income from the sale of securities held
less than three months, it may fail to qualify. See "Investment Objective
and Policies - Tax Aspects of Hedging Instruments" in the Additional
Statement for more information. If it did not so qualify, the Fund would
be treated for tax purposes as an ordinary corporation and receive no tax
deduction for distributions made to shareholders.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "dividend yield," "average
annual total return," "total return," and "total return at net asset
value" of an investment in each class of shares of the Fund may be
advertised. Under rules adopted by the SEC, "yield" is computed in a
standardized manner for mutual funds, by dividing the net investment
income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period. This yield
calculation is compounded on a semi- annual basis, and multiplied by 2 to
provide an annualized yield.
The "average annual total return" of each class for a particular period
is computed by determining the average annual compounded rate of return
over the period, using the initial amount invested at the beginning of the
period and the redeemable value of the investment at the end of the
period. The "total return" of each class for a period is a cumulative rate
of return of a hypothetical investment over the entire period, also using
the initial amount invested and redeemable value at the end of the period.
The initial amount invested assumes the payment of the Fund's current
maximum initial sales charge applicable to Class A shares, or the Class
B CDSC applicable to the period for which the Class B shares are
outstanding. The Fund may also quote a "total return at net asset value"
of each class, which is total return calculated without considering either
initial sales charges (for Class A shares) or the Class B CDSC (for Class
B shares). The redeemable value of the investment assumes that all
dividends and capital gains distributions have been reinvested at net
asset value without sales charge.
The "average annual total return," "total return at net asset value"
and "total return" indicate the investment results an investor holding
shares of that class would have experienced over the stated period from
changes in share price and reinvestment of dividends and distributions.
The "dividend yield" of shares of a class represents dividends derived
from net investment income during a stated period divided by the maximum
offering price on the last day of the period, to show the rate of return
based on actual distributions paid to shareholders of that class. Yields
and returns are based on historical per share earnings and are not
intended to indicate future performance. Yields and returns are calculated
separately and will differ for shares of each class, and the higher
anticipated expenses of Class B shares should result in shares of that
class having lower yields than Class A shares for the same period of time.
See "Performance, Dividend and Tax Information" in the Additional
Statement for more detailed information on calculating the Fund's yields
and returns, and other performance information.
Management's Discussion of Performance
During the Fund's fiscal year ended September 30, 1993, the investment
grade fixed-income market was impacted by a number of economic conditions,
which as to the U.S. markets included declining interest rates and slow
economic growth and, as to the foreign markets, also included slow
economic growth as well as currency turmoil. During the past fiscal year,
to attempt to secure high current income consistent with stability of
principal in such an economic climate, the Manager expanded the Fund's
investments into selected investment grade opportunities in emerging
foreign markets, increased the Fund's investment in higher yielding
mortgage-backed issues and maintained the Fund's position in corporate
bonds.
Comparison of Total Return of Oppenheimer Strategic Investment Grade Bond
Fund
with The Lehman Aggregate Bond Index -
Change in Value of a $10,000 Hypothetical Investment
(PERFORMANCE GRAPH)
Past performance is not predictive of future performance.
Oppenheimer Strategic Investment Grade Bond Fund
Average Annual Total Returns at 9/30/93
1 Year Life of Fund/Class
Class A 2.14% 6.20%
Class B N/A 5.72%
The performance graph set forth above compares the Fund's total
return since (i) the commencement of its operations (April 27, 1992) with
respect to Class A shares and (ii) the public offering of Class B shares
(November 30, 1992) with respect to Class B shares, in each case against
the performance of The Lehman Aggregate Bond Index, an unmanaged index of
investment grade debt securities with a maturity of at least one year,
consisting of treasury issues, agency issues, corporate bond issues and
mortgage-backed securities, and is widely regarded as a measure of the
performance of the general fixed-rate investment grade debt market. The
Index includes a factor for the reinvestment of interest but does not
reflect expenses or taxes. The Fund's return on Class A shares reflects
the deduction of the current maximum sales charge of 4.75%, on Class B
shares reflects the maximum Class B CDSC deduction, and, in each case,
includes reinvestment of all dividends and capital gains distributions,
but does not consider taxes.
Additional Information
Description of the Fund and Its Shares
The Board is empowered to issue full and fractional shares of one
or more series and classes of series. Shares of one series having two
classes (Class A and Class B) have been authorized, which constitute the
shares of beneficial interest described herein. As explained in this
Prospectus, each class has different dividends, distributions and
expenses, and may have different net asset values. In addition, Class B
shares will automatically convert to Class A shares seventy-two months
after an investor's purchase order for Class B shares is accepted. See
"How to Buy Shares -Class B Conversion Feature."
Each shareholder is entitled to one vote per share (and a fractional
vote for a fractional share) on matters submitted to his or her vote.
Only shareholders of a particular class vote on matters affecting only
that class. The Trustees may divide or combine the shares of a class into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Fund. When issued, such shares
are fully paid and nonassessable (except as described in the Additional
Statement under "Additional Information"), and have no preemptive,
subscription or cumulative voting rights. The Fund does not anticipate
holding annual meetings.
Under certain circumstances, shareholders of the Fund have the right
to remove a Trustee and may be held personally liable as "partners" for
the Fund's obligations; however, the risk of a shareholder incurring any
financial loss is limited to the relatively remote circumstances in which
the Fund is unable to meet its obligations. See "Additional Information"
in the Additional Statement for details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is The Bank of New York. The
Manager and its affiliates have banking relationships with the Custodian.
See "Additional Information" in the Additional Statement for further
information. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such uninsured
balances may at times be substantial.
The Transfer Agent, a division of the Manager, acts as transfer and
shareholder servicing agent on an at-cost basis for the Fund and certain
other open-end funds advised by the Manager. The fees to the Transfer
Agent do not include payments for any services of the type paid, or to be
paid, by the Fund to Recipients under the Distribution Plans. Shareholders
should direct any inquiries to the Transfer Agent at the address or
toll-free phone number listed on the back cover of this Prospectus.
Appendix: Description of Ratings
Description of Moody's Investors Service, Inc.
Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality
and to carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, the
changes that can be expected are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group, they comprise what are
generally known as "high-grade" bonds. They are rated lower than the best
bonds because margins of protection may not be as large as with "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than those of "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered well-assured. Often the
protection of interest and principal payments may be very moderate and not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely
poor prospects of ever retaining any real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects
of change in circumstances and economic conditions.
BBB: The bond investments in which the Fund will principally invest
will be in the lower-rated categories, described below. Bonds rated "BBB"
are regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER STRATEGIC INVESTMENT
GRADE BOND FUND
Graphic material included in Prospectus of Oppenheimer Strategic
Investment Grade Bond Fund: "Comparison of Total Return of Oppenheimer
Strategic Investment Grade Bond Fund with The Lehman Aggregate Bond Index
- - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Strategic
Investment Grade Bond Fund (the "Fund") depicting the initial account
value and subsequent account value of a hypothetical $10,000 investment
in (i) Class A shares of the Fund during each of the Fund's fiscal years
since the commencement of the Fund's operations (April 27, 1992) and (ii)
Class B shares of the Fund during the period May 17, 1993 (first public
offering of Class B shares) to September 30, 1993, in each case comparing
such values with the same investments over the same time periods with The
Lehman Aggregate Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with respect
to the foregoing, including a description of The Lehman Aggregate Bond
Index, is set forth in the Prospectus under "Fund Performance Information
- - Management's Discussion of Performance."
Oppenheimer Strategic
Fiscal Year Investment Grade Bond Fund Lehman Aggregate
(Period) Ended Class A Shares Bond Index
04/27/92 * $ 9,525 $10,000
09/30/92 $10,145(1) $10,773
09/30/93 $10,895 $11,848
Oppenheimer Strategic
Fiscal Year Investment Grade Bond Fund Lehman Aggregate
(Period) Ended Class B Shares Bond Index
11/30/92 $10,000 $10,000
09/30/93 $10,476(2) $10,498
______________________________
* The Fund commenced operations on April 27, 1992.
(1) From commencement of operations (4/27/92) to 9/30/92.
(2) From commencement of first public offering of Class B shares
(11/30/92) to 9/30/93.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representation must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such offer in such state.
PR245 (1/94)* Printed on recycled paper
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Strategic
Investment
Grade Bond
Fund
Effective January 25, 1994
(LOGO)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus dated January 25, 1994 (the "Prospectus")
of Oppenheimer Strategic Investment Grade Bond Fund, which may be obtained
by written request to Oppenheimer Shareholder Services (the "Transfer
Agent"), P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer
Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Special Investment Methods 9
Investment Restrictions 19
Trustees and Officers 20
Investment Management Services 22
Brokerage 23
Purchase, Redemption and Pricing of Shares 25
Distribution and Service Plans 28
Performance, Dividend and Tax Information 31
Additional Information 34
Automatic Withdrawal Plan Provisions 35
Letters of Intent 37
Independent Auditors' Report 40
Financial Statements 41
This Additional Statement is effective January 25, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are discussed in the
Prospectus. Set forth below is supplemental information about those
policies. Certain capitalized terms used in this Additional Statement and
not otherwise defined herein are defined in the Prospectus.
The Fund's investment manager, Oppenheimer Management Corporation (the
"Manager"), evaluates the investment merits of fixed-income securities
primarily through the exercise of its own investment analysis. This may
include, among other things, consideration of the financial strength of
the issuer, including its historic and current financial condition, the
trading activity in its securities, present and anticipated cash flow,
estimated current value of assets in relation to 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 the issuer and the issuer's continuing ability to meet its
future obligations. The Manager also may consider anticipated changes in
business conditions, levels of interest rates of bonds as contrasted with
levels of cash dividends, industry and regional prospects, the
availability of new investment opportunities and the general economic,
legislative and monetary outlook for specific industries, the nation and
the world.
All fixed-income securities are subject to two types of risks: credit
risk and interest rate risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they become due.
Generally, higher yielding bonds are subject to credit risk to a greater
extent than higher quality bonds. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting solely from the
inverse relationship between price and yield of fixed-income securities.
An increase in interest rates will generally reduce the market value of
fixed-income investments, and a decline in interest rates will tend to
increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect cash income
received by the Fund from such securities but will be reflected in the
Fund's net asset value.
The Fund may from time to time invest up to 35% of its total assets
(the "35% Policy") in short-term debt obligations issued by foreign
governments or domestic or foreign corporations denominated in U.S.
dollars or selected foreign currencies (including, among others,
participation interests, commercial paper and bank obligations). Included
within this 35% Policy are investment grade securities purchased by the
Fund which have been subsequently downgraded. Obligations rated as low
as "C" by Moody's or "D" by Standard & Poor's indicate that the
obligations are speculative in a high degree and may be in default. Risks
of lower rated, high yield securities may include: (i) limited liquidity
and secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination
to the prior claims of banks and other senior lenders, (iv) the operation
of mandatory sinking fund or call/redemption provisions during periods of
declining interest rates whereby the Fund may be able to reinvest
premature redemption proceeds only in lower yielding portfolio securities,
(v) the possibility that earnings of the issuer may be insufficient to
meet its debt service, and (vi) the issuer's low creditworthiness and
potential for insolvency during periods of rising interest rates and
economic downturn.
Domestic Securities. Further information about the Fund's investments in
short-term debt obligations is provided below.
Preferred Stocks. Dividends on some preferred stock may be
"cumulative" requiring all or a portion of prior unpaid dividends to be
paid. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation
of the corporation, and may be "participating," which means that it may
be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on distribution of a corporation's assets
in the event of a liquidation are generally subordinate to rights
associated with a corporation's debt securities.
Participation Interests. The Fund may invest in participation
interests, subject to its limitation on investments in illiquid
securities, set forth in the Prospectus. These participation interests
provide the Fund an undivided interest in a loan made by the issuing
financial institution in the proportion that the Fund's participation
interest bears to the total principal amount of the loan. 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 borrower for payment of interest and principal,
and such borrowers may have difficulty making payments. In the event the
borrower fails to pay scheduled interest or principal payments, the Fund
could experience a reduction in its income and might experience a decline
in the value of that participation interest and in the net asset value of
its shares. In the event of a failure by the financial institution to
perform its obligation in connection with the participation agreement, the
Fund might incur certain costs and delays in realizing payment or may
suffer a loss of principal and/or interest.
Asset-Backed Securities. The value of asset-backed securities 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 is
exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of the underlying consumer loans by the
individuals, and the Fund would generally have no recourse to the entity
that originated the loans in the event of default by a borrower. The
underlying loans are subject to prepayments which shorten the weighted
average life of asset-backed securities and may lower their return, in the
same manner as described in the Prospectus and in "Mortgage-Backed
Securities" below for prepayments of a pool of mortgage loans underlying
mortgage-backed securities.
Collateralized Mortgage-Backed Obligations ("CMO's"). CMO's are
fully-collateralized bonds which are general obligations of the issuer
thereof, either a private issuer, the U.S. Government or a U.S. Government
instrumentality. See "U.S. Government Securities - Collateralized
Mortgage -Backed Obligations ("CMOs")" below for further details.
U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, and include "zero coupon" Treasury
securities, mortgage-backed securities and money market instruments.
Mortgage-Backed Securities. These securities represent participation
interests in pools of residential mortgage loans which may or may not be
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which generally
provide for periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Some of the mortgage-backed securities in which the Fund may
invest may be backed by the full faith and credit of the U.S. Treasury
(e.g., direct pass-through certificates of the Government National
Mortgage Association (the "GNMA")); some are supported by the right of the
issuer to borrow from the U.S. Government (e.g., obligations of Federal
Home Loan Banks); and some are backed by only the credit of the issuer
itself. Any such guarantees do not extend to the value of or yield of the
mortgage-backed securities themselves or to the net asset value of the
Fund's shares. Any of these government agencies may issue collateralized
mortgage-backed obligations ("CMO's"), discussed below.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
affected by a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average life of
a particular pool. Yield on such pools is usually computed by using the
historical record of prepayments for that pool, or, in the case of newly-
issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as do other debt securities, but, when prevailing
interest rates decline, the value of a pass-through security is not likely
to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The Fund's reinvestment
of scheduled principal payments and unscheduled prepayments it receives
may occur at higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by
the Fund have a compounding effect which may increase the yield to the
Fund more than debt obligations that pay interest semi-annually. Because
of those factors, mortgage-backed securities may be less effective than
Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. Accelerated prepayments adversely affect
yields for pass-through securities purchased at a premium (i.e., at a
price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized
at the time the obligation is repaid. The opposite is true for pass-
through securities purchased at a discount. The Fund may purchase
mortgage-backed securities at par, at a premium or at a discount.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. The GNMA
Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest
and principal payments due on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether the mortgagor actually makes the
payments.
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or
guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
FNMA Securities. The Federal National Mortgage Association ("FNMA")
was established to create a secondary market in mortgages insured by the
FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest and principal on FNMA Certificates. The FNMA
guarantee is not backed by the full faith and credit of the U.S.
Government.
FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created to promote development of a nationwide secondary
market for conventional residential mortgages. FHLMC issues two types of
mortgage pass-through securities ("FHLMC Certificates"): mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHMLC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds which are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. Such bonds generally are secured by an assignment
to a trustee (under the indenture pursuant to which the bonds are issued)
of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages
are not passed through to the holders of the CMOs as such (i.e., the
character of payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such
payments are dedicated to payment of interest on and repayment of
principal of the CMOs. CMOs often are issued in two or more classes with
different characteristics such as varying maturities and stated rates of
interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive
maturities in sequence. Unlike other mortgage-backed securities
(discussed above), CMOs are designed to be retired as the underlying
mortgages are repaid. In the event of prepayment on such mortgages, the
class of CMO first to mature generally will be paid down. Therefore,
although in most cases the issuer of CMOs will not supply additional
collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
Mortgage-Backed Security Rolls. The Fund may enter into "forward
roll" transactions with respect to mortgage-backed securities issued by
GNMA, FNMA or FHLMC. In a forward roll transaction, which is considered
to be a borrowing by the Fund, the Fund will sell a mortgage security to
a bank or other permitted entity and simultaneously agree to repurchase
a similar security from the institution at a later date at an agreed upon
price. The mortgage securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than
those sold. Risks of mortgage-backed security rolls include: (i) the risk
of prepayment prior to maturity, (ii) the possibility that the Fund may
not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be invested
in money market instruments (typically repurchase agreements) maturing not
later than the expiration of the roll, and (iii) the risk that the market
value of the securities sold by the Fund may decline below the price at
which the Fund is obligated to purchase the securities. Upon entering
into a mortgage-backed security roll, the Fund will be required to place
cash, U.S. Government securities or other high-grade debt securities in
a segregated account with its Custodian in an amount equal to its
obligation under the roll.
International Securities. As noted in the Prospectus, the Fund may invest
in debt obligations and other securities (which may be dominated in U.S.
dollars or non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (described below) and foreign
governments or their agencies or instrumentalities, and in debt
obligations and other securities issued by U.S. corporations denominated
in non-U.S. currencies. The types of foreign debt obligations and other
securities in which the Fund may invest are the same types of debt
obligations identified under "Domestic Securities," above.
The Fund may invest in U.S. dollar-denominated, collateralized Brady
Bonds, as described in the Prospectus. These debt obligations of foreign
entities may be fixed rate par bonds or floating rate discount bonds and
are generally collateralized in full as to principal due at maturity by
U.S. Treasury zero coupon obligations which have the same maturity as the
Brady Bonds. Brady Bonds are often 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 (these uncollateralized amounts
constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations
of the issuer are accelerated, the zero coupon U.S. Treasury securities
held as collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to
be outstanding, at which time the face amount of the collateral will equal
the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of supranational entities include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," of these entities usually make initial capital
contributions to the supranational entity and in many cases are committed
to make additional capital contributions if the supranational entity is
unable to repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's call), reserves
and net income. There is no assurance that foreign governments will be
able or willing to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization,
confiscatory taxation and potential difficulties in enforcing contractual
obligations, and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution. In addition,
although a portion of the Fund's investment income may be received or
realized in foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars, and absorb the cost of currency
fluctuations. The Fund may engage in foreign currency exchange
transactions for hedging purposes to protect against changes in future
exchange rates. See "Special Investment Methods - Covered Calls and
Hedging."
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investing solely in securities of domestic issuers by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
Money Market Securities. The money market securities in which the Fund
may invest include:
(a) Bank Obligations and Instruments Secured Thereby. Time deposits,
certificates of deposit and bankers' acceptances if they are: (i)
obligations of a domestic bank with total assets of at least $1 billion
or (ii) U.S. dollar-denominated obligations of a foreign bank with total
assets of at least U.S. $1 billion. The Fund may also invest in
instruments secured by such bank obligations (e.g., debt which is
guaranteed by the bank). For purposes of this section, the term "bank"
includes commercial banks, savings banks, and savings and loan
associations which may or may not be members of the Federal Deposit
Insurance Corporation.
Time Deposits. Time deposits are non-negotiable deposits in a bank for
a specified period of time at a stated interest rate, whether or not
subject to withdrawal penalties. However, such deposits which are subject
to withdrawal penalties, other than those maturing in seven days or less,
are subject to the limitation on the Fund's investment in illiquid
investments set forth in the Prospectus under "Illiquid and Restricted
Securities."
Bankers Acceptances. Banker's acceptances are marketable short-term
credit instruments used to finance the import, export, transfer or storage
of goods. They are deemed "accepted" when a bank guarantees their payment
at maturity.
(b) Commercial Paper. The Fund's commercial paper investments include:
Variable Amount Master Demand Notes. Master demand notes are corporate
obligations which permit the investment of fluctuating amounts by the Fund
at varying rates of interest pursuant to direct arrangements between the
Fund, as lender, and the borrower. They permit daily changes in the
amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may prepay up to the full amount
of the note without penalty. These notes may or may not be backed by bank
letters of credit. Because these notes are direct lending arrangements
between the lender and borrower, it is not generally contemplated that
they will be traded. There is no secondary market for these notes,
although they are redeemable (and thus immediately repayable by the
borrower) at principal amount, plus accrued interest, at any time.
Accordingly, the Fund's right to redeem is dependent upon the ability of
the borrower to pay principal and interest on demand. The Fund has no
limitations on the type of issuer from whom these notes will be purchased;
however, in connection with such purchase and on an ongoing basis, the
Manager will consider the earning power, cash flow and other liquidity
ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made
demand simultaneously. Investments in master demand notes are subject to
the limitation on the Fund's investment illiquid securities, described in
the Prospectus.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
SPECIAL INVESTMENT METHODS
Borrowing. From time to time, the Fund may increase its ownership of
securities by borrowing from banks on a unsecured basis and investing the
borrowed funds, subject to the restrictions stated in the Prospectus. Any
such borrowing will be made only from banks and, pursuant to the
requirements of the Investment Company Act, will be made only to the
extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing and amounts covering the Fund's obligations under
"forward roll" transactions. If the value of the Fund's assets so computed
should fail to meet the 300% asset coverage requirement, the Fund is
required within three days to reduce its bank debt to the extent necessary
to meet such requirement and may have to sell a portion of its investments
at a time when independent investment judgment would not dictate such
sale. Borrowing for investment increases both investment opportunity and
risk. Since substantially all of the Fund's assets fluctuate in value,
but borrowing obligations are fixed, when the Fund has outstanding
borrowings, its net asset value per share correspondingly will tend to
increase and decrease more when portfolio assets fluctuate in value than
otherwise would be the case.
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or the U.S. branch of a foreign bank or a broker-
dealer which has been designated a primary dealer in government
securities, which meets the credit requirements set by the Board from time
to time), 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. The majority of these transactions run from day
to day, and delivery pursuant to the resale typically will occur within
one to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements 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. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government securities, or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board. The Fund
will not lend its portfolio securities to any officer, trustee, employee
or affiliate of the Fund or its Manager. The terms of the Fund's loans
must meet certain tests under the Internal Revenue Code and permit the
Fund to reacquire loaned securities on five business days' notice or in
time to vote on any important matter.
Restricted and Illiquid Securities. The expenses of registration of
restricted securities that are subject to legal restrictions on resale
(excluding securities that may be resold by the Fund pursuant to Rule
144A, as explained in the Prospectus) may be negotiated at the time such
securities are purchased by the Fund. When registration is required, a
considerable period may elapse between a decision to sell the securities
and the time the Fund would be permitted to sell them. Thus, the Fund may
not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund also may acquire, through private
placements, securities having contractual resale restrictions, which might
prevent their resale by the Fund at a time when such sale would be
desirable.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although the Fund will enter
into such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities the terms and indenture
for which are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. During the period between commitment by the
Fund and settlement (generally within two months), no payment is made for
the securities purchased by the purchaser, and no interest accrues to the
purchaser from the transaction. Such securities are subject to market
fluctuation; the value at delivery may be less than the purchase price.
The Fund will maintain a segregated account with its Custodian, consisting
of cash, U.S. Government securities or other high grade debt obligations
at least equal to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If the Fund chooses to (i) dispose of the right to
acquire a when-issued security prior to its acquisition or (ii) dispose
of its right to deliver or receive against a forward commitment, it may
incur a gain or loss. (At the time the Fund makes a commitment to
purchase or sell a security on a when-issued or forward commitment basis,
it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its
net asset value).
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purpose of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above) when-issued securities and
forward commitments may be sold prior to the settlement date. In
addition, 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 loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
Covered Calls and Hedging. As discussed in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments for
temporary defensive purposes. The Fund's strategy of hedging with Futures
and options on Futures will be incidental to the Fund's activities in the
underlying cash market. Covered calls and puts may also be written on
debt securities to attempt to increase the Fund's income. When hedging
to attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons, the Fund may: (i) sell Futures, (ii)
buy puts on such Futures or securities, or (iii) write calls on securities
held by it or on Futures. When hedging to attempt to protect against the
possibility that portfolio securities are not fully included in a rise in
value of the debt securities market, the Fund may: (a) buy Futures, or
(b) buy calls on such Futures or on securities. When hedging to protect
against declines in the dollar value of a foreign currency-denominated
security, the Fund may: (1) buy puts on that foreign currency and on
foreign currency Futures, (2) write calls on that currency or on such
Futures, or (3) enter into Forward Contracts at a higher or lower rate
than the spot ("cash") rate. The Fund's strategy of hedging with Futures
and options on Futures will be incidental to the Fund's activities in the
underlying cash market. Additional Information about the Hedging
Instruments the Funds may use is provided below. In the future, the Fund
may employ Hedging Instruments and strategies that are not presently
contemplated but which may be developed, to the extent such investment
methods are consistent with the Fund's investment objective and are
adequately disclosed.
Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written is more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the related investment and the premium received.
Any such profits are considered short-term capital gains for Federal
income tax purposes, and when distributed by the Fund are taxable as
ordinary income. An option position may be closed out only on a market
that provides secondary trading for option of the same series, and there
is no assurance that a liquid secondary market will exist for a particular
option. If the Fund could not effect a closing purchase transaction due
to lack of a market, it would have to hold the callable investments until
the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
Writing Put Options. A put option on securities gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to the Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put lapses unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium.
If the put is exercised, the Fund must fulfill its obligation to purchase
the underlying investment at the exercise price, which will usually exceed
the market value of the investment at that time. In that case, the Fund
may incur a loss, equal to the sum of the current market value of the
underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore foregoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing
purchase transaction by purchasing a put of the same series as that
previously sold. Once the Fund has been assigned an exercise notice, it
is thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying
security from being put. Furthermore, effecting such a closing purchase
transaction will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments
by the Fund. The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more than
the premium received from writing the option. As above for writing
covered calls, any and all such profits described herein from writing puts
are considered short-term gains for Federal tax purposes, and when
distributed by the Fund, are taxable as ordinary income.
Purchasing Calls and Puts. When the Fund purchases a call (other than
in a closing purchase transaction), it pays a premium and, except as to
calls on indices or Financial Futures, has the right to buy the underlying
investment from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. When the Fund purchases
a call on an index or Financial Future, it pays a premium, but settlement
is in cash rather than by delivery of the underlying investment to the
Fund. In purchasing a call, the Fund benefits only if the call is sold
at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the
transaction costs and the premium paid and the call is exercised. If the
call is not exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period
at a fixed exercise price. Buying a put on an investment the Fund owns
enables the Fund to protect itself during the put period against a decline
in the value of the underlying investment below the exercise price by
selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date,
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit).
Buying a put on an investment it does not own, either a put on an
index or a put on a Future not held by the Fund, permits the Fund either
to resell the put or buy the underlying investment and sell it at the
exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. When the
Fund purchases a put on an index, or on a Future not held by it, the put
protects the Fund to the extent that the index moves in a similar pattern
to the securities held. In the case of a put on an index or Future,
settlement is in cash rather than by delivery by the Fund of the
underlying investment.
Options on Foreign Currencies. The Fund intends to write and purchase
both covered and uncovered calls and puts on foreign currencies. A call
written on a foreign currency by the Fund is covered if the Fund owns the
underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held in its portfolio. Normally this will be effected by the
sale of a security denominated in the relevant currency at a price higher
or lower than the original acquisition price of the security. This will
result in a loss or a gain in addition to that resulting from the currency
option position. An uncovered call may be written by the Fund on a
foreign currency to provide a hedge against a decline in the U.S. dollar
value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option due to an
adverse change in the exchange rate. This is a cross hedging strategy.
In such circumstances, the Fund collateralizes the option by maintaining
in a segregated account with the Fund's Custodian, cash or Government
Securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
Interest Rate Futures and Financial Futures. No price is paid or
received upon the purchase or sale of an Interest Rate Future, Financial
Future or a foreign currency exchange contract ("Forward Contract"),
discussed below. Interest Rate Futures obligate one party to deliver and
the other to take a specific debt security or amount of foreign currency,
respectively, at a specified price on a specified date. No price is paid
or received upon the purchase or sale of an Interest Rate Future. Upon
entering into a Futures transaction, the Fund will be required to deposit
an initial margin payment in cash or U.S. Treasury bills with the futures
commission merchant (the "futures broker"). The initial margin will be
deposited with the Fund's Custodian in an account registered in the
futures broker's name; however the futures broker can gain access to that
account only under specified conditions. As the Future is marked to
market to reflect changes in its market value, subsequent margin payments,
called variation margin, will be made to and from the futures broker on
a daily basis. Prior to expiration of the Future, if the Fund elects to
close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized for
tax purposes. Although Interest Rate Futures by their terms call for
settlement by delivery or acquisition of debt securities, in most cases
the obligation is fulfilled by entering into an offsetting position. All
futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Financial Futures. Financial Futures are similar to Interest Rate
Futures except that settlement is made in cash, and net gain or loss on
options on Financial Futures depends on price movements of the securities
included in the index. The strategies which the Fund employs regarding
Financial Futures are similar to those described above with regard to
Interest Rate Futures.
Forward Contracts. A Forward Contract involves bilateral obligations
of one party to purchase, and another party to sell, a specific currency
at a future date (which may be any fixed number of days from the date of
the contract agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").
The Fund will not enter into such Forward Contracts or maintain a net
exposure to such contracts where 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. The Fund, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to Forward
Contracts in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any
currency, at least equal at all times to the amount of such excess. As
an 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 or the Fund
may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high
or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than
if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense
of such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may close out a Forward Contract requiring
it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a
result of entering into such an offsetting Forward Contract under either
circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
Interest Rate Swap Transactions. Swap agreements entail both interest
rate risk and credit risk. There is a risk that, based on movements of
interest rates in the future, the payments made by the Fund under a swap
agreement will have been greater than those received by it. Credit risk
arises from the possibility that the counterparty will default. If the
counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund
has not yet received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing
basis. The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting
agreement provides that all swaps done between the Fund and that
counterparty under the master agreement shall be regarded as parts of an
integral agreement. If on any date amounts are payable in the same
currency in respect of one or more swap transactions, the net amount
payable on that date in that currency shall be paid. In addition, the
master netting agreement may provide that if one party defaults generally
or on one swap, the counterparty may terminate the swaps with that party.
Under such agreements, if there is a default resulting in a loss to one
party, the measure of that party's damages is calculated by reference to
the average cost of a replacement swap with respect to each swap (i.e.,
the mark-to-market value at the time of the termination of each swap).
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred
to as "aggregation."
Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer,
which would establish a formula price at which the Fund would have the
absolute right to repurchase that OTC option. That formula price would
generally be based on a multiple of the premium received for the option,
plus the amount by which the option is exercisable below the market price
of the underlying security (that is, the extent to which the option is
"in-the-money"). When the Fund writes an OTC option, it will treat as
illiquid (for purposes of the limit on its assets that may be invested in
illiquid securities, stated in the Prospectus) the mark-to-market value
of any OTC option held by it. The Fund will also treat as illiquid any
OTC option held by it. The SEC is evaluating whether OTC options should
be considered liquid securities, and the procedure described above could
be affected by the outcome of that evaluation.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate in a manner beyond the Fund's control. The exercise by the
Fund of puts on securities or Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise
is within the Fund's control, holding a put might cause the Fund to sell
the related investments for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys
or sells a put, a call, or an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those
which would apply to direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the
market value of the related investments, and consequently, put and call
options offer large amounts of leverage. The leverage offered by trading
in options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which exempts the Fund from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. Under these restrictions the Fund will not,
as to any positions, whether short, long or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. Due to requirements under the Investment Company Act,
when the Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Hedging Instruments. The Fund intends to qualify as
a "regulated investment company" under the Internal Revenue Code. One of
the tests for such qualification is that less than 30% of its gross income
(irrespective of losses) must be derived from gains realized on the sale
of securities held for less than three months. Due to this limitation,
the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Futures, held for less than three months, whether or not they
were purchased on the exercise of a call held by the Fund; (ii) purchasing
calls or puts which expire in less than three months; (iii) effecting
closing transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts or calls held by the Fund
for less than three months; and (v) writing calls on investments held for
less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including foreign currency
forward contracts) generally are treated as ordinary income or loss. In
addition, section 1256 contracts held by the Fund at the end of each
taxable year are "marked-to-market" with the result that unrealized gains
or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of the excise tax applicable to
investment company distributions and for other purposes under rules
prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt these transactions from this marked-to-market
treatment.
Certain foreign currency forward contracts entered into by the Fund
may result in "straddles" for Federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund
on straddle positions. Generally, a loss sustained on the disposition of
a position(s) making up a straddle is allowed only to the extent such loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there
is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
in using short hedging by selling Futures to attempt to protect against
decline in value of the Fund's portfolio securities (due to an increase
in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depend on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Futures and/or calls
on such Futures or on debt securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the debt securities
purchased.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are described in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the fundamental policies and
investment objective described in the Prospectus, cannot be changed
without the vote of a "majority" of the Fund's outstanding shares. Under
the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of: (i) 67% or more of the shares present or
represented by proxy at a shareholders meeting, if the holders of more
than 50% of the outstanding shares are present, or (ii) more than 50% of
the outstanding shares. Under these additional restrictions, the Fund
cannot: (1) Buy or sell real estate, or commodities or commodity contracts
including futures contracts; however, the Fund may invest in debt
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein, and the Fund may buy and sell any of the
Hedging Instruments which it may use as approved by the Board, whether or
not such Hedging Instrument is considered to be a commodity or commodity
contract; (2) Buy securities on margin, except that the Fund may make
margin deposits in connection with any of the Hedging Instruments which
it may use; (3) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter for purposes of the
Securities Act of 1933; (4) Buy and retain securities of any issuer if
those officers, Trustees or Directors of the Fund or the Manager who
beneficially own more than .5% of the securities of such issuer together
own more than 5% of the securities of such issuer; (5) Invest in oil, gas,
or other mineral exploration or development programs; or (6) Buy the
securities of any company for the purpose of exercising management
control, except in connection with a merger, consolidation, reorganization
or acquisition of assets.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, it will not: (1)
invest in real estate limited partnerships or (2) invest more than 10% of
its total assets in other investment companies as defined in the
Investment Company Act, except in connection with a merger, consolidation,
reorganization or acquisition of assets. In the event that the Fund's
shares cease to be qualified under such laws or if such undertaking(s)
otherwise cease to be operative, the Fund would not be subject to such
restrictions.
TRUSTEES AND OFFICERS
The Fund's Trustees and officers and their principal occupations and
business affiliations during the past five years are listed below. Except
for Messrs. Steinmetz and Negri, each serves in similar capacities with
Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-
Exempt Cash Reserves, Oppenheimer Tax-Free Bond Fund, Oppenheimer
Government Securities Fund, The New York Tax-Exempt Income Fund, Inc.,
Centennial America Fund, L.P., Oppenheimer Champion High Yield Fund,
Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Short-Term Income Fund, Oppenheimer Strategic Income
& Growth Fund, Oppenheimer Variable Account Funds, Oppenheimer Integrity
Funds, Daily Cash Accumulation Fund, Inc., Centennial Money Market Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial Tax Exempt Trust and Centennial California Tax Exempt Trust
(all of the foregoing funds are collectively referred to as the "Denver-
based OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is
Chairman of the Denver-based OppenheimerFunds. As of December 31, 1993,
the Trustees and officers of the Fund as a group owned less than 1% of the
Fund's outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson Avenue., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager;
President and director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a director of
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary
of the Manager; a Director of Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager; formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a Director of the Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a Director of Centennial
Asset Management Corporation ("Centennial"), an investment adviser
subsidiary of the Manager; formerly President and Director of
Oppenheimer Asset Management Corporation ("OAMC"), an investment
adviser which was a subsidiary of the Manager, and Chairman of the
Board of SSI.
ANDREW J. DONOHUE, Vice President
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer
of other OppenheimerFunds; formerly, Senior Vice President and
Associate General Counsel of the Manager and the Distributor, Partner
in Kraft & McManimon (a law firm); an officer of First Investors
Corporation (a broker-dealer) and First Investors Management Company,
Inc. (broker-dealer and investment adviser) and director and an
officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of
other OppenheimerFunds; formerly Senior Vice President/Comptroller and
Secretary of OAMC.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
DAVID P. NEGRI, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048
Vice President of the Manager; an officer of other OppenheimerFunds.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of
other OppenheimerFunds; formerly Vice President/Director of Internal
Audit of the Manager.
Remuneration of Trustees. The officers of the Fund (including Messrs.
Swain and Fossel, officers and Trustees) are affiliated with the Manager
and receive no salary or fee from the Fund. During the fiscal year ended
September 30, 1993, the remuneration (including expense reimbursements)
paid by the Fund to all Trustees of the Fund (excluding Messrs. Swain and
Fossel) in the aggregate for services as Trustees and as members of one
or more committees totalled $1,050. The Fund has an Audit and Review
Committee, comprised of William A. Baker (Chairman), Charles Conrad, Jr.
and Robert M. Kirchner. This Committee meets regularly to review audits,
audit procedures, financial statements and other financial and operational
matters of the Fund.
Major Shareholders. As of December 31, 1993, no person owned or was known
by the Fund to own beneficially 5% or more of the Fund's outstanding Class
A or Class B shares.
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly-owned by OAC, a holding company ultimately
controlled by Massachusetts Mutual Life Insurance Company. OAC is also
owned in part by certain of the Manager's directors and officers, some of
whom may serve as officers of the Fund, and two of whom (Messrs. Fossel
and Swain) serve as Trustees of the Fund.
The management fee is payable monthly to the Manager under the terms
of the investment advisory agreement between the Manager and the Fund (the
"Agreement") and is computed on the aggregate net assets of the Fund as
of the close of business each day. The Agreement requires the Manager,
at its expense, to provide the Fund with adequate office space, facilities
and equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund. Expenses not
expressly assumed by the Manager under the Agreement or by the Distributor
are paid by the Fund. The Agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to unaffiliated trustees, legal, bookkeeping
and audit expenses, custodian and transfer agent expenses, share issuance
costs, certain printing and registration costs, and non-recurring
expenses, including litigation. During the Fund's fiscal year ended
September 30, 1993 and fiscal period from April 27, 1992 (commencement of
operations) to September 30, 1992, the management fees payable by the Fund
to the Manager would have been $227,907 and $15,887, respectively, absent
the Manager's assumption of Fund expenses, as discussed below, in the
amount of $106,134 and $36,153, respectively, which reduced the management
fee and the Fund's "Other Expenses" identified above by the amount of the
expense assumption.
The Agreement contains no expense limitation. However, independently
of the Agreement, the Manager has undertaken that the total expenses of
the Fund in any fiscal year (including the management fee but excluding
taxes, interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) shall not
exceed (and the Manager undertakes to reduce the Fund's management fee in
the amount by which such expenses shall exceed) the most stringent state
regulatory limitation on fund expenses applicable to the Fund unless a
waiver is obtained. At present, that limitation is imposed by California
and limits expenses (with specified exclusions) to 2.5% of the first $30
million of average annual net assets, 2% of the next $70 million of
average net assets and 1.5% of average net assets in excess of $100
million. The payment of the management fee at the end of any month will
be reduced so that there will not be any accrued but unpaid liability
under such assumption limitation. The Manager reserves the right to
terminate or amend such expense assumption undertaking at any time. Any
assumption of the Fund's expenses under this undertaking would lower the
Fund's overall expense ratio and increase its total return during any
period in which expenses are limited. Until November 24, 1993, the
Manager had also undertaken to assume the Fund's expenses (other than
extraordinary non-recurring expenses) to enable the Fund to pay a dividend
of $.3738 per share per annum, with the limitation that the dividend could
not exceed the Fund's annual gross earnings per share. That undertaking
terminated November 24, 1993. During the Fund's fiscal period from its
commencement of operations on April 27, 1992, through September 30, 1992,
the management fee paid to the Manager would have been $15,887. Pursuant
to such undertaking the Manager reimbursed the Fund $36,153. As a result
of that expense assumption, the Fund's yield and total return were higher
during that period than they otherwise would have been.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and
duties under the Agreement, the Manager is not liable for any loss
sustained by reason of good faith errors or omissions in connection with
any matters to which the Agreement relates. The Agreement permits the
Manager to act as investment adviser for any other person, firm or
corporation and to use the name "Oppenheimer" in connection with other
investment companies for which it may act as investment adviser or general
distributor. If the Manager or one of its affiliates shall no longer act
as investment adviser to the Fund, the right of the Fund to use the name
"Oppenheimer" as part of its name may be withdrawn.
BROKERAGE
Provisions of the Investment Advisory Agreement. One of the duties of the
Manager under the Agreement is to arrange the portfolio transactions of
the Fund. In doing so, the Manager is authorized by the Agreement to
employ broker-dealers ("brokers") including "affiliated" brokers, as that
term is defined in the Investment Company Act, as may, in its best
judgment based on all relevant factors, implement the policy of the Fund
to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
or base its selection on "posted" rates, but is expected to be aware of
the current rates of most eligible brokers and to minimize the commissions
paid to the extent consistent with the provisions of the Agreement and the
interests and policies of the Fund as established by its Board.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices, and the Fund incurs little or no
brokerage costs. For those transactions, instead of using a broker the
Fund normally deals directly with the selling or purchasing principal or
market maker unless it is determined that a better price or execution can
be obtained using a broker. Purchases of these securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price. The Fund seeks to obtain prompt execution of such orders
at the most favorable net price.
Under the Agreement, the Manager is authorized to select brokers which
provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than
another qualified broker would have charged, if a good faith determination
is made by the Manager that the commission is fair and reasonable in
relation to the services provided. There is no formula under which any
of the brokers selected for the Fund's portfolio transactions are entitled
to the allocation of a particular amount of commissions. The Manager may
consider sales of the shares of the Fund and other investment companies
managed by the Manager or its affiliates as a factor in the selection of
brokers for the Fund's portfolio transactions. The Manager need not seek
competitive bidding or base its selection on "posted" rates, but is
expected to be aware of the current rates of eligible brokers.
Description of Brokerage Practices. Subject to the provisions of the
Agreement, when brokers are used for the Fund's portfolio transactions,
allocations of brokerage are made by portfolio managers under the
supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market
are generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed
securities and otherwise only if it appears likely that a better price or
execution can be obtained. When the Fund engages in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transactions in the securities to which the
option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or
it affiliates are combined. Transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars. The research services provided by brokers broaden the
scope and supplement the research activities of the Manager by making
available additional views for consideration and comparisons, and enabling
the Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The Board
of Trustees, including the independent Trustees of the Fund, annually
reviews information furnished by the Manager as to the commissions paid
to brokers furnishing such services in an effort to ascertain that the
amount of such commissions was reasonably related to the value or the
benefit of such services. The Board has permitted the Manager to use
concessions on fixed price offerings to obtain research, in the same
manner as is permitted for agency transactions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset value per share
of the Fund is determined as of 4:00 P.M. (all references to time mean New
York time) that day each day the New York Stock Exchange (the "NYSE") is
open by dividing the value of the Fund's net assets attributable to that
class by the total number of shares of that class outstanding. The NYSE's
most recent annual holiday schedule (which is subject to change) states
that it will close New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day; it
may also close on other days. Trading may occur in debt securities and
in foreign securities at times when the NYSE is closed (including weekends
and holidays or after 4:00 P.M. on a regular business day). Because the
net asset value of the Fund will not be calculated at such times, if
securities held in a Fund's portfolio are traded at such times, that net
asset value per share of Class A and Class B shares of the Fund may be
significantly affected at times when shareholders do not have the ability
to purchase or redeem shares.
The Board has established procedures for the valuation of the Fund's
securities as follows: (i) equity securities traded on a securities
exchange or on the NASDAQ are valued at the last sale prices on their
primary exchange or the NASDAQ that day (or, in the absence of sales that
day, at values based on the last sales prices of the preceding trading
day, or closing bid and asked prices); (ii) NASDAQ and other unlisted
equity securities for which last sales prices are not regularly reported
but for which over-the-counter market quotations are readily available are
valued at the highest closing bid price at the time of valuation, or, if
no closing bid price is reported, on the basis of a closing bid price
obtained from a dealer who maintains an active market in that security;
(iii) securities (including restricted securities) not having readily-
available market quotations are valued at fair value under the Board's
procedures; (iv) unlisted debt securities having a maturity in excess of
60 days are valued at the mean between the bid and asked prices determined
by a portfolio pricing service approved by the Board or obtained from
active market makers in the security on the basis of reasonable inquiry;
(v) short-term debt securities having a remaining maturity of 60 days or
less are valued at cost, adjusted for amortization of premiums and
accretion of discounts; and (vi) securities traded on foreign exchanges
or in foreign over-the-counter markets are valued as determined by a
portfolio pricing service approved by the Board, based upon last sales
prices reported on a principal exchange or, if none, at the mean between
closing bid and asked prices and reflect prevailing rates of exchange to
convert their values to U.S. dollars.
Foreign currency will be valued as close to the time fixed for the
valuation date as is reasonably practicable. The value of securities
denominated in foreign currency will be converted to U.S. dollars at the
prevailing rates of exchange at the time of valuation. Foreign exchanges
on which the Fund's foreign securities are primarily listed may trade on
Saturdays or other customary U.S. business holidays on which the NYSE is
closed. Because the Fund's offering price and net asset value will not
be calculated on those days, if foreign securities held by the Fund are
traded on those days, the Fund's net asset value per share may be affected
on such days when shareholders will not have the ability to purchase or
redeem shares.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in such markets
that occur between the time their prices are determined and the close of
the NYSE will not be reflected in the Fund's calculation of the net asset
value of its Class A and Class B shares unless the Board, or the Manager
under procedures established by the Board, determines that the particular
event would materially affect such net asset value, in which case an
adjustment would be made.
In the case of U.S. Government Securities, mortgage-backed securities,
foreign securities and corporate bonds, when last sale information is not
generally available, such pricing procedures may include "matrix"
comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity, and other special factors involved. The Board
has authorized the Manager to employ a pricing service to price U.S.
Government Securities, mortgage-backed securities, foreign securities and
corporate bonds. The Trustees will monitor the accuracy of such pricing
services by comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ on which they are traded, or, if
there are no sales that day, in accordance with (i) above. When the Fund
writes an option, an amount equal to the premium received by the Fund is
included in its Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The
deferred credit is adjusted ("marked-to-market") to reflect the current
market value of the option.
Dual Class Methodology. The methodology for calculating the net asset
value and dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the net assets of such class to
the Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management fees,
(ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs
of shareholder reports, prospectuses, additional statements and other
material for current shareholders, (iv) fees to unaffiliated Trustees, (v)
custodian expenses, (vi) share issuance costs, (vii) organization and
start-up costs, (viii) interest, taxes and brokerage commissions, and (ix)
non-recurring expenses, including litigation. Other expenses are directly
attributable to a class, and therefore are allocated equally to each
outstanding share within that class. Such expenses include (i)
Distribution and Service Plan fees, (ii) incremental transfer and
shareholder servicing agent fees and expenses, (iii) registration fees and
(iv) shareholder meeting expenses, to the extent such expenses pertain to
a specific class rather than to the Fund as a whole.
Reduced Class A Sales Charge. 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
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, brothers- and sisters-in-law, and sons- and
daughters-in-law.
Redemptions. Information on how to redeem shares of the Fund is stated
in the Prospectus. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, if the Board
determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly in cash, the
Fund may pay the redemption price in whole or in part by a distribution
in kind of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable SEC rules. The Fund has elected to be governed
by Rule 18f-1 under the Investment Company Act, pursuant to which it is
obligated to redeem shares of the Fund solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for
any one shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in converting the assets
to cash. Any shares issued by the Fund pursuant to an "in-kind"
redemption will be readily marketable. The method of valuing securities
used to make redemptions in kind will be the same as the method of valuing
portfolio securities described above under "Determination of Net Asset
Value Per Share," and such valuation will be made as of the same time the
redemption price is determined.
The Board has the right to cause the involuntary redemption of the
shares held in any account if the aggregate net asset value of such shares
is less than $200 or such lesser amount as the Board may decide. 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. Should the
Board elect to exercise this right, it may also fix, in accordance with
the Investment Company Act, the requirements for any notice to be given
to the shareholders in question (not less than 30 days), or may set
requirements for permission to allow the shareholder to increase the
investment so that the shares would not be involuntarily redeemed.
Cancellation of Purchase Orders. Cancellation of purchase orders for Fund
shares (for example, when a purchase check is returned unpaid) causes a
loss to be incurred when the net asset value of the Fund's shares on the
date of cancellation is less than on the purchase date; that loss is equal
to the amount of such decline in net asset value per share multiplied by
the number of shares in the purchase order. The investor is responsible
for that loss. If the investor fails to compensate the Fund for the loss,
the Distributor will do so. The Fund may reimburse the Distributor for
that amount by redeeming shares from any account registered in that
investor's name, or by seeking other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A shares or Class B shares.
Shares are not subject to the payment of a CDSC of either class at the
time of transfer (to another related party, by absolute assignment, gift
or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the CDSC, calculated as if the
transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder. If less than
all shares held in an account are transferred, and some but not all shares
in the account would be subject to a CDSC if redeemed at the time the
transfer occurs, the priorities described in the Prospectus under "How to
Buy Shares" for the imposition of the Class B CDSC will be followed in
determining the order in which shares are transferred.
Exchanges of Class B Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class of another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds offer Class B shares:
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Mortgage Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Cash Reserves
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Plan for each class of shares of the
Fund under Rule 12b-1 of the Investment Company Act pursuant to which the
Fund will reimburse the Distributor for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the
shares of that class, as described in the Prospectus. Each Plan has been
approved: (i) by a vote of the Board, including a majority of the
"Independent Trustees" (those Trustees of the Fund who are not "interested
persons," as defined in the Investment Company Act, and who have no direct
or indirect financial interest in the operation of the Plans or in any
agreements relating to the Plans) cast in person at a meeting called for
the purpose of voting on the Plan; and (ii) by the vote of the holders of
a "majority" (as defined under the Investment Company Act) of the shares
of each class (for the Class B Plan, such vote having been cast by the
Manager as the sole initial holder of Class B shares of the Fund).
Each Plan shall, unless terminated as described below, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the Board and its Independent Trustees by
a vote cast in person at a meeting called for the purpose of voting on
such continuance. Either Plan may be terminated at any time by a vote of
a majority of the Independent Trustees or by a vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding
shares of that class. Neither Plan may be amended to increase materially
the amount of payments to be made without approval by shareholders of the
respective class affected. All material amendments must be approved by
the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the
final decision on any such selection or nomination is approved by a
majority of the Independent Trustees.
The Glass-Steagall Act and other applicable laws and regulations,
among other things, generally prohibit Federally-chartered or supervised
banks from engaging in the business of underwriting, selling or
distributing securities as principals. It is the understanding of the
Manager and the Distributor that the Glass-Steagall Act and other
applicable laws and regulations do not prohibit banks and other financial
institutions from providing services required of Recipient. Accordingly,
the Distributor may pay banks only for sales made on an agency basis or
for performance of administrative and shareholder servicing functions
under the Plans. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or
state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates, could prevent certain banks
from continuing to perform all or a part of these services. If a bank
were so prohibited, shareholders of the Fund who were clients of such bank
would be permitted to remain as shareholders, and if that bank could no
longer provide those service functions, alternate means for continuing the
servicing of such shareholders would be sought. In such event,
shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being
provided by such bank. The Board will consider appropriate modifications
to the Fund's operations, including discontinuance of payments under the
Plans to such institutions, in the event of any future change in such laws
or regulations which may adversely affect the ability of such institutions
to provide these services. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of those
occurrences. In addition, state securities laws on this issue may differ
from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to
state law.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers does not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Independent Trustees. Initially, the Board of Trustees has set the fee
at the maximum rate and set no minimum amount. The Plans permit the
Distributor and the Manager to make additional distribution payments to
Recipients from their own resources (including profits from management
fees) at no cost to the Fund. The Distributor and the Manager may, in
their sole discretion, increase or decrease the amount of distribution
assistance payments they make to Recipients from their own assets.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations imposed by the
National Association of Securities Dealers, Inc. Rules of Fair Practice.
The asset-based sales charge paid to the Distributor by the
Corporation under the Class B Plan is intended to allow the Distributor
to recoup the cost of sales commissions paid to authorized brokers and
dealers at the time of sale, plus financing costs, as described in the
Prospectus. Such payments may also be used to pay for the following
expenses in connection with the distribution of Class B shares: (i)
financing the advance of the service fee payment to Recipients under the
Class B Plan, (ii) compensation and expenses of personnel employed by the
Distributor to support distribution of Class B shares, and (iii) costs of
sales literature, advertising and prospectuses (other than those furnished
to current shareholders).
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. In the event the Class
B Plan is terminated, the Distributor is entitled to continue to receive
the asset-based sales charge on Class B shares sold prior to termination
until the Distributor has recovered its Class B distribution expenses
incurred prior to termination from such payments and from the Class B
CDSC.
The Fund believes that current accounting standards do not require the
Fund to record as a current liability its obligation under the Class B
Plan to carry over and continue payments of the asset-based sales charge
to the Distributor in the future to reimburse it for expenses incurred as
to Class B shares sold prior to the termination of the plan. Those
accounting standards are currently being reviewed by the AICPA, as
discussed in the prospectus. If those accounting standards should be
changed to require the Fund to recognize that obligation for future
payments as a current liability, the Fund's Board would consider other
alternatives to that provision of the Class B Plan, because otherwise the
treatment of such expenses as a current liability could result in a
decrease in the net asset value per Class B share. Such decrease would
affect all then-outstanding Class B shares regardless of how long they had
been held. Furthermore, Class B shareholders whose shares had not matured
would continue to remain subject to the Class B CDSC.
For the fiscal year ended September 30, 1993, payments under the Class
A Plan totaled $64,693, all of which was paid by the Distributor to
Recipients, including $11,197 paid to an affiliate of the Distributor.
Any unreimbursed expenses incurred with respect to Class A shares for any
fiscal quarter by the Distributor may not be recovered under the Class A
Plan in subsequent fiscal quarters. Payments received by the Distributor
under the Class A Plan will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of overhead by
the Distributor. These limitations do not apply to the Class B 12b-1
Plan. Payments under the Class B Plan for the fiscal period November 30,
1992 to September 30, 1993 totalled $43,910, which was retained by the
Distributor, and of which $32,932 was attributable to the asset-based
sales charge and the remainder attributable to the service fee.
PERFORMANCE, DIVIDEND AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return", "total return", and "total return at net asset value" of
an investment in each class of Fund shares may be advertised. An
explanation of how yield, average annual total return and total return are
calculated for each class and the components of those calculations are set
forth below.
The "yield" or "standardized yield" of the Fund's Class A shares and
Class B shares for the 30-day period ended September 30, 1993 was 7.08%
and 6.58%, respectively, calculated using the following formula set forth
in the SEC rules:
a-b 6
Yield = 2 ((---- + 1) -1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period, adjusted for undistributed net investment income.
The yield of a class for a 30-day period may differ from its yield for
any other period. The SEC formula assumes that the yield for a 30-day
period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This "standardized" yield is not
based on distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the return on the Fund's
portfolio investments, and may differ from the "dividend yield" of that
class, described below.
The "average annual total return" of each class is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses some of the same factors, but does
not average the rate of return on an annual basis. Total return measures
the cumulative (rather than average) change in value of a hypothetical
investment over a stated period. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume (i) for Class A shares, the payment of the
current maximum sales charge of 4.75% (as a percentage of the offering
price) on the initial investment ("P"), and (ii) for Class B shares, the
payment of the contingent deferred sales charge of 5.0% for the first
year, 4.0% for the second year, 3.0% for the third and fourth years, 2.0%
in the fifth year, 1.0% in the sixth year and none thereafter, applied as
described in the Prospectus. The formulas also assume that all dividends
and capital gains distributions during the period are reinvested at net
asset value per share, and that the investment is redeemed at the end of
the period. The "average annual total return" on Class A shares for the
fiscal year ended September 30, 1993 and for the period from April 27,
1992 (commencement of operations) through September 30, 1993 was 2.14% and
6.20%, respectively. The "total return" on Class A shares for the fiscal
year ended September 30, 1993 was 8.95%. The "average annual total
return" on Class B shares for the period from November 30, 1992 (inception
of the class) through September 30, 1993 was 5.74%. The "total return"
on Class B shares for the fiscal period ended September 30, 1993 was
4.76%.
From time to time the Fund may also quote a "total return at net asset
value" for Class A or Class B shares. It is based on the difference in
net asset value per share at the beginning and the end of the period for
that class of shares (without considering the sales charge) and takes into
consideration the reinvestment of dividends and capital gains (as with
total return, described above). The "total return at net asset value" on
the Fund's Class A shares for the fiscal year ended September 30, 1993 was
7.24%. The "total return at net asset value" on Class B shares for the
fiscal period ended September 30, 1993 was 9.76%.
From time to time the Fund may quote a "dividend yield" or a
"distribution return" for each class. Dividend yield is based on the
Class A or Class B share dividends derived from net investment income
during a stated period and distribution return includes dividends derived
from net investment income and from realized capital gains declared during
a stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one year
or less (for example, 30 days) are added together, and the sum is divided
by the maximum offering price (including sales charge) per share of that
class on the last day of the period. When the result is annualized for
a period of less than one year, the "dividend yield" is calculated as
follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
From time to time similar calculations may also be made using the
Class A or Class B share net asset value (instead of their respective
maximum offering price) at the end of the period. The dividend yield on
Class A shares for the 30-day period ended September 30, 1993 was 6.92%
and 7.27% when calculated at maximum offering price and at net asset
value, respectively, and for Class shares for the 30-day period ended
September 30, 1993 at maximum offering price was 6.42%.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent service, which monitors the
performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating
to investment objectives. The performance of the Fund's classes is ranked
against (i) all other funds excluding money market funds and (ii) all
other fixed-income funds. The Lipper performance analysis includes the
reinvestment of capital gains distributions and income dividends but does
not take sales charges or taxes into consideration. From time to time,
the Fund may include in its advertisements and sales literature
performance information about the Fund cited in other newspapers and
periodicals, such as The New York Times, which may include performance
questions from other sources, including Lipper Analytical Services.
From time to time the Fund may publish the ranking of the performance
of its Class A shares or Class B shares by Morningstar, Inc.
("Morningstar"), an independent mutual fund monitoring service that ranks
various mutual funds, including the Fund, based upon the fund's three,
five and ten-year average annual total returns (when available) and a risk
factor that reflects fund performance relative to three-month U.S.
Treasury bill monthly returns. Such returns are adjusted for fees and
sales loads. There are five ranking categories with a corresponding
number of stars: highest (5), above average (4), neutral (3), below
average (2) and lowest (1). Morningstar ranks Class A and Class B shares
of the Fund in relation to other rated fixed income funds.
The total return on an investment made in Class A or Class B shares
of the Fund may be compared with the performance for the same period of
The Lehman Aggregate Bond Index, as described in the Prospectus.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; its yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yield and total return for any given past period are not an
indication or representation by the Fund of future yields or rates of
return on its shares. The yield and total return of Class A and Class B
shares of the Fund are affected by portfolio quality, portfolio maturity,
type of investments held and operating expenses. When comparing yield,
total return and investment risk of Class A or Class B shares of the Fund
with those of other investment instruments, investors should understand
that certain other investment alternatives such as money market
instruments, certificates of deposit ("CD's"), U.S. Government securities
or bank accounts provide yields that are fixed or that may vary above a
stated minimum, and may be insured or guaranteed.
Tax Status of the Fund's Dividends and Distributions. Special provisions
of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the 70% dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for
the deduction. In addition, the amount of dividends paid by the Fund
which may qualify for the deduction is limited to the aggregate amount of
qualifying dividends (generally, dividends from domestic corporations)
which the Fund derives from its portfolio investments held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for
the deduction on dividends paid on shares held by that shareholder for 45
days or less. To the extent the Fund's dividends are derived from its
gross income from option premiums, interest income or short-term capital
gains from the sale of securities, or dividends from foreign corporations,
a substantial portion of its dividends will not qualify for the deduction.
Under the Internal Revenue Code, the Fund, in general, must distribute
by December 31 each year 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from the prior November 1 through October 31 of
that year or else must pay an excise tax on the amounts not distributed.
While it is presently anticipated that the Fund's distributions will meet
those requirements, the Board and the Manager might determine in a
particular year that it might be in the best interest of the Fund not to
distribute income or capital gains at the mandated levels and to pay the
excise tax on the undistributed amounts, which would reduce the amount
available for distribution to shareholders of the Fund.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year. Accordingly, the Fund may be required to pay
out as an income distribution each year an amount which is greater than
the total amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a distribution of
cash necessitates the liquidation of portfolio securities, the Manager
will select which securities to sell. The Fund may realize a gain or loss
from such sales. In the event the Fund realizes net capital gains from
such transactions, its shareholders may receive a larger capital gain
distribution than they would have had in the absence of such transactions.
ADDITIONAL INFORMATION
Description of the Fund. The Fund's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the Fund's
obligations, and provides for indemnification and reimbursement of
expenses out of its property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume a defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Thus, while Massachusetts law permits a shareholder of a trust
(such as the Fund) to be held personally liable as a "partner" under
certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is highly unlikely and is limited
to the relatively remote circumstances in which the Fund would be unable
to meet its obligations described above. Any person doing business with
the Fund, and any shareholder of the Fund, agrees under the Fund's
Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings
with the Fund, and the Trustees shall have no personal liability to any
such person, to the extent permitted by law.
It is not contemplated that regular annual meetings of shareholders
will be held. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in writing
or vote of two-thirds of the outstanding shares of the Fund, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the
removal of a Trustee upon the written request of the record holders of 10%
of its outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least six
months) holding in the aggregate shares of the Fund valued at $25,000 or
more or holding 1% or more of the Fund's outstanding shares, whichever is
less, that they wish to communicate with other shareholders to request a
meeting to remove a Trustee, the Trustees will then either make the Fund's
shareholder list available to the applicants or mail their communication
to all other shareholders at the applicants' expense, or the Trustees may
take such other action as set forth in Section 16(c) of the Investment
Company Act.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other funds listed in the Prospectus as
"Eligible Funds" at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. The names of such
Funds are listed under "Exchanges of Class B Shares" above. To elect this
option, the shareholder must notify the Transfer Agent in writing and
either must have an existing account in the fund selected for reinvestment
or must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution.
The Custodian and the Transfer Agent. 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. The
Manager has represented to the Fund that its banking relationships with
the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It
will be the practice of the Fund to deal with the Custodian in a manner
uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates.
The Transfer Agent is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records and for
shareholder servicing and administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's Class A and Class B shares but is not obligated to sell a specific
number of shares. Expenses normally attributable to sales other than
those paid under the Distribution and Service Plans, including advertising
and the cost of printing and mailing prospectuses (other than those
furnished to existing shareholders), are borne by the Distributor. During
the period from April 27, 1992 (commencement of operations) through
September 30, 1992 and the fiscal year ended September 30, 1993, the
aggregate amount of sales charges on sales of the Fund's shares was
$435,397 and $811,099, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $76,427 and $236,748,
respectively.
Independent Auditors and Financial Statements. The independent auditors
of the Fund examine the Fund's financial statements and perform other
related audit services. They also act as auditors for the Manager and
certain other funds advised by the Manager and its affiliates.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees to
the terms and conditions applicable to such plans, as stated below and
elsewhere in the Application for such Plans, and the Prospectus and this
Statement of Additional Information as they may be amended from time to
time by the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal payments.
Shares acquired without a sales charge will be redeemed first and
thereafter shares acquired with reinvested dividends and distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such plans should not be considered as a yield or
income on investment. Purchases of additional shares concurrently with
withdrawals are undesirable because of sales charges on purchases when
made. Accordingly, a shareholder may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases.
1. The Transfer Agent will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent.
2. Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Transfer Agent will credit all such
shares to the account of the Planholder on the records of the Fund. Any
share certificates now held by the Planholder may be surrendered
unendorsed to the Transfer Agent with the Plan application so that the
shares represented by the certificate may be held under the Plan. Those
shares will be carried on the Planholder's Plan Statement.
3. Distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments will
be made at the net asset value per share determined on the redemption
date.
5. Checks or ACH payments will be transmitted three business days
prior to the date selected for receipt of the monthly or quarterly payment
(the date of receipt is approximate), according to the choice specified
in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put in effect.
7. The Planholder may, at any time, instruct the Transfer Agent by
written notice (in proper form in accordance with the requirements of the
then-current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In such case, the Transfer Agent will redeem
the number of shares requested at the net asset value per share in effect
in accordance with the Fund's usual redemption procedures and will mail
a check for the proceeds of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on
written notice to the Transfer Agent, or by the Transfer Agent upon
receiving directions to that effect from the Fund. The Transfer Agent
will also terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon termination of
the Plan by the Transfer Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account in the name of the Planholder,
and the account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder, his executor or guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral, the
Planholder may request issuance of a portion of his shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares as to which a certificate may be issued,
so as not to cause the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. Should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
10. the Transfer Agent shall incur no liability to the Planholder for
any action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as transfer
agent for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
LETTERS OF INTENT
In submitting a Letter of Intent ("Letter") to purchase Class A shares
of the Fund and other OppenheimerFunds at a reduced sales charge, the
investor agrees to the terms of the Prospectus, the Application used to
buy such shares, and the language in this Additional Statement as to
Letters, as they may be amended from time to time by the Fund. Such
amendments will apply automatically to existing Letters.
A Letter is the investor's statement of intention to purchase Class
A shares of the Fund (and other eligible OppenheimerFunds sold with a
sales charge) during the 13-month period from the investor's first
purchase pursuant to the Letter (the "Letter of Intent period"), which
may, at the investor's request, include purchases made up to 90 days prior
to the date of the Letter. The investor states the intention to make the
aggregate amount of purchases (excluding any reinvestments of dividends
or distributions or purchases made at net asset value without sales
charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter to obtain the reduced sales charge rate (as set forth in "How To
Buy Shares" in the Prospectus) applicable to purchases of shares in that
amount (the "intended amount"). Each purchase under the Letter will be
made at the public offering price applicable to a single lump-sum purchase
of shares in the intended amount, as described in the applicable
prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of such fund shares on the last day of that period,
do not equal or exceed the intended amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below, as those terms may be amended from time
to time. The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Fund's transfer agent
subject to the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during
the Letter of Intent period exceed the intended amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to refer to the Letter in placing any
purchase orders for the investor during the Letter of Intent period. All
of such purchases must be made through the Distributor.
Terms of Escrow
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended amount specified in the Letter shall be held in escrow by the
Fund's transfer agent. For example, if the intended amount specified
under the Letter is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the
Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the transfer agent of the Fund as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the Letter
(or the holding of which may be counted toward completion of the Letter)
do not include any fund whose shares are sold without a front-end sales
charge (or without being subject to a contingent deferred sales charge)
unless (for the purpose of determining completion of the obligation to
purchase shares under the Letter) the shares were acquired in exchange for
shares of a fund (described as an "Eligible Fund" in the Prospectus) whose
shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Strategic Investment
Grade Bond Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Strategic
Investment Grade Bond Fund as of September 30, 1993, the related statement
of operations for the year then ended, the statements of changes in net
assets for the year ended September 30, 1993 and for the period April 27,
1992 (commencement of operations) to September 30, 1992 and the financial
highlights for the period April 27, 1992 (commencement of operations) to
September 30, 1993. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at September 30, 1993 by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Strategic Investment Grade Bond Fund at September 30, 1993, the results
of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
/s/ Deloitte & Touche
Denver, Colorado
October 21, 1993
<PAGE>
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C> <C>
Repurchase Agreements-7.5%
Repurchase agreement with J.P. Morgan Securities, Inc.,
3.30%, dated 9/30/93 and maturing 10/1/93, collateralized
by U.S. Treasury Bills, 2.92%, 12/30/93, with a value
of $3,166,454 (Cost $3,100,000) $ 3,100,000 $ 3,100,000
International Securities-24.1%
Short-Term United Mexican States Treasury Bills,
Foreign Government 0%, 3/3/94 1,295,810+ 390,963
Obligations-.9%
Long-Term Australia (Government of) Bonds, 12%, 5/15/06 200,000+ 172,601
Foreign Government First Australia National Mortgage Acceptance Corp.
Obligations-8.9% Ltd. Bonds, Series 22, 11.40%, 12/15/01 335,880+ 248,649
Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95 2,000,000,000+ 760,034
Italy (Republic of) Treasury Bonds, 12%, 10/1/95 95,000,000+ 62,750
Queensland (Government of) Development Authority
Global Transferable Registered Nts., 10.50%, 5/15/03 200,000+ 160,452
South Australia Government Finance Authority Bonds,
10%, 1/15/03 226,000+ 171,410
Spain (Kingdom of) Bonds, 10.50%, 10/30/03 (4) 120,000,000+ 986,149
Treasury Corp. of Victoria Gtd. Bonds:
8.25%, 10/15/03 1,100,000+ 756,132
Series 3, 12.50%, 10/15/03 115,000+ 101,151
United Kingdom Treasury Nts., 10%, 2/26/01 177,000+ 310,916
3,730,244
Short-Term Foreign Citibank, 17% CD, 8/10/94 (3) 1,000,000 996,480
Corporate Bonds Salomon, Inc., 17.14% Medium-Term Nts.,
and Notes-4.8% Series D, 11/18/93 (3) 1,000,000 995,152
1,991,632
Long-Term Foreign Corporacion Andina de Formento, 7.25% Nts., 4/30/98 (1) 1,000,000 1,021,875
Corporate Bonds Czechoslovakia National Bank, 7% Bonds, 4/6/96 (1) 1,000,000 1,030,000
and Notes-9.5% Empresas Columbiana de Petroleos, 7.25% Nts., 7/8/98 (1) 750,000 750,000
Sears Canada, Inc., 11.70% Debs., 7/10/00 1,000,000+ 834,020
Telecommunication Corp. of Australia Ltd.,
11.50% Bonds, 10/15/02 375,000+ 305,652
3,941,547
Total International Securities (Cost $10,043,827) 10,054,386
Treasury-9.1%
U.S. Treasury Bonds, 7.125%, 2/15/23 (5) 1,000,000 1,121,560
U.S. Treasury Nts.:
4.625%, 8/15/95 $ 900,000 $ 913,212
5.50%, 9/30/97 300,000 310,218
5.75%, 10/31/97 400,000 417,124
5.125%, 2/28/98 1,000,000 1,018,430
Total Treasury (Cost $3,750,857) 3,780,544
Municipal Bonds and Notes-3.1%
City of New York Taxable General Obligation Bonds,
Series D, 9%, 2/1/13 125,000 140,205
New York State Environmental Facilities Corp.
State Service Contract Taxable Revenue Bonds:
Series A, 9.625%, 3/15/21 225,000 254,461
Series B, 7.30%, 3/15/97 300,000 311,921
Series B, 8.15%, 3/15/02 200,000 215,018
Pinole, California Redevelopment Agency
Tax Allocation Taxable Bonds, Pinole
Vista Redevelopment, Series B, 8.35%, 8/1/17 350,000 367,166
Total Municipal Bonds and Notes (Cost $1,215,645) 1,288,771
Mortgage/Asset-Backed Obligations-23.6%
Agency-Full Faith Government National Mortgage Assn.:
and Credit-3.6% 10.50%, 12/15/17 684,316 771,224
10.50%, 7/15/19 549,068 618,812
10.50%, 5/15/21 101,222 114,094
1,504,130
Agency - Federal Home Loan Mortgage Corp.
Government Collateralized Mtg. Obligations, 9%, 3/15/21 3,534,541 3,574,729
Sponsored-8.6%
Private- CMC Securities Corp. I, 10% Collateralized Mtg.
Mortgage-11.4% Obligation, Series 1993-D, C1. D-3, 6/25/23 (1) 1,226,498 1,306,028
First Boston Mortgage Securities Corp., 7.06% Mtg.
Pass-Through Certificates, Series 1993-AFC-1, 10/25/02 750,000 749,766
Residential Funding Corp., 8.50% Mtg. Pass-
Through Certificates, Series 1993-S10, Cl. A9, 2/25/23 1,212,787 1,253,150
Resolution Trust Corp. Commercial Mtg. Pass-Through
Certificates:
10.6323%, Series 1992-16, Cl. B3, 5/25/24 (2) 600,000 646,313
8.75%, Series 1993-C1, Cl. B, 5/25/24 700,000 764,750
4,720,007
Total Mortgage/Asset-Backed Obligations (Cost $9,846,395) 9,798,866
U.S. Corporate Bonds and Notes-29.1%
Automobiles, Trucks Auburn Hills Trust, 14.875% Gtd. Exch. Ctfs., 5/1/20 (2) $300,000 $ 450,750
and Parts-1.1%
Banks/Savings BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 215,562
and Loans-3.1% Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 300,000 358,605
First Chicago Corp., 9% Sub. Nts., 6/15/99 100,000 114,981
Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000 324,028
NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 250,000 272,171
1,285,347
Broadcast Media/ News America Holdings, Inc., 8.625% Sr. Nts., 2/1/03 500,000 560,000
Cable TV-5.3% Time Warner, Inc., 7.95% Nts., 2/1/00 100,000 107,375
Time Warner, Inc./Time Warner Entertainment LP,
8.375% Sr. Debs., 3/15/23 (1) 700,000 729,750
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 700,000 829,500
2,226,625
Building Scotia Pacific Holding Co., 7.95% Timber Collateralized
Materials-1.2% Nts., 7/20/15 489,550 510,939
Financial/ Conseco, Inc., 8.125% Sr. Nts., 2/15/03 400,000 430,456
Insurance-5.8% General Motors Acceptance Corp.:
8% Nts., 10/1/96 100,000 107,606
7.75% Nts., 4/15/97 300,000 322,433
PaineWebber Group, Inc., 7.75% Sub. Nts., 9/1/02 200,000 215,164
Republic American Corp., 9.50% Sub. Debs., 8/1/02 400,000 425,398
Shearson Lehman Brothers Holdings, Inc., 8.375% Nts.,
2/15/99 300,000 334,767
Tiphook Finance Corp.:
8% Gtd. Nts., 3/15/00 200,000 198,000
10.75% Sr. Nts., 11/1/02 350,000 388,063
2,421,887
Food and RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98 400,000 442,000
Restaurants-1.1%
Healthcare/Medical Epic Properties, Inc., 11.50% Gtd. Fst. Priority
Products-.3% Mtg. Nts., Cl. B-2, 7/15/01 98,235 110,515
Oil and Gas- McDermott, Inc., 9.375% Nts., 3/15/02 100,000 115,794
Equipment and Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 315,065
Services-1.0% 430,859
Oil and Gas- Tenneco, Inc.:
Integrated-1.0% 7.875% Nts., 10/1/02 $250,000 $272,618
10% Debs., 3/15/08 100,000 126,025
398,643
Oil and Gas - PDV America, Inc.:
Refining-1.6% 7.25% Gtd. Sr. Nts., 8/1/98 350,000 352,200
7.875% Gtd. Sr. Nts., 8/1/03 300,000 300,454
652,654
Railroads/ American Car Line Co., 8.25% Equipment Trust
Equipment-1.0% Certificates, Series 1993-A, 4/15/08 300,000 304,500
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 121,641
426,141
Textiles/ Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 477,500
Apparel-1.1%
Utilities-5.5% Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 590,625
Commonwealth Edison Co., 6.50% Nts., 7/15/97 225,000 233,907
Enron Corp., 7.625% Nts., 9/10/04 400,000 443,777
Long Island Lighting Co., 7.30% Debs., 7/15/99 250,000 268,448
Mitchell Energy & Development Corp., 9.25%
Sr. Nts., 1/15/02 400,000 456,000
Public Service Company of Colorado, 8.75% Fst. Mtg.
Bonds, 3/1/22 250,000 294,521
2,287,278
Total U.S. Corporate Bonds and Notes (Cost $11,431,545) 12,121,138
Total Investments, at Value (Cost $39,388,269) 96.5% 40,143,705
Other Assets Net of Liabilities 3.5 1,438,564
Net Assets 100.0% $41,582,269
<FN>
+Face amount is reported in foreign currency.
(1)Restricted security - See Note 6 of notes to financial statements.
(2)Represents the current interest rate for a variable rate security.
(3)Indexed instrument for which the principal amount due at maturity is
affected by the relative value of a foreign currency.
(4)Securities with an aggregate market value of $986,149 are segregated to
collateralize outstanding forward foreign currency exchange contracts.
See Note 7 of notes to financial statements.
(5)Securities with an aggregate market value of $1,121,560 are held in escrow
to cover outstanding call options, as follows:
</TABLE>
<TABLE>
<CAPTION>
Face Amount Expiration Exercise Premium Market Value
Subject to Call Date Price Received See Note 1
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bonds, 7.125%, 2/15/23 $1,000,000 11/93 $115.4375 $14,219 $2,969
</TABLE>
See accompanying notes to financial statements.
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <C> <C>
Assets Investments, at value (cost $39,388,269) - see accompanying statement $40,143,705
Cash 19,514
Receivables:
Shares of beneficial interest sold 1,010,653
Investments sold 834,546
Interest 680,544
Deferred organization costs 7,898
Other 5,659
Total assets 42,702,519
Liabilities Options written, at value (premiums received
$14,219) - see accompanying statement - Note 4 2,969
Unrealized depreciation on forward foreign currency exchange
contracts - Note 7 2,625
Payables and other liabilities:
Investments purchased 834,546
Shares of beneficial interest redeemed 136,056
Dividends 77,054
Distribution assistance - Note 5 24,007
Other 42,993
Total liabilities 1,120,250
Net Assets $41,582,269
Composition of Paid-in capital $41,230,537
Net Assets Accumulated net realized loss from investment,
written option and foreign currency transactions (404,234)
Net unrealized appreciation of investments and
options written - Note 3 1,021,401
Net unrealized depreciation on translation of assets
and liabilities denominated in foreign currencies (265,435)
Net Assets $41,582,269
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share
(based on net assets of $30,782,596 and 5,988,579
shares of beneficial interest outstanding) $ 5.14
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $ 5.40
Class B Shares:
Net asset value, redemption price and offering
price per share (based on net assets of $10,799,673
and 2,102,751 shares of beneficial interest outstanding) $ 5.14
</TABLE>
See accompanying notes to financial statements.
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <C> <C>
Investment Income Interest $2,513,570
Expenses Management fees - Note 5 227,907
Distribution assistance:
Class A - Note 5 64,693
Class B - Note 5 43,910
Transfer and shareholder servicing agent fees - Note 5 51,201
Shareholder reports 41,088
Custodian fees and expenses 17,679
Legal and auditing fees 15,951
Registration and filing fees:
Class A 4,042
Class B 3,716
Trustees' fees and expenses 1,050
Other 6,138
Total expenses 477,375
Less reimbursement from Oppenheimer Management Corporation - Note 5 (106,134)
Net expenses 371,241
Net Investment Income 2,142,329
Realized and Net realized gain on investments and options written
Unrealized Gain (including premiums on options exercised) 141,472
on Investments and Net realized gain on expiration of option
Options Written contracts written - Note 4 26,875
Net realized gain 168,347
Net change in unrealized appreciation of investments
and options written:
Beginning of year 116,363
End of year - Note 3 1,021,401
Net change 905,038
Net Realized and Unrealized Gain on Investments and Options Written 1,073,385
Net Increase in Net Assets Resulting from Operations Before Foreign Exchange Loss 3,215,714
Realized and Net realized loss on foreign currency
Unrealized Foreign transactions (537,135)
Exchange Loss
Net change in unrealized depreciation
on translation of assets and liabilities denominated
in foreign currencies:
Beginning of year (19,684)
End of year (265,435)
Net change (245,751)
Net Realized and Unrealized Foreign Exchange Loss (782,886)
Net Increase in Net Assets Resulting From Operations $2,432,828
</TABLE>
See accompanying notes to financial statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, September 30,
1993 1992+
<S> <C> <C> <C>
Operations Net investment income $ 2,142,329 $ 154,191
Net realized gain on investments and options written 168,347 40,971
Net realized loss from foreign currency transactions (537,135) (35,446)
Net change in unrealized appreciation or depreciation
of investments and options written 905,038 116,363
Net change in unrealized appreciation or depreciation
on translation of assets and liabilities denominated
in foreign currencies (245,751) (19,684)
Net increase in net assets resulting from operations 2,432,828 256,395
Dividends and Dividends from net investment income:
Distributions to Class A ($.372 and $.137 per share, respectively) (1,890,652) (127,264)
Shareholders Class B ($.270 per share) (278,604) -
Distributions from net realized gain on investments,
options written and foreign currency transactions:
Class A ($.003 and $.032 per share, respectively) (13,770) (26,547)
Class B ($.003 per share) (654) -
Beneficial Interest Net increase in net assets resulting from Class A
Transactions beneficial interest transactions - Note 2 14,546,029 15,896,537
Net increase in net assets resulting from Class B
beneficial interest transactions - Note 2 10,687,971 -
Net Assets Total increase 25,483,148 15,999,121
Beginning of period 16,099,121 100,000
End of period $41,582,269 $16,099,121
<FN>
+For the period from April 27, 1992 (commencement of operations) to September 30, 1992.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
CLASS A CLASS B
Period Ended
Year Ended September 30, September 30,
1993 1992+ 1993++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.16 $ 5.00 $ 4.95
Income from investment operations:
Net investment income .36 .14 .27
Net realized and unrealized gain (loss) on investments,
options written and foreign currencies (.01) .19 .19
Total income from investment operations .35 .33 .46
Dividends and distributions to shareholders:
Dividends from net investment income (.37) (.14) (.27)
Distributions from net realized gain on investments,
options written and foreign currency transactions - (.03) -
Total dividends and distributions to shareholders (.37) (.17) (.27)
Net asset value, end of period $ 5.14 $ 5.16 $ 5.14
Total Return, at Net Asset Value** 7.24% 6.67% 9.76%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $30,783 $16,099 $10,800
Average net assets (in thousands) $25,972 $ 4,939 $ 5,310
Number of shares outstanding at end of period
(in thousands) 5,989 3,117 2,103
Ratios to average net assets:
Net investment income 7.18% 7.28%* 6.28%*
Expenses, before voluntary reimbursement by the Manager 1.46% 2.00%* 2.20%*
Expenses, net of voluntary reimbursement by the Manager 1.12% .29%* 1.84%*
Portfolio turnover rate*** 90.3% 30.6% 90.3%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the first day of
the fiscal period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the last
business day of the fiscal period. Sales charges are not reflected in the total returns.
***The lesser of purchases or sales of portfolio securities for a period, divided by the
monthly average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one year or
less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the year ended September 30, 1993 were $48,899,885 and $25,226,794,
respectively.
+For the period from April 27, 1992 (commencement of operations) to September 30, 1992.
++For the period from November 30, 1992 (inception of offering) to September 30, 1993.
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Strategic Investment Grade Bond Fund (the Fund) is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The Fund's investment adviser is
Oppenheimer Management Corporation (the Manager). The Fund offers both Class
A and Class B shares. Class A shares are sold with a front-end sales charge.
Class B shares may be subject to a contingent deferred sales charge. Both
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution plan, expenses
directly attributable to a particular class and exclusive voting rights with
respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
Investment Valuation - Portfolio securities are valued at 4:00 p.m. (New York
time) on each trading day. Listed and unlisted securities for which such
information is regularly reported are valued at the last sale price of the day
or, in the absence of sales, at values based on the closing bid or asked price
or the last sale price on the prior trading day. Long-term debt securities are
valued by a portfolio pricing service approved by the Board of Trustees.
Long-term debt securities which cannot be valued by the approved portfolio
pricing service are valued by averaging the mean between the bid and asked
prices obtained from two active market makers in such securities. Short-term
debt securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to maturity
of any premium or discount. Securities for which market quotes are not readily
available are valued under procedures established by the Board of Trustees to
determine fair value in good faith. An option is valued based upon the last
sales price on the principal exchange on which the option is traded or, in the
absence of any transactions that day, the value is based upon the last sale on
the prior trading date if it is within the spread between the closing bid and
asked prices. If the last sale price is outside the spread, the closing bid or
asked price closest to the last reported sale price is used. Forward foreign
currency contracts are valued at the forward rate on a daily basis.
Foreign Currency Translation - The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in non-U.S.
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of securities and investment income
are translated at the rates of exchange prevailing on the respective dates of
such transactions. The net gain or loss resulting from changes in the foreign
currency exchange rates is reported separately in the Statement of Operations.
The Fund generally enters into forward foreign currency exchange contracts as
a hedge, upon the purchase or sale of a security denominated in a foreign
currency. In addition, the Fund may enter into such contracts as a hedge
against changes in foreign currency exchange rates on portfolio positions. A
forward exchange contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. Risks may arise from the
potential inability of the counterparty to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
Repurchase Agreements - The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. If the seller of the agreement defaults and the value
of the collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Fund may be delayed or
limited.
Call Options Written - The Fund may write covered call options. When an option
is written, the Fund receives a premium and becomes obligated to sell the
underlying security at a fixed price, upon exercise of the option. In writing
an option, the Fund bears the market risk of an unfavorable change in the
price of the security underlying the written option. Exercise of an option
written by the Fund could result in the Fund selling a security at a price
different from the current market value. All securities covering call options
written are held in escrow by the custodian bank.
Allocation of Income, Expenses and Gains and Losses - Income, expenses (other
than those attributable to a specific class) and gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against the operations of that class.
Federal Income Taxes - The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income tax provision is required.
Organization Costs - The Manager advanced $15,264 for organization and
start-up costs of the Fund. Such expenses are being amortized over a five-year
period from the date operations commenced. In the event that all or part of
the Manager's initial investment in shares of the Fund is withdrawn during the
amortization period, the redemption proceeds will be reduced to reimburse the
Fund for any unamortized expenses, in the same ratio as the number of shares
redeemed bears to the number of initial shares outstanding at the time of such
redemption.
Distributions to Shareholders - The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each day
the New York Stock Exchange is open for business and pay such dividends
monthly. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
Other - Investment transactions are accounted for on the date the investments
are purchased or sold (trade date). 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.
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 Period Ended
September 30, 1993+ September 30, 1992++
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 5,266,098 $27,442,371 3,254,993 $16,708,265
Dividends and distributions
reinvested 248,836 1,263,984 12,686 64,884
Redeemed (2,643,764) (14,160,326) (170,270) (876,612)
Net increase 2,871,170 $14,546,029 3,097,409 $15,896,537
Class B:
Sold 2,252,666 $11,452,295 - $ -
Dividends and distributions
reinvested 33,869 173,117 - -
Redeemed (183,784) (937,441) - -
Net increase 2,102,751 $10,687,971 - $ -
<FN>
+For the year ended September 30, 1993 for Class A shares and for the period
from November 30, 1992 (inception of offering) to September 30, 1993 for Class
B shares.
++For the period from April 27, 1992 (commencement of operations) to
September 30, 1992.
</TABLE>
3. Unrealized Gains and Losses on Investments and Options Written
At September 30, 1993, net unrealized appreciation of investments and
options written of $1,021,401 was composed of gross appreciation of
$1,079,626, and gross depreciation of $58,225.
4. Call Option Activity
Call option activity for the year ended September 30,
1993 was as follows:
<TABLE>
<CAPTION>
Number of Amount of
Options Premiums
<S> <C> <C>
Options outstanding at September 30, 1992 10 $ 12,813
Options written 600 74,531
Options expired prior to exercise (110) (26,875)
Options exercised (400) (46,250)
Options outstanding at September 30, 1993 100 $ 14,219
</TABLE>
Premiums received on expired options resulted in a short-term capital gain
of $26,875.
5. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .75% on
the first $200 million of net assets with a reduction of .03% on each $200
million thereafter to $800 million, .60% on the next $200 million and .50%
on net assets in excess of $1 billion. The Manager has agreed to reimburse
the Fund if aggregate expenses (with specified exceptions) exceed the most
stringent applicable regulatory limit on Fund expenses. In addition, the
Manager has voluntarily undertaken to reimburse Fund expenses to the level
needed to maintain a stable dividend.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $811,099, of which $236,748 was
retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker-dealer. During
the period ended September 30, 1993, OFDI received contingent deferred sales
charges of $6,651 upon redemption of Class B shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans of distribution, each class may expend up to
.25% of its net assets annually to reimburse OFDI for costs incurred in
distributing shares of the Fund, including amounts paid to brokers, dealers,
banks and other institutions. In addition, Class B shares are subject to an
asset-based sales charge of .75% of net assets annually, to reimburse OFDI for
sales commissions paid from its own resources at the time of sale and
associated financing costs. In the event of termination or discontinuance of
the Class B plan of distribution, the Fund would be contractually obligated to
pay OFDI for any expenses not previously reimbursed or recovered through
contingent deferred sales charges. During the year ended September 30, 1993,
OFDI paid $11,197 to an affiliated broker- dealer as reimbursement for Class A
distribution-related expenses and retained $43,910 as reimbursement for Class
B distribution-related expenses and sales commissions.
6. Restricted Securities
The Fund owns securities purchased in private placement transactions, without
registration under the Securities Act of 1933 (the Act). The securities are
valued under methods approved by the Board of Trustees as reflecting fair
value. The Fund intends to invest no more than 10% of its net assets
(determined at the time of purchase) in restricted and illiquid securities,
excluding securities eligible for resale pursuant to Rule 144A of the Act
that are determined to be liquid by the Board of Trustees or by the Manager
under Board- approved guidelines.
<TABLE>
<CAPTION>
Valuation Per
Acquisition Cost Unit as of
Security Date Per Unit September 30, 1993
<S> <C> <C> <C>
CMC Securities Corp. I, 10%
Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 6/25/23+ 5/17/93 $108.27 $106.48
Corporacion Andina de Formento, 7.25%
Nts., 4/30/98+ 4/15/93-5/6/93 $ 99.44 $102.19
Czechoslovakia National Bank, 7%
Bonds, 4/6/96+ 3/11/93-5/17/93 $100.05 $103.00
Empresas Columbiana de Petroleos,
7.25% Nts., 7/8/98+ 6/24/93 $ 99.63 $100.00
Time Warner, Inc./Time Warner
Entertainment LP, 8.375% Sr. Debs.,
3/15/23+ 5/18/93 $ 95.82 $104.25
<FN>
+Transferable under Rule 144A of the Act.
</TABLE>
7. Forward Foreign Currency Exchange Contracts
At September 30, 1993, the Fund had outstanding forward exchange currency
contracts to sell foreign currencies as follows:
<TABLE>
<CAPTION>
Expiration Contract Valuation Unrealized
Date Amount as of September 30, 1993 Depreciation
<S> <C> <C> <C> <C>
Spanish Peseta 12/28/93 $928,816 $931,441 $2,625
</TABLE>
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Highlights (see Part A): Filed herewith.
(2) Independent Auditors' Report (see Part B): Filed herewith.
(3) Statement of Investments (see Part B): Filed herewith.
(4) Statement of Assets and Liabilities (see Part B): Filed herewith.
(5) Statement of Operations (see Part B): Filed herewith.
(6) Statement of Changes in Net Assets (see Part B): Filed herewith.
(7) Notes to Financial Statements (see Part B): Filed herewith.
(8) Independent Auditors' Consent: Filed herewith.
(b) Exhibits:
(1) Amended and Restated Declaration of Trust dated November 30, 1992:
Previously filed with Registrant's Post-Effective Amendment No. 2,
11/26/93, and incorporated herein by reference.
(2) By-Laws adopted December 17, 1991: Previously filed with Pre-Effective
Amendment No. 1, 3/12/92, to Registrant's Registration Statement and
incorporated herein by reference.
(3) Not applicable.
(4) (i) Specimen Share Certificate for Class A Shares: Previously filed
with Registrant's Post-Effective Amendment No. 2, 11/26/93, and
incorporated herein by reference.
(ii) Specimen Share Certificate for Class B Shares: Previously
filed with Registrant's Post-Effective Amendment No. 2,
11/26/93, and incorporated herein by reference.
(5) Investment Advisory Agreement dated April 22, 1992: Filed with Post-
effective Amendment No. 1, 11/27/92, and incorporated herein by
reference.
(6) (i) General Distributor's Agreement dated 10/13/92: Filed with
Post-effective Amendment No. 1, 11/27/92, and incorporated
herein by reference.
(ii) Form of Dealer Agreement of Oppenheimer Fund Management, Inc.:
Filed with Post-Effective Amendment No. 12 of Oppenheimer
Government Securities Fund (Reg. No. 33-02769), 12/2/92, and
incorporated herein by reference.
(iii) Form of Oppenheimer Fund Management, Inc. Broker Agreement:
Filed with Post-Effective Amendment No. 12 of Oppenheimer
Government Securities Fund (Reg. No. 33-02769), 12/2/92, and
incorporated herein by reference.
(iv) Form of Oppenheimer Fund Management, Inc. Agency Agreement:
Filed with Post-Effective Amendment No. 12 of Oppenheimer
Government Securities Fund (File No. 33-02769), 12/2/92, and
incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Fund Management, Inc. and
Newbridge Securities, Inc. dated October 1, 1986: Previously
filed with Post-Effective Amendment No. 25 to the Registration
Statement of Oppenheimer Special Fund (File No. 2-45272),
11/1/86, and incorporated herein by reference.
(7) Not applicable.
(8) Custody Agreement dated April 22, 1992 with The Bank of New York:
Filed with Post-effective Amendment No. 1, 11/27/92, and incorporated
herein by reference.
(9) Not Applicable.
(10) Opinion and Consent of Counsel dated 3/10/92: Previously filed with
Pre-Effective Amendment No. 1, 3/12/92, to Registrant's Registration
Statement and incorporated herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Investment Letter dated 3/10/92 from Oppenheimer Management
Corporation to Registrant: Previously filed with Pre-Effective
Amendment No. 1, 3/12/92, to Registrant's Registration Statement and
incorporated herein by reference.
(14) (i) Form of Individual Retirement Account Trust Agreement: Filed
with Post-Effective Amendment No. 21 of Oppenheimer U.S.
Government Trust (File No. 2-76645), 8/25/93, and incorporated
herein by reference.
(ii) Form of Tax Sheltered Retirement Plan and Custody Agreement
for employees of public schools and tax-exempt organizations:
Filed with Post-Effective Amendment No. 22 of Oppenheimer
Directors Fund (File No. 2-62240), 2/1/90, and incorporated
herein by reference.
(iii) Form of Simplified Employee Pension IRA: Filed with Post-
Effective Amendment No. 36 of Oppenheimer Equity Income Fund
(File No. 2-33043), 10/23/91, and incorporated herein by
reference.
(iv) Form of prototype Standardized and Non-Standardized Profit-
Sharing Plan and Money Purchase Pension Plan for self-employed
persons and corporations: Filed with Post-Effective Amendment
No. 3 of Oppenheimer Global Growth & Income Fund (Reg. No.
33-33799), January 31, 1992, and incorporated herein by
reference.
(15) (i) Service Plan and Agreement dated 6/22/93 for Class A Shares
under Rule 12b-1 of the Investment Company Act of 1940: Filed
herewith.
(ii) Distribution and Service Plan and Agreement dated 6/22/93 for
Class B Shares under Rule 12b-1 of the Investment Company Act
of 1940: Filed herewith.
(16) Performance Data Computation Schedule: Filed herewith.
- -- Powers of Attorney (including Certified Board Resolutions):
Previously filed with Registrant's Post-Effective Amendment No. 2,
11/26/93, and incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of
Record Holders
Title of Class as of December 31, 1993
Class A Shares of
Beneficial Interest 1,586
Class B Shares of
Beneficial Interest 659
Item 27. Indemnification
Reference is made to the provisions of Article Seventh of
Registrant's Declaration of Trust filed as Exhibit 24(b)(1) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
Oppenheimer Management Corporation is the investment adviser of
the Registrant; it and certain subsidiaries act in the same
capacity to other registered investment companies as described
in Parts A and B of this Registration Statement.
(b) Business and Other Connections of Officers and Directors of
Investment Adviser
For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of Oppenheimer Management Corporation, reference is
made to Part B of this Registration Statement and to the
registration on Form ADV of Oppenheimer Management Corporation
filed under the Investment Advisers Act of 1940, which is
incorporated herein by reference.
Item 29. Principal Underwriters
(a) Oppenheimer Funds Distributor, Inc. is the general
distributor of Registrant's shares. It is also the general
distributor of certain of the other registered open-end
investment companies for which Oppenheimer Management
Corporation is the investment adviser, as described in Parts
A and B of this Registration Statement.
(b) The information contained in the registration on Form BD of
Oppenheimer Funds Distributor, Inc., filed under the
Securities Exchange Act of 1934, is incorporated herein by
reference.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of Oppenheimer
Management Corporation at its offices at 3410 South Galena Street, Denver,
Colorado 80231.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Registrant undertakes to file a Post-Effective Amendment,
including financial statements which need not be audited,
within four to six months from the effective date of its
1933 Act Registration Statement, unless granted permission
by the Staff of the Securities and Exchange Commission to
file said amendment within a different period of time.
(c) Registrant undertakes to present its Investment Advisory
Agreement and its Rule 12b-1 Distribution Plan to its
shareholders for approval at the first shareholder meeting
to be held within sixteen months following the effective
date of this Registration Statement, unless granted
permission by the Securities and Exchange Commission to hold
such meeting within a different period of time.
(d) Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of the removal of
a Trustee or Trustees when requested in writing to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with
the provisions of section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York
on the 21st day of January, 1994.
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
By: /s/ James C. Swain*
---------------------------------
James C. Swain, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signatures Title Date
- ---------- ----- ----
/s/ James C. Swain* Chairman, Trustee January 21, 1994
- ------------------ & Principal
James C. Swain Executive Officer
/s/ George C. Bowen* Treasurer and January 21, 1994
- ------------------- Principal Financial
George C. Bowen and Accounting
Officer
/s/ William A. Baker* Trustee January 21, 1994
- --------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee January 21, 1994
- -----------------------
Charles Conrad, Jr.
Jon S. Fossel* President & Trustee January 21, 1994
- -----------------
/s/ Jon S. Fossel
/s/ C. Howard Kast* Trustee January 21, 1994
- ------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee January 21, 1994
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee January 21, 1994
- ----------------
Ned M. Steel
/s/ Raymond J. Kalinowski* Trustee January 21, 1994
- -------------------------
Raymond J. Kalinowski
/s/ Robert G. Avis* Trustee January 21, 1994
- ------------------
Robert G. Avis
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
Index to Exhibits
Exhibit No. Description
24(b)(8) Independent Auditors' Consent
24(b)(15)(i) Service Plan and Agreement dated 6/22/93 for
Class A Shares
24(b)(15)(ii) Distribution and Service Plan and Agreement
dated 6/22/93 for Class A Shares
24(b)(16) Performance Data Computation Schedule
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Oppenheimer Strategic Investment Grade Bond Fund:
We consent to the use of our report dated October 21, 1993 included
herein and to the reference to our firm under the heading
"Financial Highlights" in the Prospectus.
/s/Deloitte & Touche
DELOITTE & TOUCHE
Denver, Colorado
January 18, 1994
245CONS
SERVICE PLAN AND AGREEMENT
BETWEEN
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
AND
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
FOR CLASS A SHARES
SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd day of June, 1993,
by and between OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND (the
"Fund") and OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written service plan for its
Class A Shares described in the Fund's registration statement as of the
date this Plan takes effect, contemplated by and to comply with Article
III, Section 26 of the Rules of Fair Practice of the National Association
of Securities Dealers, pursuant to which the Fund will reimburse the
Distributor for a portion of its costs incurred in connection with the
personal service and the maintenance of shareholder accounts ("Accounts")
that hold Class A Shares (the "Shares") of such series and class of the
Fund. The Fund may be deemed to be acting as distributor of securities
of which it is the issuer, pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"), according to the terms of this Plan.
The Distributor is authorized under the Plan to pay "Recipients," as
hereinafter defined, for rendering services and for the maintenance of
Accounts. Such Recipients are intended to have certain rights as third-
party beneficiaries under this Plan.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered services in connection with the
personal service and maintenance of Accounts; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning such service; and (iii) has been selected by the
Distributor to receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Fund's Board of Trustees (the "Board") who
are not "interested persons" (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements relating to this Plan (the "Independent Trustees")
may remove any broker, dealer, bank or other institution as a
Recipient, whereupon such entity's rights as a third-party beneficiary
hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed owned
by more than one Recipient for purposes of this Plan. In the event
that two entities would otherwise qualify as Recipients as to the same
Shares, the Recipient which is the dealer of record on the Fund's
books shall be deemed the Recipient as to such Shares for purposes of
this Plan.
3. Payments.
(a) Under the Plan, the Fund will make payments to the Distributor,
within forty-five (45) days of the end of each calendar quarter, in the
amount of the lesser of: (i) .0625% (.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of the Shares computed as of the close of each business day, or (ii)
the Distributor's actual expenses under the Plan for that quarter of
the type approved by the Board. The Distributor will use such fee
received from the Fund in its entirety to reimburse itself for payments
to Recipients and for its other expenditures and costs of the type
approved by the Board incurred in connection with the personal service
and maintenance of Accounts including, but not limited to, the services
described in the following paragraph. The Distributor may make Plan
payments to any "affiliated person" (as defined in the 1940 Act) of the
Distributor if such affiliated person qualifies as a Recipient.
The services to be rendered by the Distributor and Recipients in
connection with the personal service and the maintenance of Accounts
may include, but shall not be limited to, the following: answering
routine inquiries from the Recipient's customers concerning the Fund,
providing such customers with information on their investment in
shares, assisting in the establishment and maintenance of accounts or
sub-accounts in the Fund, making the Fund's investment plans and
dividend payment options available, and providing such other
information and customer liaison services and the maintenance of
Accounts as the Distributor or the Fund may reasonably request. It may
be presumed that a Recipient has provided services qualifying for
compensation under the Plan if it has Qualified Holdings of Shares to
entitle it to payments under the Plan. In the event that either the
Distributor or the Board should have reason to believe that,
notwithstanding the level of Qualified Holdings, a Recipient may not
be rendering appropriate services, then the Distributor, at the request
of the Board, shall require the Recipient to provide a written report
or other information to verify that said Recipient is providing
appropriate services in this regard. If the Distributor still is not
satisfied, it may take appropriate steps to terminate the Recipient's
status as such under the Plan, whereupon such entity's rights as a
third-party beneficiary hereunder shall terminate.
Payments received by the Distributor from the Fund under the Plan
will not be used to pay any interest expense, carrying charges or other
financial costs, or allocation of overhead by the Distributor, or for
any other purpose other than for the payments described in this Section
3. The amount payable to the Distributor each quarter will be reduced
to the extent that reimbursement payments otherwise permissible under
the Plan have not been authorized by the Board of Trustees for that
quarter. Any unreimbursed expenses incurred for any quarter by the
Distributor may not be recovered in later periods.
(b) The Distributor shall make payments to any Recipient quarterly,
within forty-five (45) days of the end of each calendar quarter, at a
rate not to exceed .0625% (.25% on an annual basis) of the average
during the calendar quarter of the aggregate net asset value of the
Shares, computed as of the close of each business day, of Qualified
Holdings owned beneficially or of record by the Recipient or by its
Customers. However, no such payments shall be made to any Recipient
for any such quarter in which its Qualified Holdings do not equal or
exceed, at the end of such quarter, the minimum amount ("Minimum
Qualified Holdings"), if any, to be set from time to time by a majority
of the Independent Trustees. A majority of the Independent Trustees
may at any time or from time to time increase or decrease and
thereafter adjust the rate of fees to be paid to the Distributor or to
any Recipient, but not to exceed the rate set forth above, and/or
increase or decrease the number of shares constituting Minimum
Qualified Holdings. The Distributor shall notify all Recipients of the
Minimum Qualified Holdings and the rate of payments hereunder
applicable to Recipients, and shall provide each Recipient with written
notice within thirty (30) days after any change in these provisions.
Inclusion of such provisions or a change in such provisions in a
revised current prospectus shall constitute sufficient notice.
(c) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC), from
its own resources.
4. Selection and Nomination of Trustees. While this Plan is in
effect, the selection or replacement of Independent Trustees and the
nomination of those persons to be Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the discretion of
the Independent Trustees. Nothing herein shall prevent the Independent
Trustees from soliciting the views or the involvement of others in such
selection or nomination if the final decision on any such selection and
nomination is approved by a majority of the incumbent Independent
Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, and the purposes
for which the payments were made. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year with respect to the personal service and
maintenance of Accounts in conjunction with the Board's annual review of
the continuation of the Plan.
6. Related Agreements. Any agreement related to this Plan shall be
in writing and shall provide that: (i) such agreement may be terminated
at any time, without payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its "assignment" (as defined in the 1940 Act); (iii) it shall
go into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Independent Trustees cast in person at
a meeting called on June 22, 1993 for the purpose of voting on this Plan,
and takes effect as of July 1, 1993. Unless terminated as hereinafter
provided, it shall continue in effect until October 31, 1993 and from year
to year thereafter or as the Board may otherwise determine only so long
as such continuance is specifically approved at least annually by the
Board and its Independent Trustees cast in person at a meeting called for
the purpose of voting on such continuance. This Plan may be terminated
at any time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities of the Class. This Plan may not be
amended to increase materially the amount of payments to be made without
approval of the Class A Shareholders, in the manner described above, and
all material amendments must be approved by a vote of the Board and of the
Independent Trustees.
8. Disclaimer of Shareholder and Trustee Liability. The Distributor
understands that the obligations of the Fund under this Plan are not
binding upon any Trustee or shareholder of the Fund personally, but bind
only the Fund and the Fund's property. The Distributor represents that
it has notice of the provisions of the Declaration of Trust of the Fund
disclaiming shareholder and Trustee liability for acts or obligations of
the Fund.
OPPENHEIMER STRATEGIC INVESTMENT
GRADE BOND FUND
By: ___________________________________
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By:____________________________________
Katherine P. Feld
Vice President & Secretary
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT
WITH
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
FOR CLASS B SHARES OF
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd
day of June, 1993, by and between OPPENHEIMER STRATEGIC INVESTMENT GRADE
BOND FUND (the "Fund") and OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the
"Distributor").
1. The Plan. This Plan is the Fund's written distribution and service
plan for Class B shares of the Fund (the "Shares"), contemplated by Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act"), pursuant to which the Fund will compensate the Distributor for a
portion of its costs incurred in connection with the distribution of
Shares, and the personal service and maintenance of shareholder accounts
that hold Shares ("Accounts"). The Fund may act as distributor of
securities of which it is the issuer, pursuant to the Rule, according to
the terms of this Plan. The Distributor is authorized under the Plan to
pay "Recipients," as hereinafter defined, for rendering (1) distribution
assistance in connection with the sale of Shares and/or (2) administrative
support services with respect to Accounts. Such Recipients are intended
to have certain rights as third-party beneficiaries under this Plan. The
terms and provisions of this Plan shall be interpreted and defined in a
manner consistent with the provisions and definitions contained in (i) the
1940 Act, (ii) the Rule, (iii) Article III, Section 26, of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., or
its successor (the "NASD Rules of Fair Practice") and (iv) any conditions
pertaining either to distribution related expenses or to a plan of
distribution, to which the Fund is subject under any order on which the
Fund relies, issued at any time by the Securities and Exchange Commission.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered assistance (whether direct,
administrative or both) in the distribution of Shares or has provided
administrative support services with respect to Shares held by
Customers (defined below) of the Recipient; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning the sale of Shares; and (iii) has been selected by the
Distributor to receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Fund's Board of Trustees (the "Board") who
are not "interested persons" (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements relating to this Plan (the "Independent Trustees")
may remove any broker, dealer, bank or other institution as a
Recipient, whereupon such entity's rights as a third-party beneficiary
hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed owned
by more than one Recipient for purposes of this Plan. In the event
that two entities would otherwise qualify as Recipients as to the same
Shares, the Recipient which is the dealer of record on the Fund's books
shall be deemed the Recipient as to such Shares for purposes of this
Plan.
3. Payments for Distribution Assistance and Administrative Support
Services.
(a) The Fund will make payments to the Distributor, (i) within forty-
five (45) days of the end of each calendar quarter, in the aggregate
amount of 0.0625% (0.25% on an annual basis) of the average during the
calendar quarter of the aggregate net asset value of the Shares
computed as of the close of each business day (the "Service Fee"), plus
(ii) within ten (10) days of the end of each month, in the aggregate
amount of 0.0625% (0.75% on an annual basis) of the average during the
month of the aggregate net asset value of Shares computed as of the
close of each business day (the "Asset Based Sales Charge") outstanding
for six years or less (the "Maximum Holding Period"). Such Service Fee
payments received from the Fund will compensate the Distributor and
Recipients for providing administrative support services of the type
approved by the Board with respect to Accounts. Such Asset Based Sales
Charge payments received from the Fund will compensate the Distributor
and Recipients for providing distribution assistance in connection with
the sales of Shares.
The administrative support services in connection with the Accounts
to be rendered by Recipients may include, but shall not be limited to,
the following: answering routine inquiries concerning the Fund,
assisting in the establishment and maintenance of accounts or sub-
accounts in the Fund and processing Share redemption transactions,
making the Fund's investment plans and dividend payment options
available, and providing such other information and services in
connection with the rendering of personal services and/or the
maintenance of Accounts, as the Distributor or the Fund may reasonably
request.
The distribution assistance in connection with the sale of Shares
to be rendered by the Distributor and Recipients may include, but shall
not be limited to, the following: distributing sales literature and
prospectuses other than those furnished to current holders of the
Fund's Shares ("Shareholders"), and providing such other information
and services in connection with the distribution of Shares as the
Distributor or the Fund may reasonably request.
It may be presumed that a Recipient has provided distribution
assistance or administrative support services qualifying for payment
under the Plan if it has Qualified Holdings of Shares to entitle it to
payments under the Plan. In the event that either the Distributor or
the Board should have reason to believe that, notwithstanding the level
of Qualified Holdings, a Recipient may not be rendering appropriate
distribution assistance in connection with the sale of Shares or
administrative support services for Accounts, then the Distributor, at
the request of the Board, shall require the Recipient to provide a
written report or other information to verify that said Recipient is
providing appropriate distribution assistance and/or services in this
regard. If the Distributor still is not satisfied, it may take
appropriate steps to terminate the Recipient's status as such under the
Plan, whereupon such entity's rights as a third-party beneficiary
hereunder shall terminate.
(b) The Distributor shall make service fee payments to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed 0.0625% (0.25% on an annual basis) of
the average during the calendar quarter of the aggregate net asset
value of Shares computed as of the close of each business day,
constituting Qualified Holdings owned beneficially or of record by the
Recipient or by its Customers for a period of more than the minimum
period (the "Minimum Holding Period"), if any, to be set from time to
time by a majority of the Independent Trustees. Alternatively, the
Distributor may, at its sole option, make service fee payments
("Advance Service Fee Payments") to any Recipient quarterly, within
forty-five (45) days of the end of each calendar quarter, at a rate not
to exceed (i) 0.25% of the average during the calendar quarter of the
aggregate net asset value of Shares, computed as of the close of
business on the day such Shares are sold, constituting Qualified
Holdings sold by the Recipient during that quarter and owned
beneficially or of record by the Recipient or by its Customers, plus
(ii) 0.0625% (0.25% on an annual basis) of the average during the
calendar quarter of the aggregate net asset value of Shares computed
as of the close of each business day, constituting Qualified Holdings
owned beneficially or of record by the Recipient or by its Customers
for a period of more than one (1) year, subject to reduction or
chargeback so that the Advance Service Fee Payments do not exceed the
limits on payments to Recipients that are, or may be, imposed by
Article III, Section 26, of the NASD Rules of Fair Practice. In the
event Shares are redeemed less than one year after the date such Shares
were sold, the Recipient is obligated and will repay to the Distributor
on demand a pro rata portion of such Advance Service Fee Payments,
based on the ratio of the time such shares were held to one (1) year.
The Advance Service Fee Payments described in part (i) of the preceding
sentence may, at the Distributor's sole option, be made more often than
quarterly, and sooner than the end of the calendar quarter. However,
no such payments shall be made to any Recipient for any such quarter
in which its Qualified Holdings do not equal or exceed, at the end of
such quarter, the minimum amount ("Minimum Qualified Holdings"), if
any, to be set from time to time by a majority of the Independent
Trustees. A majority of the Independent Trustees may at any time or
from time to time decrease and thereafter adjust the rate of fees to
be paid to the Distributor or to any Recipient, but not to exceed the
rate set forth above, and/or direct the Distributor to increase or
decrease the Maximum Holding Period, the Minimum Holding Period or the
Minimum Qualified Holdings. The Distributor shall notify all
Recipients of the Minimum Qualified Holdings, Maximum Holding Period
or Minimum Holding Period, if any, and the rate of payments hereunder
applicable to Recipients, and shall provide each Recipient with written
notice within thirty (30) days after any change in these provisions.
Inclusion of such provisions or a change in such provisions in a
revised current prospectus shall constitute sufficient notice. The
Distributor may make Plan payments to any "affiliated person" (as
defined in the 1940 Act) of the Distributor if such affiliated person
qualifies as a Recipient.
(c) The Distributor is entitled to retain from the payments described
in Section 3(a) the aggregate amount of (i) the Service Fee on Shares
outstanding for less than the Minimum Holding Period plus (ii) the
Asset-Based Sales Charge on Shares outstanding for not more than the
Maximum Holding Period, in each case computed as of the close of each
business day during that period and subject to reduction or elimination
of such amounts under the limits to which the Distributor is, or may
become, subject under Article III, Section 26, of the NASD Rules of
Fair Practice. Such amount is collectively referred to as the
"Quarterly Limitation." The distribution assistance and administrative
support services in connection with the sale of Shares to be rendered
by the Distributor may include, but shall not be limited to, the
following: (i) paying sales commissions to any broker, dealer, bank or
other institution that sell Shares, and/or paying such persons Advance
Service Fee Payments in advance of, and/or greater than, the amount
provided for in Section 3(a) of this Agreement; (ii) paying
compensation to and expenses of personnel of the Distributor who
support distribution of Shares by Recipients; (iii) paying of or
reimbursing the Distributor for interest and other borrowing costs on
unreimbursed Carry Forward Expenses (as hereafter defined) at the rate
paid by the Distributor or, if such amounts are financed by the
Distributor from its own resources or by an affiliate, at the rate of
1% per annum above the prime rate (which shall mean the most
preferential interest rate on corporate loans at large U.S. money
center commercial banks) then being reported in the Eastern edition of
the Wall Street Journal (or if such prime rate is no longer so
reported, such other rate as may be designated from time to time by the
Distributor with the approval of the Independent Trustees); (iv) other
direct distribution costs of the type approved by the Board, including
without limitation the costs of sales literature, advertising and
prospectuses (other than those furnished to current Shareholders) and
state "blue sky" registration expenses; and (v) any service rendered
by the Distributor that a Recipient may render pursuant to part (a) of
this Section 3. The Distributor's costs of providing the above-
mentioned services are hereinafter collectively referred to as
"Distribution and Service Costs." "Carry Forward Expenses" are
Distribution and Service Costs that are not paid in the fiscal quarter
in which they arise because they exceed the Quarterly Limitation. In
the event that the Board should have reason to believe that the
Distributor may not be rendering appropriate distribution assistance
or administrative support services in connection with the sale of
Shares, then the Distributor, at the request of the Board, shall
provide the Board with a written report or other information to verify
that the Distributor is providing appropriate services in this regard.
(d) The excess in any fiscal quarter of (i) the Quarterly Limitation
plus any contingent deferred sales charge ("CDSC") payments recovered
by the Distributor on the proceeds of redemption of Shares over (ii)
Distribution and Service Costs during that quarter, shall be applied
in the following order of priority: first to interest on unreimbursed
Carry Forward Expenses, second to reduce any unreimbursed Carry Forward
Expenses, third to reduce Distribution and Service Costs during that
quarter, and fourth, to reduce the Asset Based Sales Charge payments
by the Fund to the Distributor in that quarter. Carry Forward Expenses
shall be carried forward by the Fund until payment can be made under
the Quarterly Limitation.
(e) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC), from
its own resources, from Asset Based Sales Charge payments or from its
borrowings.
4. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of those persons to be Trustees of the Fund
who are not "interested persons" of the Fund ("Disinterested Trustees")
shall be committed to the discretion of such Disinterested Trustees.
Nothing herein shall prevent the Disinterested Trustees from soliciting
the views or the involvement of others in such selection or nomination if
the final decision on any such selection and nomination is approved by a
majority of the incumbent Disinterested Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing distribution expenditures properly attributable to
the Shares, including the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, the amount paid
to the Distributor and the Distribution and Service Costs and Carry
Forward Expenses for that period. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year and its total expenses incurred in prior years
and not previously recovered with respect to the distribution of Shares
in conjunction with the Board's annual review of the continuation of the
Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act); (iii) it shall go
into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose
of voting on such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on June 22, 1993, for the purpose of voting
on this Plan, and takes effect as of July 1, 1993. Unless terminated as
hereinafter provided, it shall continue in effect until October 31, 1993
and from year to year thereafter or as the Board may otherwise determine
only so long as such continuance is specifically approved at least
annually by a vote of the Board and its Independent Trustees cast in
person at a meeting called for the purpose of voting on such continuance.
This Plan may not be amended to increase materially the amount of payments
to be made without approval of the Class B Shareholders, in the manner
described above, and all material amendments must be approved by a vote
of the Board and of the Independent Trustees. This Plan may be terminated
at any time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securites of the Class. Notwithstanding any
such termination, the Distributor shall be entitled to payment from the
Fund of all Carry Forward Expenses properly incurred in respect of Shares
sold prior to the effective date of such termination, and the Fund shall
continue to make payment to the Distributor in the amount the Distributor
is entitled to retain under part (c) of Section 3 hereof, until such time
as the Distributor has been reimbursed for all such amounts by the Fund
and by retaining CDSC payments.
8. Disclaimer of Shareholder Liability. The Distributor understands
that the obligations of the Fund under this Plan are not binding upon any
Trustee or shareholder of the Fund personally, but bind only the Fund and
the Fund's property. The Distributor represents that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
and Trustee liability for acts or obligations of the Fund.
OPPENHEIMER STRATEGIC INVESTMENT
GRADE BOND FUND
By:___________________________________
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By:___________________________________
Katherine P. Feld, Vice President &
Secretary
Oppenheimer Strategic Investment Grade Bond Fund
Exhibit 24(b)(16) to Form N-1A
Performance Data Computation Schedule
The Fund's average annual total returns and total returns are calculated
as described below, on the basis of the Fund's distributions, which are
as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class A Shares
05/27/92 0.0334358 0.0000 5.000
06/24/92 0.0302000 0.0000 5.000
07/22/92 0.0152000 0.0150 5.120
08/26/92 0.0208000 0.0170 5.150
09/23/92 0.0302000 0.0000 5.110
10/28/92 0.0378000 0.0000 5.030
11/25/92 0.0296989 0.0000 4.960
12/31/92 0.0329271 0.0029094 4.960
01/27/93 0.0276507 0.0000 5.010
02/24/93 0.0286748 0.0000 5.090
03/24/93 0.0286748 0.0000 5.110
04/28/93 0.0358435 0.0000 5.120
05/26/93 0.0286748 0.0000 5.090
06/23/93 0.0286748 0.0000 5.100
07/28/93 0.0358435 0.0000 5.120
08/25/93 0.0286748 0.0000 5.150
09/22/93 0.0286748 0.0000 5.150
Class B Shares
12/31/92 0.0235540 0.0029094 4.960
01/27/93 0.0232277 0.0000 5.010
02/24/93 0.0250725 0.0000 5.090
03/24/93 0.0251164 0.0000 5.100
04/28/93 0.0317354 0.0000 5.110
05/26/93 0.0254870 0.0000 5.090
06/23/93 0.0255464 0.0000 5.090
07/28/93 0.0318873 0.0000 5.120
08/25/93 0.0255335 0.0000 5.140
09/22/93 0.0253082 0.0000 5.140
1. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating average annual total return is as
follows:
1 ERV n
--------------- = n (---) - 1 = average annual total return
number of years P
Where: ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical initial investment of $1,000
Class A Shares
Examples, assuming a maximum sales charge of 4.75%:
One Year Inception
$1,021.43 1 $1,089.53 .7010
(---------) - 1 = 2.14% (---------) - 1 = 6.20%
$1,000 $1,000
Class B Shares
Example, assuming a maximum contingent deferred sales charge
of 5.00% for the first year:
Inception (11/30/92)
$1,047.61 1.1990
(---------) - 1 = 5.74%
$1,000
2. TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating total return is as follows:
ERV - P
------- = Total Return
P
Class A Shares
Examples:
Inception (at Maximum Sales Charge) Inception (at NAV)
$1,089.53 - $1,000 $1,143.87 - $1,000
-------------------- = 8.95% -------------------- = 14.39%
$1,000 $1,000
One Year (at NAV)
$1,072.36 - $1,000
-------------------- = 7.24%
$1,000
Class B Shares
Examples:
Inception (11/30/92)(at Maximum Contingent Deferred Sales Charge)
$1,047.61 - $1,000
-------------------- = 4.76%
$1,000
Inception (11/30/92)(at NAV)
$1,097.61 - $1,000
-------------------- = 9.76%
$1,000
3. YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's yields are calculated using the following formula set
forth in the SEC rules:
a - b 6
Yield = 2((----- + 1) - 1)
cd
The symbols above represent the following factors:
a = Dividends and interest earned during the 30-day period.
b = Expenses accrued for the period (net of any expense
reimbursements).
c = The average daily number of Fund shares outstanding during
the 30-day period that were entitled to receive dividends.
d = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
Examples:
Class A Shares
$201,050.79 - $19,126.48 6
2((------------------------ + 1) - 1) = 7.08%
5,794,984 x $5.40
Class B Shares
$65,418.12 - $13,002.16 6
2((----------------------- + 1) - 1) = 6.58%
1,885,338 x $5.14
4. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's dividend yields are calculated using the following formula:
a/30 x 365
Dividend Yield = ----------
b or c
The symbols above represent the following factors:
a = The accrual dividend earned during the period.
b = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
c = The Fund's net asset value (excluding sales charge) per share
on the last day of the period.
Examples:
Class A Shares
Dividend Yield
at Maximum Offering $.0307230/30 x 365
------------------ = 6.92%
$5.40
Dividend Yield
at Net Asset Value $.0307230/30 x 365
------------------ = 7.27%
$5.14
Class B Shares
Dividend Yield
at Net Asset Value $.0271134/30 x 365
------------------ = 6.42%
$5.14
5. VALUES OF INVESTMENTS FOR A 10-YEAR PERIOD AT VARIOUS ASSUMED
AVERAGE ANNUAL RATES OF RETURN:
Amount of Value at
Investment Assumed Average Annual Return
5% 10% 15% 20%
Single $1,000 $1,629 $2,594 $4,046 $6,192
Annual $1,000 13,208 17,533 23,350 31,151
Values are calculated assuming investment at the beginning of the
period (each year in the case of annual $1,000 investments) and
reinvestment of earnings at the end of each year.
