OPPENHEIMER STRATEGIC
INVESTMENT GRADE BOND FUND
Prospectus dated February 1, 1995
Oppenheimer Strategic Investment Grade Bond Fund (the "Fund")
is a mutual fund 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 intends to invest its assets
principally in the following three sectors: (i) U.S. government
securities, (ii) foreign fixed-income securities, and (iii) investment
grade corporate bonds and debentures. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in U.S. government
securities and domestic and foreign bonds and debentures rated at least
investment grade. The Fund may invest up to 35% of its total assets in
certain other investments, including securities rated below investment
grade. The securities the Fund invests in are described more completely
in "Investment Objective and Policies." That section of the Prospectus
also explains some of the risks of those investments.
The Fund offers two classes of shares: (1) Class A shares,
which are sold at a public offering price that includes a front-end sales
charge, and (2) Class B shares, which are sold without a front-end sales
charge, although you may pay a sales charge when you redeem your shares,
depending on how long you hold them. Class B shares are also subject to
an annual "asset-based sales charge." Each class of shares bears
different expenses. In deciding which class of shares to buy, you should
consider how much you plan to purchase, how long you plan to keep your
shares, and other factors discussed in "How to Buy Shares" starting on
page __.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the February 1, 1995 Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Shares of the Fund are not deposits or obligations of any bank, 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 the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of
its assets, administration, distribution of its shares and other services,
and those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1994.
- Shareholder Transaction Expenses are charges you pay when you
buy or sell shares of the Fund. Please refer to "About Your Account,"
from pages __ through __, for an explanation of how and when these charges
apply.
Class A Shares Class B Shares
Maximum Sales Charge on Purchases
(as a % of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds None(1) 5% in the first year,
declining to 1% in the
sixth year
and eliminated
thereafter
Exchange Fee $5.00(2) $5.00(2)
(1)If you invest more than $1 million in Class A shares, you may have
to pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares - Class A Shares,"
below.
(2)The fee is waived for automated exchanges, described in "How to
Exchange Shares."
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
The numbers in the chart below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The expenses have been restated
in the chart to reflect the termination, effective November 24, 1993, of
a voluntary expense assumption by the Manager. Such restatement shows
what the Fund's management fees and operating expenses would have been in
the Fund's fiscal year ended September 30, 1994 had the expense assumption
undertaking not been in effect during a portion of that year. Considering
the effect of the voluntary expense undertaking by the Manager during the
period ended November 24, 1993, the management fee during the fiscal year
ended September 30, 1994 for Class A shares and Class B shares would have
been 0.70% and 0.71%, respectively, of average net assets and "Total Fund
Operating Expenses" would have been 1.33% for Class A shares and 2.12% for
Class B shares. The 12b-1 Distribution Plan Fees for Class A shares are
Service Plan Fees (which are a maximum of 0.25% of average annual net
assets of that class), and for Class B shares are the Distribution and
Service Plan Fee (a maximum of 0.25% for the service fee, and an asset-
based sales charge of 0.75%). These plans are described in greater detail
in "How to Buy Shares."
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares.
Class A Shares Class B Shares
Management Fees (Restated) .75% .75%
12b-1 Distribution Plan Fees .24% 1.00%
Other Expenses .39% .41%
Total Fund Operating Expenses
(Restated) 1.38% 2.16%
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the Annual Fund Operating
Expenses chart above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $61 $89 $119 $205
Class B Shares $72 $98 $136 $211
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $61 $89 $119 $205
Class B Shares $22 $68 $116 $211
*The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Long term Class B
shareholders could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations, because of
the effect of the asset-based sales charge and contingent deferred sales
charge. The automatic conversion of Class B shares to Class A Shares is
designed to minimize the likelihood that this will occur. Please refer
to "How to Buy Shares - Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing. Keep the Prospectus for
reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What is the Fund's Investment Objective? The Fund's investment
objective is to seek a high level of current income, consistent with
stability of principal, as is available from a portfolio of investment
grade debt securities.
- What Does the Fund Invest In? The Fund intends to invest its
assets principally in the following three sectors: U.S. government
securities, foreign fixed-income securities, and investment grade
corporate bonds and debentures. Under normal circumstances, at least 65%
of the Fund's total assets will be invested in U.S. government securities
and domestic and foreign bonds and debentures that are rated investment
grade. The Fund may invest up to 35% of its total assets in certain other
investments, including securities rated below investment grade. The Fund
may also use hedging instruments and some derivative investments to try
to manage investment risks or for income. These investments are more
fully explained in "Investment Objective and Policies," starting on page
_.
- Who Manages the Fund? The Fund's investment adviser is
Oppenheimer Management Corporation, which (including a subsidiary) advises
investment company portfolios having over $29 billion in assets. The
Fund's portfolio managers, who are primarily responsible for the selection
of the Fund's securities, are Arthur P. Steinmetz and David P. Negri. The
Manager is paid an advisory fee by the Fund, based on its assets. The
Fund's Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio managers. Please refer to "How the Fund is
Managed" starting on page __ for more information about the Manager and
its fees.
- How Risky is the Fund? Although the Fund seeks a high level of
current income consistent with stability of principal, certain of the
Fund's investments and investment practices could be considered
speculative and carry investment risks. For example, fixed-income
securities are subject to interest rate risks and credit risks which can
negatively impact the value of the security and the Fund's net asset value
per share. The Fund's portfolio may consist of debt securities rated
below investment grade in an amount up to 35% of its total assets. Such
lower-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. Further, there are certain
risks associated with investments in foreign securities, including those
related to changes in foreign currency rates, that are not present in
domestic securities. In its operations, the Fund may utilize 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. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased
for the portfolio, and in some cases by using hedging techniques, there
is no guarantee of success in achieving the Fund's objectives and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objective and Policies" starting on
page __ for a more complete discussion.
<PAGE>
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page __ for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has two
classes of shares. Class A shares are offered with a front-end sales
charge, starting at 4.75%, and reduced for larger purchases. Class B
shares are offered without a front-end sales charge, but may be subject
to a contingent deferred sales charge (starting at 5% and declining as
shares are held longer) if redeemed within 6 years of purchase. There is
also an annual asset-based sales charge on Class B shares. Please review
"How to Buy Shares" starting on page __ for more details, including a
discussion about which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How to Sell Shares" on page __.
- How Has the Fund Performed? The Fund measures its performance
by quoting its yield, average annual total return and cumulative total
return, which measure historical performance. Such yields and returns can
be compared to the yields and returns (over similar periods) of other
funds. Of course, other funds may have different objectives, investments,
and levels of risk. The Fund's performance can also be compared to a
broad-based market index, which we have done on page __. Please remember
that past performance does not guarantee future results.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
Deloitte & Touche LLP, the Fund's independent auditors, whose report on
the Fund's financial statements for the fiscal year ended September 30,
1994 is included in the Statement of Additional Information.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS
B
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR
ENDED
SEPTEMBER 30, SEPT.
30,
1994 1993 1992(2) 1994
1993(1)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $5.14 $5.16 $5.00
$5.14 $4.95
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 .36 .14
.34 .27
Net realized and unrealized gain (loss)
on investments, options written and foreign
currency transactions (.43) (.01) .19 (.46)
.19
------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.09) .35 .33 (.12)
.46
------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.24) (.37) (.14)
(.21) (.27)
Dividends in excess of net investment income (.01) -- --
(.01) --
Distributions from net realized gain on
investments, options written and foreign
currency transactions -- -- (.03) --
--
------------------------------------------------------------------------------------------------
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions (.01) -- -- (.01)
--
Tax return of capital (.08) -- -- (.08)
--
Total dividends and distributions
to shareholders (.34) (.37) (.17) (.31)
(.27)
-------------------------------------------------------------------------------------------------
Net asset value, end of period $4.71 $5.14 $5.16
$4.71 $5.14
----- ----- ----- ----- ------
----- ----- ----- ----- ------
TOTAL RETURN, AT NET ASSET VALUE (3) (1.76)%
7.24% 6.67% (2.45)%
9.54%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $24,956 $30,783 $16,099
$14,939 $10,800
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,294 $25,972 $4,939
$14,232 $5,310
- --------------------------------------------------------------------------------------------------
Number of shares outstanding at end
of period (in thousands) 5,296 5,989 3,117
3,174 2,103
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.80% 7.18%
7.28%(4) 6.01%
6.28%(4)
Expenses, before voluntary reimbursement
by the Manager 1.38% 1.46% 2.00%(4)
2.16% 2.20%(4)
Expenses, net of voluntary reimbursement
by the Manager 1.33% 1.12% .29%(4)
2.12% 1.84%(4)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 68.6% 90.3% 30.6%
68.6% 90.3%
<FN>
1. For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
2. For the period from April 22, 1992 (commencement of operations) to
September 30, 1992.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date,
and redemption at the net asset value calculated on the last business day of
the fiscal period.
Sales charges are not reflected in the total returns.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a
maturity or expiration date at the time of acquisition of one year or less are
excluded from
the calculation. Purchases and sales of investment securities (excluding
short-term securities)
for the year ended September 30, 1994 were $33,753,825 and $26,698,460,
respectively.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. 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.
Investment Policies and Strategies. In seeking its investment
objective, the Fund intends to invest principally in the following three
sectors: (i) U.S. government securities; (ii) foreign fixed-income
securities; and (iii) investment grade corporate bonds and debentures.
Although under normal market conditions the Fund intends to invest tin
each of these three sectors, from time to time the Manager may adjust the
amounts the Fund invests in each sector depending upon, among other
things, the Manager's evaluation of economic and market conditions.
Distributable income will fluctuate as the Fund shifts its assets among
the three sectors.
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 securities and domestic and foreign bonds and
debentures rated at least investment grade. 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. 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.
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 other investments, such as non-investment grade domestic and
foreign bonds and debentures, notes, preferred stocks, dividend-paying
common stocks, participation interests, zero coupon securities, asset-
backed securities, sinking fund and callable bonds and municipal
securities, as well as 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). The Fund may invest in such securities if, in the Manager's
judgment, the Fund has the opportunity of seeking a high level of current
income without undue risk to principal.
Although the Fund is not obligated to dispose of securities that
fall below the above-stated investment grade 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 nor in other
investments listed in the immediately preceding paragraph. Lower-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. They may be less liquid than higher-rated
securities. If the Fund were forced to sell a lower-rated debt security
during a period of rapidly-declining prices, it might experience
significant losses especially if a substantial number of other holders
decide to sell at the same time. Other risks may involve the default of
the issuer or price changes in the issuer's securities due to changes in
the issuer's financial strength or economic conditions. The Appendix to
this Prospectus describes the rating categories and explains the degree
to which bonds in the lowest permitted rating categories have or may
develop speculative characteristics.
In seeking its investment objective, 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 anticipates
that it will move to securities of longer maturity as interest rates
decline and to securities of shorter maturity as interest rates rise. The
Fund may try to hedge against losses in the value of its portfolio
securities by using hedging strategies and derivative investments
described below. The Fund's portfolio manager may employ special
investment techniques in selecting securities for the Fund. These are
also described below. Additional information may be found about them under
the same headings in the Statement of Additional Information. There can
be no assurance that the Fund will achieve its investment objective.
- Interest Rate Risks. In addition to credit risks, described
below, debt securities are subject to changes in value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. Conversely, when
interest rates rise, the values of outstanding debt securities generally
decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
- Credit Risks. Debt securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a debt security to
make interest or principal payments on the security as they become due.
Generally, higher-yielding, lower-rated bonds (which the Fund may hold)
are subject to greater credit risk than higher-rated bonds. Securities
issued or guaranteed by the U.S. Government are subject to little, if any,
credit risk. While the Manager may rely to some extent on credit ratings
by nationally recognized rating agencies, such as Standard & Poor's or
Moody's, in evaluating the credit risk of securities selected for the
Fund's portfolio, it may also use its own research and analysis. However,
many factors affect an issuer's ability to make timely payments, and there
can be no assurance that the credit risks of a particular security will
not change over time.
- Can the Fund's Investment Objective and Policies Change? The
Fund has an investment objective, described above, as well as investment
policies it follows to try to achieve its objective. Additionally, the
Fund uses certain investment techniques and strategies in carrying out
those investment policies. The Fund's investment policies and techniques
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
The Fund's investment objective is a fundamental policy.
The Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus. Fundamental policies are those
that cannot be changed without the approval of a "majority" of the Fund's
outstanding voting shares. The term "majority" is defined in the
Investment Company Act to be a particular percentage of outstanding voting
shares (and this term is explained in the Statement of Additional
Information).
- Domestic Fixed-Income Securities The Fund may invest in
fixed-income securities and dividend paying common stocks denominated in
U.S. dollars, or in non-U.S. currencies and issued by domestic
corporations in any industry (e.g., industrial, financial or utility).
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
bonds, debentures (i.e., unsecured bonds) and notes (including variable
and floating rate instruments), preferred stocks, participation interests,
zero coupon securities, asset-backed 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. The Fund is also permitted to invest a portion
of its assets in municipal securities. The U.S. government securities in
which the Fund may invest are separately described below.
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 to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan and
are acquired from banks or brokers that have made the loan or are members
of the lending syndicate. No more than 5% of the Fund's net assets can
be invested in participation interests of the same issuer. The Manager
has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. The value of loan
participation interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may
have difficulty making payments. If a borrower fails to make scheduled
interest or principal payments, the Fund could experience a decline in the
net asset value of its shares. Some borrowers may have senior securities
rated as low as "C" by Moody's or "D" by Standard & Poor's, but may be
deemed acceptable credit risks. Participation interests are subject to
the Fund's limitations on investments in illiquid securities. See
"Illiquid and Restricted Securities".
Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by private issuers. Zero coupon U.S. Treasury securities
in which the Fund may invest are described below. Zero coupon securities
issued by private issuers 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 undivided fractional 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 Statement of Additional Information under "Investment Objective and
Policies - Domestic Securities - Asset-Backed Securities."
Municipal Securities. The Fund may invest in municipal bonds
(municipal securities that have a maturity when issued of one year or
more), municipal notes (including tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes
and other loans) (municipal notes are municipal securities that have a
maturity when issued of less than one year), tax-exempt commercial paper,
certificates of participation and other debt obligations issued by or on
behalf of the states and the District of Columbia, their political
subdivisions, or any commonwealth, territory or possession of the United
States, or their respective agencies, instrumentalities or authorities.
From time to time the Fund may purchase private activity municipal
securities. The Fund may invest in municipal securities that are "general
obligations" (secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest) and "revenue
obligations" (payable only from the revenues derived from a particular
facility or class of facilities, or specific excise tax or other revenue
source).
- 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 "Other Investment Techniques and Strategies -
Hedging" 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. In general, zero coupon U.S.
Treasury securities include (1) U.S. Treasury notes or bonds which have
been "stripped" of their unmatured interest coupons, (2) U.S. Treasury
bills issued without interest coupons, or (3) certificates representing
an interest in stripped securities. A zero coupon security pays no
interest and trades at a deep discount from its face value. It will be
subject to greater market fluctuations from changes in interest rates than
interest paying securities. The Fund accrues taxable income from zero
coupon securities issued by either the U.S. Treasury or corporations
without receiving cash. As a result of holding these securities, the Fund
could possibly be forced 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, including collateralized mortgage-backed
obligations ("CMOs"), which may be issued or guaranteed by (i) agencies
or instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie
Macs and Fannie Maes) or (ii) private issuers. 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.
CMOs in which the Fund may invest are securities issued by a U.S.
Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. The Fund may also invest in CMOs
that are "stripped"; that is, the security is divided into two parts, one
of which receives some or all of the principal payments and the other
which receives some or all of the interest. The yield to maturity on the
class that receives only interest is extremely sensitive to the rate of
payment of the principal on the underlying mortgages. Principal
prepayments increase that sensitivity. Stripped securities that pay
interest only are therefore subject to greater price volatility when
interest rates change, and have the additional risk that if the underlying
mortgages are prepaid, which is more likely to happen if interest rates
fall, the Fund will lose the anticipated cash flow from the interest on
the mortgages that were prepaid.
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 "Other
Investment Techniques and Strategies - Special Risks - Borrowing for
Leverage"). 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 securities and similar types of
instruments are set forth under "Domestic Fixed-Income Securities," above
and "Investment Objective and Policies" in the Statement of Additional
Information.
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. However, 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.
Foreign securities have special risks. For example, foreign issuers
are not subject to the same accounting and disclosure requirements that
U.S. companies are subject to. The value of foreign investments may be
affected by changes in foreign currency rates, exchange control
regulations, expropriation or nationalization of a company's assets,
foreign taxes, delays in settlement of transactions, changes in
governmental economic or monetary policy in the U.S. or abroad, or other
political and economic factors. If the Fund's assets are held abroad, the
countries in which they are held and the sub-custodians holding them must
be approved by the Fund's Board of Trustees. More information about the
risks and potential rewards of investing in foreign securities is
contained in the Statement of Additional Information.
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." 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.
Portfolio turnover affects a fund's ability to qualify as a
"regulated investment company" under the Internal Revenue Code for tax
deductions for dividends and capital gains distributions the Fund pays to
shareholders. The Fund qualified in its last fiscal year and intends to
do so in the coming year, although it reserves the right not to qualify.
As most purchases made by the Fund are principal transactions, the Fund
incurs little or no brokerage costs.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that are designed to reduce some of the risks.
- Special Risks - Borrowing for Leverage. The Fund may borrow
money from banks to buy securities. The Fund will borrow only if it can
do so without putting up assets as security for a loan. This is a
speculative investment method known as "leverage." This investing
technique may subject the Fund to greater risks and costs than Funds that
do not borrow. These risks may include the possible reduction of income
and the possibility that the Fund's net asset value per share will
fluctuate more than funds that don't borrow since the Fund pays interest
on borrowings and interest expense affects the Fund's share price and
yield. Borrowing for leverage is subject to limits under the Investment
Company Act described in more detail in "Borrowing for Leverage" in the
Statement of Additional Information.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Fund will not enter into a repurchase
agreement that causes more than 10% of its net assets to be subject to
repurchase agreements having a maturity beyond seven days.
- Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities (other than in
repurchase transactions) to brokers, dealers and other financial
institutions. These loans are limited to not more than 25% of the Fund's
net assets and are subject to other conditions described in the Statement
of Additional Information. The Fund presently does not intend to lend its
portfolio securities, but if it does, the value of securities loaned is
not expected to exceed 5% of the value of its total assets.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments. Investments
may be illiquid because of the absence of an active trading market, making
it difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction on
its resale or which cannot be sold publicly until it is registered under
the Securities Act of 1933. The Fund will not invest more than 10% of its
net assets in illiquid or restricted securities (that limit may increase
to 15% if certain state laws are changed or the Fund's shares are no
longer sold in those states). The Fund's percentage limitation on these
investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date. The
Fund does not intend to make such purchases for speculative purposes.
- Short Sales "Against-the-Box." In a short sale, the seller does
not own the security that is sold, but normally borrows the security to
fulfill its delivery obligation. The seller later buys the security to
repay the loan, in the expectation that the price of the security will be
lower when the purchase is made, resulting in a gain. The Fund may not
sell securities short except in collateralized transactions referred to
as short sales "against-the-box," where the Fund owns an equivalent amount
of the securities sold short. This technique is primarily used for tax
purposes. No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time.
- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, forward
contracts, and options on futures, securities indices and securities, or
enter into interest rate swap agreements. These are all referred to as
"hedging instruments." The Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described below.
The hedging instruments the Fund may use are described below and in
greater detail in "Other Investment Techniques and Strategies" in the
Statement of Additional Information.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes or to raise cash to distribute to
shareholders.
Futures. The Fund may buy and sell futures contracts that relate to
(1) securities indices (these are referred to as Financial Futures) and
(2) interest rates (these are referred to as Interest Rate Futures).
These types of Futures are described in "Hedging With Options and Futures
Contracts" in the Statement of Additional Information.
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls only on debt or equity securities, security
indices, foreign currencies, Interest Rate Futures and Financial Futures
or to terminate its obligation on a call the Fund previously wrote. The
Fund may write (that is, sell) covered call options. When the Fund writes
a call, it receives cash (called a premium). The call gives the buyer the
ability to buy the investment on which the call was written from the Fund
at the call price during the period in which the call may be exercised.
If the value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the Fund
keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can buy and sell only those puts
that relate to (1) debt or equity securities, (2) securities indices or
(3) Interest Rate Futures or Financial Futures.
The Fund may buy and sell puts and calls only if certain conditions
are met: (1) calls the Fund sells must be listed on a securities exchange,
or traded in the over-the-counter market; (2) calls the Fund buys must be
listed on a securities or commodities exchange, quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
(NASDAQ) or traded in the over-the-counter market; (3) in the case of puts
and calls on foreign currency, they must be traded on a securities or
commodities exchange, or quoted by recognized dealers in those options;
(4) each call the Fund writes must be "covered" while it is outstanding:
that means the Fund must own the investment on which the call was written
or it must own other securities that are acceptable for the escrow
arrangements required for calls; (5) puts the Fund buys and sells must be
listed on a securities or commodities exchange, quoted on NASDAQ or traded
in the over-the-counter market and any put sold must be covered by
segregated liquid assets with not more than 50% of the Fund's assets
subject to puts; (6) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid assets
the Fund owns and segregated to enable it to satisfy its obligations if
the call is exercised; and (7) a call or put option may not be purchased
if the value of all of the Fund's put and call options would exceed 5% of
the Fund's total assets.
Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has bought or sold, or to protect against possible losses from
changes in the relative values of the U.S. dollar and foreign currencies.
The Fund may also use "cross-hedging," where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated.
Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive
floating rate payments for fixed rate payments. The Fund 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 25% of its total assets.
Also, the Fund will segregate liquid assets (such as cash or U.S.
Government securities) to cover any amounts it could owe under swaps that
exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.
Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its Futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. The use of forward contracts may reduce the gain that would
otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. Interest rate swaps are subject to credit risks
(if the other party fails to meet its obligations) and also to interest
rate risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate
changes. These risks are described in greater detail in the Statement of
Additional Information.
- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." The Fund may use some types
of derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. In general,
a "derivative investment" is a specially-designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging" above).
One risk of investing in derivative investments is the at the
company issuing the instrument might not pay the amount due on maturity
of the instrument. There is also the risk that the underlying investment
or security might not perform the way the Manager expected it to perform.
The performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks mean
that the Fund will realize less than expected from its investments, or
that it can lose part of the value of its investments, which will affect
the Fund's share price. Certain derivative investments held by the Fund
may trade in the over-the-counter market and may be illiquid. If that is
the case, the Fund's investment in them will be limited, as discussed in
"Illiquid and Restricted Securities," above.
Another type of derivative the Fund may invest in is an "index-
linked" note. On the maturity of this type of debt security, payment is
made based on the performance of an underlying index, rather than based
on a set principal amount for a typical note. Another derivative
investment the Fund may invest in is a currency-indexed security. These
are typically, short-term or intermediate-term debt securities. Their
value at maturity or the interest rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay
an amount at maturity based on a multiple of the amount of the relative
currency movements. This variety of index security offers the potential
for greater income but at a greater risk of loss.
Other derivative investments the Fund may invest in include "debt
exchangeable for common stock" of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock at the time of maturity. In either case
there is a risk that the amount payable at maturity will be less than the
principal amount of the debt (because the price of the issuer's common
stock is not as high as was expected).
- Temporary Defensive Investments. In times of unstable economic
or market conditions, when the Manager determines it appropriate to do so,
the Fund may invest all or a portion of its assets in defensive
securities. Securities selected for defensive purposes usually will
include 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"), such as: (1) U.S.
Government Securities; (2) 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; (3) commercial
paper 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; (4) debt obligations (including master demand notes and
obligations other than commercial paper) issued by domestic corporations
and 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; (5) 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"; and (6) 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.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these fundamental
policies, the Fund cannot do any of the following: (1) 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").
All of the percentage restrictions described above and elsewhere in
this Prospectus other than those described under "Special Risks -
Borrowing for Leverage," are applicable only at the time of investment and
the Fund need not dispose of a security merely because the size of the
Fund's assets has changed or the security has increased in value relative
to the size of the Fund. There are other fundamental policies discussed
in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1991 as a
Massachusetts business trust. The Fund is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible
under Massachusetts law for protecting the interests of shareholders. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has two classes of shares, Class A and
Class B. Each class has its own dividends and distributions and pays
certain expenses which may be different for the different classes. Each
class may have a different net asset value. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally. Only
shares of a particular class vote together on matters that affect that
class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $29 billion as
of December 30, 1994, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Managers. Arthur P. Steinmetz and David P. Negri serve
as Portfolio Managers and Vice Presidents of the Fund and have been
principally responsible for the day-to-day management of the Fund's
portfolio since its inception. During the past five years, Mr. Steinmetz
has served as Senior Vice President of the Manager, Mr. Negri has served
as a Vice President of the Manager and each has served as an officer of
other mutual funds managed by the Manager (with the Fund, the
OppenheimerFunds).
- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.75% of the first $200 million of
aggregate net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, 0.60% of the next $200
million, and 0.50% of net assets in excess of $1 billion. The Fund's
management fee (excluding the voluntary expense assumption in effect for
a portion of the last fiscal year) for its last fiscal year was 0.75% of
average annual net assets for both its Class A and Class B shares, which
may be higher than the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Fund's Distributor.
The Distributor also distributes the shares of other OppenheimerFunds and
is sub-distributor for funds managed by a subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return" and "yield" to illustrate its
performance. The performance of each class of shares is shown separately,
because the performance of each class will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how well your
investment has done and to compare it to other funds or market indices,
as we have done below.
It is important to understand that the fund's total returns and
yields represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns and
yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to measure
and compare the Fund's performance. The Fund's investment performance will
vary, depending on market conditions, the composition of the portfolio,
expenses and which class of shares you purchase.
- Total Returns. There are different types of total returns used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the current maximum initial sales charge. When total returns
are shown for Class B shares, they reflect the effect of the contingent
deferred sales charge that applies to the period for which total return
is shown. Total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be
reduced if sales charges were deducted.
- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's past
fiscal year, as the United States economy strengthened and domestic
interest rates rose, the Manager sought to reduce the Fund's overall
exposure to Treasury securities, which tend to lag investment grade
corporate bonds in the mid-to-late stages of economic expansion. The
Manager also adjusted the Fund's holdings within the investment grade
corporate bond sector by de-emphasizing investments in companies whose
earnings are sensitive to interest rate changes, such as consumer durable
and financial services companies, and instead focused on larger industrial
companies. With respect to the foreign markets, as interest rates rose
offshore and the U.S. dollar weakened against major currencies, the
Manager increased the Fund's holdings of foreign government bonds, and
focused more attention on bonds issued by large European industrial
companies believed to be positioned to benefit from economic growth.
- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund held until September 30, 1994. In the case of Class
A shares, performance is measured since the commencement of operations on
April 22, 1992, and in the case of Class B shares, from the inception of
the Class on November 30, 1992. In both cases, all dividends and capital
gains distributions were reinvested in additional shares. The graph
reflects the deduction of the 4.75% current maximum initial sales charge
on Class A shares and the maximum 5% contingent deferred sales charge on
Class B shares.
The Fund's performance is compared to the performance of The Lehman
Brothers Aggregate Bond Index, a broad-based index of U.S. Government
Treasury and agency issues and investment grade corporate bond issues and
fixed-rate mortgage-backed securities backed by mortgage pools issued by
certain U.S. Government agencies. That index is widely regarded as a
measure of the performance of the general bond market. Index performance
reflects the reinvestment of dividends but does not consider the effect
of capital gains or transaction costs, and none of the data below shows
the effect of taxes. Moreover, index performance data does not reflect
any assessment of the risk of the investment included in the index. The
Fund's performance reflects the effect of Fund business and operating
expenses.
Oppenheimer Strategic Investment Grade Bond
Comparison of Change in Value
of a $10,000 Hypothetical Investment to the
The Lehman Aggregate Bond Index
(Graph)
Past performance is not predictive of future performance.
Oppenheimer Strategic Investment Grade Bond
Average Annual Total Returns Cumulative Total Return
of the Fund at 9/30/94 of the Fund at 9/30/94
A Shares 1-Year Life: B Shares 1-Year Life:
-6.43% 2.83% -7.03% 1.77%
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, you will not pay an initial sales charge but if
you sell any of those shares within 18 months after your purchase, you may
pay a contingent deferred sales charge, which will vary depending on the
amount you invested. Sales charges are described below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. It is described
below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest, how long you plan to hold your investment, and whether you
anticipate exchanging your shares for shares of other OppenheimerFunds
(not all of which currently offer Class B shares). If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to Class A and B, considering the effect of
the annual asset-based sales charge on Class B expenses (which, like all
expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in
the investment each year. Of course, the actual performance of your
investment cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class of
shares, and which class you invest in. The factors discussed below are
not intended to be investment advice or recommendations, because each
investor's financial considerations are different.
- How Long Do You Expect to Hold Your Investment? The Fund is
designed for long-term investment. While future financial needs cannot
be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares.
The effect of the sales charge over time, using our assumptions, will
generally depend on the amount invested. Because of the effect of class-
based expenses, your choice will also depend on how much you invest.
- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may offset the effect of paying an
initial sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher expenses on Class B, for which no initial sales
charge is paid. Additionally, dividends payable to Class B shareholders
will be reduced by the additional expenses borne solely by Class B, such
as the asset-based sales charge described below.
In general, if you plan to invest less than $100,000, Class B shares
may be more advantageous than Class A shares, using the assumptions in our
hypothetical example. However, if you plan to invest more than $100,000
(not only in the Fund, but possibly in other OppenheimerFunds as well),
then Class A shares generally will be more advantageous than Class B,
because of the effect of the reduction of initial sales charges on larger
purchases of Class A shares (described in "Reduced Sales Charges for Class
A Share Purchases," below). That is also the case because the annual
asset-based sales charge on Class B shares will have a greater impact on
larger investments than the initial sales charge on Class A shares because
of the reductions of initial sales charge available for larger
purchases.
And for investors who invest $1 million or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $1 million or more of Class B shares
from a single investor.
Of course, these examples are based on approximations of the effect
of current sales charges and expenses on a hypothetical investment over
time, using the assumptions stated above. Therefore, these examples
should not be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter To You?
Because some features (such as Checkwriting) may not be available to Class
B shareholders, or other features (such as Automatic Withdrawal Plans) may
not be advisable (because of the effect of the contingent deferred sales
charge) in non-retirement accounts for Class B shareholders, you should
carefully review how you plan to use your investment account before
deciding which class of shares to buy. Also, because not all of the
OppenheimerFunds currently offer Class B shares, and because exchanges are
permitted only to the same class of shares in another of the
OppenheimerFunds, you should consider how important the exchange privilege
is likely to be for you.
- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling or
servicing one class of shares than another class. It is important that
investors understand that the purpose of the Class B contingent deferred
sales charge is the same as the purpose of the front-end sales charge on
Class A shares: to compensate the Distributor for commissions it pays to
dealers and financial institutions for sales of shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other OppenheimerFunds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically through an Asset Builder Plan under the OppenheimerFunds
AccountLink service. When you buy shares, be sure to specify Class A or
Class B shares. If you do not choose, your investment will be made in
Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions.
Shares are purchased for your account on Accountlink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to "AccountLink"
below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver. In most cases, to enable you to receive that
day's offering price, the Distributor must receive your order by the time
of day The New York Stock Exchange closes, which is normally 4:00 P.M.,
New York time, but may be earlier on some days (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as a commission. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
<PAGE>
Front-End
Front-End Sales Charge
Sales Charge as Commission
as Approximate 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%
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. That commission
may be paid only on the amount of those purchases in excess of $1 million
that were not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance up
to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those
sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A shares you purchase for your individual accounts, or
jointly, or on behalf of your children who are minors, under trust or
custodial accounts. A fiduciary can count all shares purchased for a
trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
shares of the Fund and other OppenheimerFunds. You can also include Class
A shares of OppenheimerFunds you previously purchased subject to a sales
charge, provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, you may purchase Class
A shares of the Fund and other OppenheimerFunds during a 13-month period
at the reduced sales charge rate that applies to the aggregate amount of
the intended purchases, including purchases made up to 90 days before the
date of the Letter. More information is contained in the Application and
in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients; and (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares of defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administration services.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party, or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The contingent deferred sales charge does not apply to purchases of
Class A shares at net asset value described above and is also waived if
shares are redeemed in the following cases: (1) retirement distributions
or loans to participants or beneficiaries from qualified retirement plans,
deferred compensation plans or other employee benefit plans ("Retirement
Plans"), (2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, (4) involuntary redemptions of
shares by operation of law or under the procedures set forth in the Fund's
Declaration of Trust or adopted by the Board of Trustees, and (5) if, at
the time an order is placed for Class A shares that would otherwise be
subject to the Class A contingent deferred sales charge, the dealer agrees
to accept the dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (with no further
commission payable if the shares are redeemed within 18 months of
purchase).
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The 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. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for any of the
following redemptions: (1) distributions to participants or beneficiaries
from Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2, as
long as the payments are no more than 10% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary; (2) redemptions from accounts
other than Retirement Plans following the death or disability of the
shareholder (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration); (3) returns of excess
contributions to Retirement Plans; and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
591/2, and distributions from 403(b)(7) custodial plans or pension or
profit sharing plans before the participant is age 591/2 but only after
the participant has separated from service, if the distributions are made
in substantially equal periodic payments over the life (or life
expectancy) of the participant or the joint lives (or joint life and last
survivor expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with other requirements for
such distributions under the Internal Revenue Code and may not exceed 10%
of the account value annually, measured from the date the Transfer Agent
receives the request).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution Plan, described below. The conversion is based on the
relative net asset value of the two classes, and no sales load or other
charge is imposed. When Class B shares convert, any other Class B shares
that were acquired by the reinvestment of dividends and distributions on
the converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A and Class B Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes,
financing costs and other expenses.
The Distributor's actual expenses in selling Class B shares may be
more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At September 30, 1994, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $696,002 (equal to 4.7% of the Fund's net assets represented by Class
B shares on that date), which have been carried over into the present Plan
year. If the Plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for expenses it incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you to
send money electronically between those accounts to perform a number of
types of account transactions. These include purchases of shares by
telephone (either through a service representative or by PhoneLink,
described below), automatic investments under Asset Builder Plans, and
sending dividends and distributions or Automatic Withdrawal Plan payments
directly to your bank account. Please refer to the Application for details
or call the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send the
proceeds directly to your AccountLink bank account. Please refer to "How
to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of withdrawals
of up to $1,500 per month by telephone. You should consult the
Application and Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
automatically to exchange an amount you establish in advance for shares
of up to five other OppenheimerFunds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each OppenheimerFunds account is $25. These exchanges are subject to
the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying a
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge. It also applies to shares on which you paid
a contingent deferred sales charge when you redeemed them. You must be
sure to ask the Distributor for this privilege when you send your payment.
Please consult the Statement of Additional Information for more
details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SARSEP-
IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
other employers
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
<PAGE>
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional
Information.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive
a check
- A redemption check is not payable to all shareholders listed on
the account statement
- A redemption check is not sent to the address of record on your
statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as
an Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail: Send courier or Express
Mail requests to:
Oppenheimer Shareholder Services Oppenheimer Shareholder
Services
P.O. Box 5270, Denver, Colorado 80217 10200 E. Girard Avenue,
Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the
Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not
redeem shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
Checkwriting. To be able to write checks against your Fund account,
you may request that privilege on your account Application or you can
contact the Transfer Agent for signature cards, which must be signed (with
a signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B or Class A shares that are subject to a contingent deferred sales
charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 10 days.
- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, or (4) the check was written for less than
$100.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on behalf
of their customers. Brokers or dealers may charge for that service.
Please refer to "Special Arrangements for Repurchase of Shares from
Dealers and Brokers" in the Statement of Additional Information for more
details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between already established accounts on PhoneLink
described below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for sale
in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. Certain
OppenheimerFunds offer Class A shares and Class B or Class C shares, and
a list can be obtained by calling the Distributor at 1-800-525-7048. In
some cases, sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. Exchanges of shares involve a
redemption of the shares of the fund you own and a purchase of shares of
the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from
the other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M., but
may be earlier on some days. However, either fund may delay the purchase
of shares of the fund you are exchanging into if it determines it would
be disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might require the disposition of portfolio
securities at a time or price disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each regular business
day by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The Fund's
Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities, obligations for which market values
cannot be readily obtained, and call options and hedging instruments.
These procedures are described more completely in the Statement of
Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Fund will be liable for
losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete
a telephone transaction and should consider placing your order by
mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charge when redeeming certain Class
A and Class B shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net investment income and pays such dividends to
shareholders monthly on the fourth Wednesday of each month, but the Board
of Trustees can change that date. It is expected that distributions paid
with respect to Class A shares will generally be higher than for Class B
shares because expenses allocable to Class B shares will generally be
higher.
From September 30, 1993 through November 24, 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 such period than they otherwise would have been. This undertaking
terminated as of 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.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. A capital gain or loss
is the difference between the price you paid for the shares and the price
you received when you sold them.
- Returns of Capital: In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders. A non-
taxable return of capital may reduce your tax basis in your Fund
shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
Appendix: 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 22, 1992) and (ii)
Class B shares of the Fund during each of the Fund's fiscal years since
the public offering on November 30, 1992 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
04/22/92 * $ 9,525 $10,000
09/30/92 $10,147(1) $10,773
09/30/93 $10,881 $11,847
09/30/94 $10,710 $11,466
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 $10,961(2) $11,141
09/30/94 $10,330 $10,782
______________________________
* The Fund commenced operations on April 27, 1992.
(1) From commencement of operations (4/22/92) to 9/30/92.
(2) From commencement of first public offering of Class B shares
(11/30/92) to 9/30/93.
<PAGE>
Oppenheimer Strategic Investment Grade Bond Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent OPPENHEIMER
Oppenheimer Shareholder Services Strategic Investment Grade Bond Fund
P.O. Box 5270 Prospectus
Denver, Colorado 80217 Effective February 1, 1995
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202 OppenheimerFunds
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information,
and if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor, Inc., or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in
any state to any person to whom it is unlawful to make such offer in such
state.
PR0285001.0295 (1/95)* Printed on recycled paper
<PAGE>
Oppenheimer Strategic Investment Grade Bond Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated February 1, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 1, 1995. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free
number shown above.
Contents
Page
About the Fund 2
Investment Objectives and Policies 2
Investment Policies and Strategies. 2
Other Investment Techniques and Strategies 8
Other Investment Restrictions 20
How the Fund is Managed 21
Organization and History 21
Trustees and Officers of the Fund 22
The Manager and Its Affiliates 25
Brokerage Policies of the Fund 26
Performance of the Fund 28
Distribution and Service Plans 32
About Your Account 34
How To Buy Shares 34
How To Sell Shares 40
How To Exchange Shares 44
Dividends, Capital Gains and Taxes 45
Additional Information About the Fund 47
Financial Information About the Fund 48
Independent Auditors' Report 48
Financial Statements 49
Appendix A: Industry Classifications A-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
In selecting securities for the Fund's portfolio, the Fund's
investment manager, Oppenheimer Management Corporation (the "Manager"),
evaluates the investment merits of 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.
- Investment Risks of Fixed-Income Securities. 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 on a security as they become due.
Generally, higher yielding lower-grade bonds are subject to credit risk
to a greater extent than lower yielding, investment grade 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
outstanding fixed-income securities. An increase in prevailing interest
rates will generally reduce the market value of already-issued 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 changes
in their prices from changes in interest rates than obligations with
shorter maturities. Fluctuations in the market value of fixed-income
securities after the Fund buys them will not affect the interest payable
on those securities, nor the cash income from such securities. However,
those price fluctuations will be reflected in the valuations of these
securities and therefore the Fund's net asset values.
The Fund may from time to time invest up to 35% of its total assets
(the "35% Policy") in non-investment grade securities and other
investments as described in the Prospectus, including 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. As a result of the limited
liquidity of high yield securities, at times their prices have experienced
significant and rapid declines when a substantial number of holders
decided to sell simultaneously. A decline is also likely in the high
yield bond market during a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the
market for high yield bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. In
addition, there have been several Congressional attempts to limit the use
of tax and other advantages of high yield bonds which, if enacted, could
adversely affect the value of these securities and the Fund's net asset
value. For example, federally-insured savings and loan associations have
been required to divest their investments in high yield bonds.
- - Domestic Fixed-Income Securities. Further information about the
Fund's investments in domestic 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 and CMOs" below for prepayments of a pool of mortgage loans
underlying mortgage-backed securities.
- - 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. Due to
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-backed
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.
- - Foreign Fixed-Income Securities. "Foreign securities" include
equity and debt securities of companies organized under the laws of
countries other than the United States and debt securities of foreign
governments that are traded on foreign securities exchanges or in the
foreign over-the-counter markets. Securities of foreign issuers that are
represented by American Depository Receipts or that are listed on a U.S.
securities exchange or traded in the U.S. over-the-counter markets are not
considered "foreign securities" for the purpose of the Fund's investment
allocations, because they are not subject to many of the special
considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
The Fund may invest in U.S. dollar-denominated foreign 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 U.S. Treasury securities
having the same maturity. Because the Fund may purchase securities
denominated in foreign currencies, a change in the value of such foreign
currency against the U.S. dollar will result in a change in the amount of
income the Fund has available for distribution. Because a portion of the
Fund's investment income may be received in foreign currencies, the Fund
will be required to compute its income in U.S. dollars for distribution
to shareholders, and therefore the Fund will absorb the cost of currency
fluctuations. After the Fund has distributed income, subsequent foreign
currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income,
which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not
available from investing solely in securities of domestic issuers,
including 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 stock
markets that do not move in a manner parallel to U.S. markets. If the
Fund's portfolio securities are held abroad, the countries in which they
may be held and the sub-custodians holding them must be approved by the
Fund's Board of Trustees under applicable rules of the Securities and
Exchange Commission.
-Risks of Foreign Investing. Investments in foreign securities
present special additional risks and considerations not typically
associated with investments in domestic securities: reduction of income
by foreign taxes; fluctuation in value of foreign portfolio investments
due to changes in currency rates and control regulations (e.g., currency
blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing
and financial reporting standards comparable to those applicable to
domestic issuers; less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits; higher brokerage
commission rates than in the U.S.; increased risks of delays in settlement
of portfolio transactions or loss of certificates for portfolio
securities; possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; and unfavorable differences between the U.S. economy and
foreign economies. In the past, U.S. Government policies have
discouraged certain investments abroad by U.S. investors, through
taxation or other restrictions, and it is possible that such restrictions
could be re-imposed.
- - 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.
Other Investment Techniques and Strategies.
-Borrowing for Leverage. From time to time, the Fund may increase
its ownership of securities by borrowing from banks on a unsecured basis
and investing the borrowed funds, subject to the restrictions stated in
the Prospectus. Any such borrowing will be made only from banks and,
pursuant to the requirements of the Investment Company Act of 1940 (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, when computed in that manner, 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. To do so, the Fund may have to sell a portion of its
investments at a time when independent investment judgment would not
dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that during a period of substantial
borrowing, its expenses may increase more than funds that do not
borrow.
-Repurchase Agreements. The Fund may acquire securities subject
to repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank or a
broker-dealer that has been designated a primary dealer in government
securities, that must meet credit requirements set by the Fund's Board of
Trustees from time to time. 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 on each business day must 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. When it lends securities, the Fund receives
amounts equal to the interest paid or the dividends declared on the loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, and (c) interest on short-term
debt securities purchased with such loan collateral. Either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian, and administrative fees. The terms of the
Fund's loans must meet applicable tests un the Internal Revenue Code and
must permit the Fund to reacquire loaned securities on five days' notice
or on time to vote on any important matter.
-Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
-When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve a risk of loss if the value of the security declines
prior to the settlement date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
-Hedging. The Fund may use hedging instruments for the purposes
described in the Prospectus. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, or 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,
securities, or securities indices or (iii) write covered calls on
securities held by it or on Futures. When hedging to protect against
declines in the dollar value of a foreign currency - dominated security,
the Fund may: (i) buy puts on that foreign currency, (ii) write calls on
that currency or (iii) enter into Forward Contract at a higher or lower
rate that the spot ("cash") rate.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the underlying
cash market. 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 legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
-Writing and Purchasing Calls and Puts. As described in the
Prospectus, the Fund may write covered calls. When the Fund writes a call
on an investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call 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 investment) regardless of
market price changes during the call period. 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 option transaction costs
and the premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Fund retains
the underlying investment and the premium received. Those profits are
considered short-term capital gains for Federal income tax purposes, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. Call writing affects the Fund's turnover rate and the
brokerage commissions it pays. Commissions, normally higher than on
general securities transactions, are payable on writing or purchasing a
call.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of deliverable securities or 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 requires 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.
The Fund may purchase calls to protect against the possibility that
the Fund's portfolio will not participate in an anticipated rise in the
securities market. When the Fund purchases a call, it pays a premium
(other than in a closing purchase transaction) and, except as to calls on
indices, 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. 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,
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 call on an index, it pays a premium, but settlement is
in cash rather than by delivery of the underlying investment to the Fund.
When the Fund purchases a put, it pays a premium and, except as to
puts on stock 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 (a "protective put") enables the Fund to attempt to protect itself
during the put period against a decline in the value of the underlying
investment below the exercise price by selling the underlying investment
at the exercise price to a seller of a corresponding put. If the market
price of the underlying investment is equal to or above the exercise price
and as a result the put is not exercised or resold, the put will become
worthless at its expiration and the Fund will lose the premium payment and
the right to sell the underlying investment. However, the put may 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 the 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.
The Fund's option activities may affect its portfolio 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. The exercise by the Fund of puts on securities will cause
the sale of underlying investments, increasing portfolio turnover.
Although the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a
call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value
of the underlying investments 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.
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 expires unexercised, the Fund (as
the writer of the put) realizes a gain in the amount of the premium less
transaction costs. 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 sale
price 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 or on foreign currencies, to
secure its obligation to pay for the underlying security, the Fund will
deposit in escrow liquid assets with a value equal to or greater than the
exercise price of the underlying securities. The Fund therefore forgoes
the opportunity of investing the segregated assets or writing calls
against those assets. As long as the 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 stated 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.
-Financial Futures and Interest Rate Futures. The Fund may buy and
sell futures contracts relating to a securities index ("Financial
Futures"). Financial futures are contracts based on the future value of
the basket of securities that comprise the underlying index. The
contracts obligate the seller to deliver, and the purchaser to take, cash
to settle the futures transaction or to enter into an offsetting contract.
No physical delivery of the securities underlying the index is made on
settling the futures obligation. No monetary amount is paid or received
by the Fund on the purchase or sale of a Financial Future.
The Fund may also buy Futures relating to debt securities
("Interest Rate 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 to settle the futures
transaction, or to enter into an offsetting contract. As with Financial
Futures, no monetary amount is paid or received by the Fund on the
purchase 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"). Initial margin
payments 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 certain specified conditions. As
the Future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures
broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may
elect to close out its position by taking an opposite position, at which
time a final determination of variation margin is made and additional cash
is required to be paid by or released to the Fund. Any gain or loss is
then realized by the Fund on the Future for tax purposes. Although
Financial Futures by their terms call for settlement by the delivery of
cash, and Interest Rate Futures call for the delivery of a specific debt
security, in most cases the settlement obligation is fulfilled without
such delivery by entering into an offsetting transaction. All Futures
transactions are effected through a clearing house associated with the
exchange on which the contracts are traded.
-Options on Foreign Currency. The Fund intends to write and
purchase calls on foreign currencies. The Fund may purchase and write
puts and calls on foreign currencies that are traded on a securities or
commodities exchange or over-the-counter markets or are quoted by major
recognized dealers in such options. It does so to protect against
declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. If the Manager
anticipates a rise in the dollar value of a foreign currency in which
securities to be acquired are denominated, the increased cost of such
securities may be partially offset by purchasing calls or writing puts on
that foreign currency. If a decline in the dollar value of a foreign
currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of
currency rate fluctuations adverse to the Fund's position, it would lose
the premium it paid and transactions costs.
A call written on a foreign currency by the Fund is covered if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline due
to an expected adverse change in the exchange rate in the U.S. dollar
value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option. This is a
cross-hedging strategy. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. Government Securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked-to-
market daily.
-Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain
that would otherwise result from a change in the relationship between the
U.S. dollar and a foreign currency. To attempt to limit its exposure to
loss under Forward Contracts in a particular foreign currency, the Fund
limits its use of these contracts to the amount of its assets denominated
in that currency or denominated in a closely-correlated foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency
other than that in which the underlying security is denominated. This is
done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's assets
that may be committed to foreign currency exchange contracts. The Fund
does not enter into such forward contracts or maintain a net exposure in
such contracts to the extent that the Fund would be obligated to deliver
an amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts to cover its short positions. 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 to
maintaining all or part of the separate account, the Fund may purchase a
call option permitting the Fund to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the
forward contract price, or the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward contract
price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may close out a Forward Contract requiring
it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a
result of entering into such an offsetting Forward Contract under either
circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements.
A master netting agreement provides that all swaps done between the
Fund and that counterparty under 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 part, the measure of that part'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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
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 the lack of
a market, it would have to hold the callable investment until the call
lapsed or was exercised.
-Additional Information About Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options that are traded on exchanges, or as to other acceptable
escrow securities, so that no margin will be required from the Fund for
such option transactions. OCC will release the securities covering a call
on the expiration of the call or when the Fund enters into a closing
purchase transaction. 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 the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
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.
-Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of futures and options thereon as established by the Commodities
Futures Trading Commission ("CFTC"). In particular, the Fund is excluded
from registration as a "commodity pool operator" if it complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and
related option premiums for a bona fide hedging position. However, under
the Rule the Fund must limit its aggregate initial futures margin and
related option premiums to no more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies
under the Rule.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options
that 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 different exchanges or through one or more
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 adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
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, cash or readily-marketable, short-term
(maturing in one year or less) debt instruments in an amount equal to the
market value of the securities underlying such Future, less the margin
deposit applicable to it.
-Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive
from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with this
30% cap, 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 written
or purchased less than three months previously; (iv) exercising puts or
calls held by the Fund for less than three months; or (v) writing calls
on investments held less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a
position(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 an 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.
-Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against declines in the value of the Fund's portfolio securities
(due to an increase in interest rates). The risk is 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 depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures 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.
The risk of imperfect correlation increases as the composition of
the Fund's portfolio diverges from the securities included in the
applicable index. To compensate for the imperfect correlation of
movements in the price of the portfolio securities being hedged and
movements in the price of the hedging instruments, the Fund may use
hedging instruments in a greater dollar amount than the dollar amount of
portfolio securities being hedged if the historical volatility of the
prices of the portfolio securities being hedged is more than the
historical volatility of the applicable index. It is also possible that
if the Fund has used hedging instruments in a short hedge, the market may
advance and the value of equity securities held in the Fund's portfolio
may decline. If that occurred, the Fund would lose money on the hedging
instruments and also experience a decline in value in its portfolio
securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
equity securities will tend to move in the same direction as the indices
upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual
equity 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 a possible further market decline or for other
reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the debt securities
purchased.
Other Investment Restrictions
The Fund's significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective cannot be changed without the vote of a
"majority" of the Fund's outstanding 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.
For purposes of the Fund's policy not to concentrate described
under investment restriction number 2 of the Prospectus, the Fund has
adopted the industry classifications set forth in Appendix A to this
Statement of Additional Information.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees And Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. All of the Trustees are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Integrity Funds, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Bond
Fund, Oppenheimer Limited-Term Government Fund, The New York Tax-Exempt
Income Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer Main
Street Funds, Inc., Oppenheimer Strategic Funds Trust, Oppenheimer
Strategic Income & Growth Fund, Oppenheimer Strategic Short-Term Income
Fund and Oppenheimer Variable Account Funds; as well as the following
"Centennial Funds": Daily Cash Accumulation Fund, Inc., Centennial
America Fund, L.P., 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 January 18, 1995, the Trustees and officers of
the Fund as a group owned of record or beneficially less than 1% of each
class of shares of the Fund. The foregoing does not include shares held
of record by an employee benefit plan for employees of the Manager (for
which plan two of the officers listed above, Messrs. Fossel and Donohue,
are trustees) other than the shares beneficially owned under that plan by
the officers of the Fund.
Robert G. Avis, Trustee; Age 63. *
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Trustee; Age 80.
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
[FN]
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Charles Conrad, Jr., Trustee; Age 64.
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly associated
with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Trustee Age 52.*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; President and a director of HarbourView Asset
Management Corporation ("HarbourView"), a subsidiary of the Manager; a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly President of the Manager.
Raymond J. Kalinowski, Trustee; Age 65.
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; formerly Vice Chairman
and a director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice
President.
C. Howard Kast, Trustee; Age 73.
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age 73.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; 79.
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation; formerly Senior Vice President and a director of Van Gilder
Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee; Age 61.*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and Director of
Centennial Asset Management Corporation, an investment adviser subsidiary
of the Manager ("Centennial"); formerly Chairman of the Board of SSI.
Andrew J. Donohue, Vice President; Age 44.
Two World Trade Center, New York, New York 10048-0203
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 a director and an officer of the First
Investors Family of Funds and First Investors Life Insurance Company.
[FN]
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
George C. Bowen, Vice President, Secretary and Treasurer; Age 57.
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
Arthur P. Steinmetz, Vice President and Portfolio Manager; Age 36.
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
David P. Negri, Vice President and Portfolio Manager; Age 40.
Two World Trade Center, New York, New York 10048
Vice President of the Manager; an officer of other
OppenheimerFunds.
Robert G. Zack, Assistant Secretary; Age 46.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
Robert J. Bishop, Assistant Treasurer; Age 35.
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller of the Manager,
prior to which he was an
Accountant for Resolution Trust Corporation and previously an Accountant
and Commissions Supervisor for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age 29.
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Messrs. Fossel and Swain, who are both
officers and Trustees) receive no salary or fee from the Fund. The
Trustees of the Fund (excluding Messrs. Fossel and Swain) received the
total amounts shown below from all 22 of the Denver-based OppenheimerFunds
(including the Fund) listed in the first paragraph of this section, for
services in the positions shown:
Total Compensation From All
Name Position Denver-based OppenheimerFunds1
Robert G. Avis Trustee $53,000.00
William A. Baker Study and Audit Committee $73,257.01
Chairman and Trustee
Charles Conrad, Jr. Study and Audit Committee $68,293.67
Member and Trustee
Raymond J. Kalinowski Trustee $53,000.00
C. Howard Kast Trustee $53,000.00
Robert M. Kirchner Study and Audit Committee $68,293.67
Member and Trustee
Ned M. Steel Trustee $53,000.00
______________________
1 For the 1994 calendar year.
- Major Shareholders. As of January 18, 1995, no person owned of
record or was known by the Fund to own beneficially 5% or more of the
shares of the Fund as a whole or either class of the Fund's outstanding
shares.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Mr. Fossel and Mr. Swain)
serve as Trustees of the Fund.
- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund 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
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs. For the fiscal period from April 22, 1992 (commencement
of operations) to September 30, 1992 and for the fiscal year ended
September 30, 1993, and September 30, 1994, management fees payable by the
Fund to the Manager would have been $15,887, $227,907, and $319,025,
respectively, absent the Manager's assumption of Fund expenses, as
discussed below, in the amount of $36,153, $106,134, and $19,540,
respectively, which reduced the management fee and the Fund's "Other
Expenses" identified above by the amount of the expense assumption.
The advisory 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. Pursuant to this undertaking the Manager
reimbursed the Fund $19,540 during such period. 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 advisory 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.
- The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A and Class B shares but
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales (excluding payments under the Distribution and
Service Plans but including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing
shareholders), are borne by the Distributor. During the period from April
22, 1992 (commencement of operations) through September 30, 1992 and for
the fiscal years ended September 30, 1993 and 1994, the aggregate sales
charges on sales of the Fund's Class A shares were $435,397, $811,099 and
$212,013 respectively, of which the Distributor and an affiliated broker-
dealer retained in the aggregate $76,427, $236,748, and $77,763 in those
respective years. During the Fund's fiscal year ended September 30, 1994,
the contingent deferred sales charges collected on the Fund's Class B
shares totalled $40,567, all of which the Distributor retained. For
additional information about distribution of the Fund's shares and the
expenses connected with such activities, please refer to "Distribution and
Service Plans," below.
- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding or base its selection on "posted" ratios,
but is expected to minimize the commissions paid to the extent consistent
with the interest and policies of the Fund as established by its Board of
Trustees. Purchases of 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.
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 advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of 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.
Description of Brokerage Practices Followed by the Manager. Subject
to the provisions of the advisory agreement, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above.
Regardless, brokerage is allocated under the supervision of the Manager's
executive officers. As most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. 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 transaction in the
securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates are combined. The transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each account.
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 in
commission dollars. The Board has permitted the Manager to use
concessions on fixed price offerings to obtain research, in the same
manner as permitted for agency transactions.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by 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 (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 advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return," "cumulative total return" and "total return at net asset
value" of an investment in a class of shares of the Fund may be
advertised. An explanation of how these total returns are calculated for
each class and the components of those calculations is set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and
Class B shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to the
particular class.
<PAGE>
- Standardized Yields
- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
a-b 6
Standardized Yield = 2 [(------ + 1) - 1]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of that class on the last
day of the period, adjusted for undistributed net investment
income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended September 30, 1994, the standardized yields for
the Fund's Class A and Class B shares were 6.64% and 6.35%,
respectively.
- Dividend Yield and Distribution Return. From time to time the Fund
may quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the Class A or Class B share dividends derived
from net investment income during a stated period. Distribution return
includes dividends derived from net investment income and from realized
capital gains declared during a stated period. Under those calculations,
the dividends and/or distributions for that class declared during a stated
period of one year or less (for example, 30 days) are added together, and
the sum is divided by the maximum offering price per share of that class
on the last day of the period. When the result is annualized for a period
of less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ---------------------------------------------------- +
Max Offering Price of the Class (last day of period)
Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period. The dividend
yields on Class A shares for the 30-day period ended September 30, 1994,
were 6.50% and 6.82% when calculated at maximum offering price and at net
asset value, respectively. The dividend yield on Class B shares for the
30-day period ended September 30, 1994, was 6.20% when calculated at net
asset value.
- - Total Return Information
- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, the payment of the
applicable contingent deferred sales charge (5.0% for the first year, 4.0%
for the second year, 3.0% for the third and fourth years, 2.0% in the
fifth year, 1.0% in the sixth year and none thereafter) is applied to the
investment result for the time period shown (unless the total return is
shown at net asset value, as described below). Total returns also assume
that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that
the investment is redeemed at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund for the one
year period ended September 30, 1994 and for the period from April 22,
1992 (commencement of operations) through September 30, 1994 were (6.43)%,
and 2.83%, respectively. The "average annual total return" on an
investment in Class B shares of the Fund for the fiscal year ended
September 30, 1994 and the period from November 30, 1992 (inception of the
class) through September 30, 1994 was (7.03)% and 1.77% respectively. The
cumulative "total return" on Class A shares for the period from April 22,
1992 (commencement of operations) through September 30, 1994 was 7.06%.
The cumulative total return on Class B shares for the period from November
30, 1992 through September 30, 1994 was 3.26%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The cumulative total return at net asset
value of the Fund's Class A shares for the fiscal year ended September 30,
1994 and for the period from April 22, 1992 to September 30, 1994 were
(1.76)% and 12.40% respectively. The cumulative total returns at net
asset value for Class B shares for the fiscal year ended September 30,
1994 and for the period from November 30, 1992 through September 30, 1994
were (2.45)% and 7.07%, respectively.
Other Performance Comparisons. From time to time the Fund may publish
the ranking of its Class A or Class B shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent service. Lipper
monitors the performance of regulated investment companies, including the
Fund, and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund is ranked
against (i) all other funds (excluding money market funds) and (ii) all
other-fixed income funds. The Lipper performance rankings are based on
total returns that include the reinvestment of capital gain distributions
and income dividends but do not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based on risk-adjusted investment return.
Investment return measures a fund's three, five and ten-year average
annual total returns (when available) in excess of 90-day U.S. Treasury
bill returns after considering sales charges and expenses. Risk reflects
fund performance below 90-day U.S. Treasury bill monthly returns. Risk
and return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class
A and Class B shares of the Fund in relation to other fixed-income bond
funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A or Class B
shares may be compared with performance for the same period of the Lehman
Brothers Aggregate Bond Index, as described in the Prospectus. The Index
includes a factor for the reinvestment of interest but does not reflect
expenses or taxes on the reinvestment of capital gains.
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.
<PAGE>
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class B shares under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund will reimburse the
Distributor quarterly for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either Plan may be terminated at
any time by the vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding shares of that class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required by an
exemptive order issued by the SEC to obtain the approval of Class B as
well as Class A shareholders for a proposed amendment to the Class A Plan
that would materially increase the amount to be paid by Class A
shareholders under the Class A Plan. Such approval must be by a
"majority" of the Class A and Class B shares (as defined in the Investment
Company Act), voting separately by Class. All material amendments must
be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which each payment was made and the identity of each Recipient
that received any 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 have been 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 selection or nomination is approved by a majority of the
Independent Trustees.
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, did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fees at the maximum rate and set no requirement for a minimum amount of
the assets.
For the fiscal year ended September 30, 1994, payments under the
Class A Plan totalled $67,190, all of which was paid by the Distributor
to Recipients, including $11,485 paid to MML Investor Services, Inc., an
affiliate of the Distributor. Any unreimbursed expenses incurred by the
Distributor with respect to Class A shares for any fiscal year may not be
recovered in subsequent years. Payments received by the Distributor under
the Plan for Class A shares will not be used to pay any interest expense,
carrying charge, or other financial costs, or allocation of overhead by
the Distributor.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. Service fee payments by the Distributor to Recipients will
be made (i) in advance for the first year Class B shares are outstanding,
following the purchase of shares, in an amount equal to 0.25% of the net
asset value of the shares purchased by the Recipient or its customers and
(ii) thereafter, on a quarterly basis, computed as of the close of
business each day at an annual rate of 0.25% of the average daily net
asset value of Class B shares held in accounts of the Recipient or its
customers. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event Class B shares are redeemed
during the first year that the shares are outstanding, the Recipient will
be obligated to repay a pro rata portion of the advance payment for those
shares to the Distributor. Payments made under the Class B Plan during the
fiscal year ended September 30, 1994 totalled $142,407, of which $132,607
was retained by 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 Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees. The Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's
payments to the Distributor under the Class B Plan and recoveries of the
contingent deferred sales charge) the sales commissions paid to authorized
brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of Class B shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and from
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
was reimbursed in the form of payments made by the Fund to the Distributor
under the Class B Plan, the balance of $400,000 (plus interest) would be
subject to recovery in future fiscal years from such sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B Plan is
intended to allow the Distributor to recoup the cost of sales commissions
paid to authorized brokers and dealers at the time of sale, plus financing
costs, as described in the Prospectus. Such payments may also be used to
pay for the following expenses in connection with the distribution of
Class B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
shares, and (iii) costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
availability of two classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B shares are the same as
those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling
Fund shares may receive different compensation with respect to one class
of shares than the other. The Distributor will not accept any order for
$1 million or more of Class B shares on behalf of a single investor (not
including dealer "street name" or omnibus accounts) because generally it
will be more advantageous for that investor to purchase Class A shares of
the Fund instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class B shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of the
close of business of The New York Stock Exchange ("NYSE") on each day that
the NYSE is open by dividing the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The NYSE
normally closes at 4:00 P.M., New York time, but may close earlier on some
days (for example, in case of weather emergencies or on days falling
before a holiday). The NYSE's most recent annual announcement (which is
subject to change) states that it will close on 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. The
Fund may invest a substantial portion of its assets in foreign securities
primarily listed on foreign exchanges which may trade on Saturdays or
customary U.S. business holidays on which the NYSE is closed. Because the
Fund's net asset value will not be calculated on those days, the Fund's
net asset values per share may be significantly affected on such days when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale price on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) securities
traded on NASDAQ and other unlisted equity securities for which last sale
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) 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 on the basis of reasonable
inquiry; (iv) 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; (v) securities (including restricted
securities) not having readily-available market quotations are valued at
fair value under the Board's procedures; 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 taken from the closing price on the London foreign exchange
market that day.
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 stock and bond
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 net
asset value unless the Board of Trustees or the Manager, under procedures
established by the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value, in which case an
adjustment would be made. Foreign currency will be valued as close to the
time fixed for the valuation date as is reasonably practicable. The
values 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.
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.
Puts, calls and Futures held by the Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ,
as applicable, or, if there are no sales that day, in accordance with (i),
above. Forward currency contracts are valued at the closing price on the
London foreign exchange market. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is "marked-to-market" to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call written by the
Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by the Fund expires, the Fund has a gain in the
amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the premium
was more or less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by the
Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the regular
business day the Distributor is instructed to initiate the Automated
Clearing House transfer to buy the shares. Dividends will begin to accrue
on shares purchased by the proceeds of ACH transfers on the business day
the Fund receives Federal Funds for the purchase through the ACH system
before the close of the NYSE. The NYSE normally closes at 4:00 P.M., but
may close earlier on certain days. If Federal Funds are received on a
business day after the close of the NYSE, the shares will be purchased and
dividends will begin to accrue on the next regular business day. The
proceeds of ACH transfers are normally received by the Fund 3 days after
the transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from delays in
ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
<PAGE>
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter. This enables the investor to obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase amount"). Each purchase under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount, as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase 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 purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of the Letter) do not
include any shares sold without a front-end sales charge or without being
subject to a Class A contingent deferred sales charge unless (for the
purpose of determining completion of the obligation to purchase shares
under the Letter) the shares were acquired in exchange for shares of one
of the OppenheimerFunds whose shares were acquired by payment of a sales
charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for
the Fund's shares (for example, when a purchase check is returned to the
Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Check Writing. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under the
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of (i)
Class A shares, or (ii) Class B shares that were subject to the Class B
contingent deferred sales charge when redeemed. The reinvestment may be
made without sales charge only in Class A shares of the Fund or any of the
other OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. Any capital
gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares
of the Fund or another of the OppenheimerFunds within 90 days of payment
of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the
basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's other redemption requirements. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of the NYSE on
a regular business day, it will be processed at the day's net asset value
if the order was received by the dealer or broker from its customer prior
to the time the Exchange closes (normally, that is 4:00 P.M., but may be
earlier on some days) and the order was transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.)
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required redemption documents, with signature(s) guaranteed
as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of
the Fund valued at $5,000 or more can authorize the Transfer Agent to
redeem shares (minimum $50) automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Withdrawal Plan. Shares will
be redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B shareholders should not establish withdrawal
plans that would require the redemption of shares purchased subject to a
contingent deferred sales charge and held less than 6 years, because of
the imposition of the Class B contingent deferred sales charge on such
withdrawals (except where the Class B contingent deferred sales charge is
waived as described in the Prospectus under "Class B Contingent Deferred
Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other OppenheimerFunds
automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How
to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the
Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All OppenheimerFunds offer
Class A shares (except for Oppenheimer Strategic Diversified Income Fund),
but only the following other OppenheimerFunds currently offer Class B
shares:
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only
available by exchange)
Oppenheimer Growth Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge). Shares
of this Fund acquired by reinvestment of dividends or distributions from
any other of the OppenheimerFunds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may
be exchanged at net asset value for shares of any of the OppenheimerFunds.
No contingent deferred sales charge is imposed on exchanges of shares of
either class purchased subject to a contingent deferred sales charge.
However, when Class A shares acquired by exchange of Class A shares of
other OppenheimerFunds purchased subject to a Class A contingent deferred
sales charge are redeemed within 18 months of the end of the calendar
month of the initial purchase of the exchanged Class A shares, the Class
A contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class
B contingent deferred sales charge is imposed on Class B shares acquired
by exchange if they are redeemed within 6 years of the initial purchase
of the exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the 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 that the Fund
derives from its portfolio investments that the Fund has held for a
minimum period, usually 46 days. A corporate shareholder will not be
eligible for the deduction on dividends paid on Fund shares held for 45
days or less. To the extent the Fund's dividends are derived from gross
income from option premiums, interest income or short-term gains from the
sale of securities or dividends from foreign corporations, those dividends
will not qualify for the deduction. None of the dividends paid by the Fund
during the fiscal year ended September 30, 1994 are eligible for the
corporate dividend-received deduction.
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.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of
shareholders for the Fund not to make such distributions at the required
levels and to pay the excise tax on the undistributed amounts. That would
reduce the amount of income or capital gains available for distribution
to shareholders.
The 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.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may
elect to reinvest all dividends and/or capital gains distributions in
shares of the same class of any of the other OppenheimerFunds listed in
"Reduced Sales Charges," above, at net asset value without sales charge.
Class B shareholders should be aware that as of the date of this Statement
of Additional Information, not all of the OppenheimerFunds offer Class B
shares. To elect this option, a shareholder must notify the Transfer
Agent in writing and either 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. Dividends
and/or distributions from shares of other OppenheimerFunds may be invested
in shares of this Fund on the same basis.
<PAGE>
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Strategic
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, 1994, the related statement of operations for the year then
ended, the statements of changes in net assets for the years
ended September 30, 1994 and 1993 and the financial highlights
for the period April 22, 1992 (commencement of operations) to
September 30, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation
of securities owned at September 30, 1994 by correspondence with
the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Oppenheimer Strategic Investment Grade Bond
Fund at September 30, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1994
<PAGE>
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STATEMENT OF INVESTMENTS September 30, 1994
<TABLE>
<CAPTION>
FACE
MARKET VALUE
AMOUNT SEE
NOTE 1
<S> <C>
<C>
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
GOVERNMENT OBLIGATIONS--36.5%
- -------------------------------------------------------------------------------------------------------------------------
- ------
SHORT-TERM--1.5%
- -------------------------------------------------------------------------------------------------------------------------
- ------
Bonos de la Tesoreria la Federacion:
0%, 12/8/94 $ 125,000
$ 123,404
0%, 1/12/95 500,000
490,089
-----------
613,493
- -------------------------------------------------------------------------------------------------------------------------
- ------
LONG-TERM--35.0%
- -------------------------------------------------------------------------------------------------------------------------
- ------
Czechoslovakia National Bank Bonds, 7%, 4/6/96(2)
1,000,000 997,500
- -------------------------------------------------------------------------------------------------
Denmark (Kingdom Of) Bonds, 9%, 11/15/98
4,500,000(1) 745,895
- -------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(2)
750,000 718,613
- -------------------------------------------------------------------------------------------------
First Australia National Mortgage Acceptance
Corp. Ltd. Bonds, Series 22, 11.40% 12/15/01
283,680(1) 213,477
- -------------------------------------------------------------------------------------------------
Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95
2,000,000,000(1) 843,111
- -------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds:
12%, 9/1/97 300,000,000(1)
195,077
Buoni Poliennali del Tes:
12%, 1/1/96 15,000,000(1)
9,736
12%, 5/1/97 500,000,000(1)
324,840
12.50%, 6/16/97 250,000,000(1)
164,119
12.50%, 3/19/98 50,000,000(1)
33,077
12%, 1/17/99 50,000,000(1)
32,381
- -------------------------------------------------------------------------------------------------
New Zealand (Government of), 10%, 7/15/97
390,000(1) 240,946
- -------------------------------------------------------------------------------------------------
South Australia Government Finance Authority
Bonds, 10%, 1/15/03 250,000(1)
177,500
- -------------------------------------------------------------------------------------------------
Spain (Kingdom of) Bonds, 11.45%, 8/30/98
122,500,000(1) 964,660
- -------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria Gtd. Bonds:
12%, 10/22/98 250,000(1)
198,688
8.25%, 10/15/03 620,000(1)
394,827
- -------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts., 12.25%, 3/26/99
391,000(1) 693,105
- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 7.125%, 2/15/23(5)
1,000,000 909,062
- -------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.625%, 8/15/95 900,000
890,438
4.375%, 8/15/96 3,000,000
2,888,436
5.125%, 2/28/98 1,000,000
943,437
8.875%, 11/15/19 1,130,000
1,190,738
- -------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 12.50%, 4/1/98
225,000 180,759
-----------
13,950,422
- -------------------------------------------------------------------------------------------------
Total Government Obligations (Cost $15,147,238)
$14,563,915
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
FACE
MARKET VALUE
AMOUNT SEE
NOTE 1
<S> <C>
<C>
- -------------------------------------------------------------------------------------------------------------------------
- ------
MORTGAGE/ASSET-BACKED OBLIGATIONS--29.0%
- -------------------------------------------------------------------------------------------------------------------------
- ------
CMC Security Corp. I, 10% Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 7/25/23(2) $ 768,431
$ 806,637
- -------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-D, 8.70%, 9/25/25(2)
1,000,000 959,531
- -------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-E, 8.70%, 09/25/25(2)
1,000,000 924,844
- -------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 7%, Series 1548, Cl. C, 4/15/21
4,000,000
3,501,240
- -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Interest-Only Stripped Mtg.-
Backed Security, Trust 240, Class 2, 7%, 9/25/23(4)
2,731,263 1,032,759
- -------------------------------------------------------------------------------------------------
First Boston Corp. Mtg. Securities, 7.06%, Series 1993-AFC-1,
10/25/02 741,071
682,944
- -------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
10.50%, 12/15/17 324,386
353,789
10.50%, 7/15/19 253,438
276,534
10.50%, 5/15/21 71,268
77,794
- -------------------------------------------------------------------------------------------------
Residential Funding Corp. Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 905,079
896,708
- -------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
9%, Series 1991-M5, Cl. A, 3/25/17 746,768
750,269
8.75% Series 1993-C1, Cl. B, 5/25/24 700,000
693,000
10.638%, Series 1992-16, Cl. B3, 5/25/24(3)
600,000 607,875
- -------------------------------------------------------------------------------------------------
Total Mortgage/Asset-Backed Obligations (Cost $12,130,633)
11,563,924
- -------------------------------------------------------------------------------------------------------------------------
- ------
MUNICIPAL BONDS AND NOTES--0.5%
- -------------------------------------------------------------------------------------------------------------------------
- ------
New York State Environmental Facilities Corp. State Service
Contract Taxable Revenue Bonds, Series B, 8.15%, 3/15/02
200,000 199,878
- -------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes (Cost $197,611)
199,878
- -------------------------------------------------------------------------------------------------------------------------
- ------
LONG-TERM CORPORATE BONDS AND NOTES--30.6%
- -------------------------------------------------------------------------------------------------------------------------
- ------
BASIC MATERIALS--4.6%
- -------------------------------------------------------------------------------------------------------------------------
- ------
CHEMICALS--2.4% Hook-Superx, Inc., 10.125%, 6/1/02
400,000 418,000
- -------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03
500,000 554,828
-----------
972,828
- -------------------------------------------------------------------------------------------------------------------------
- ------
PAPER AND FOREST R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04
500,000
445,000
PRODUCTS--2.2%
- -------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts.,
7/20/15 472,481
434,915
-----------
879,915
- -------------------------------------------------------------------------------------------------------------------------
- ------
CONSUMER CYCLICALS--2.9%
- -------------------------------------------------------------------------------------------------------------------------
- ------
AUTOMOTIVE--0.6%
- -------------------------------------------------------------------------------------------------------------------------
- ------
Chrysler Corp., 10.95% Nts., 8/1/17 200,000
222,175
- -------------------------------------------------------------------------------------------------------------------------
- ------
CONSUMER GOODS AND Fruit of the Loom, Inc., 7% Debs., 3/15/11
500,000
415,000
SERVICES--1.0%
- -------------------------------------------------------------------------------------------------------------------------
- ------
ENTERTAINMENT--0.3% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03
150,000
131,604
- -------------------------------------------------------------------------------------------------------------------------
- ------
RETAIL--1.0% Sears Canada, Inc., 11.70% Debs., 7/10/00
500,000(1) 403,513
- -------------------------------------------------------------------------------------------------------------------------
- ------
CONSUMER NON-CYCLICALS--3.3%
- -------------------------------------------------------------------------------------------------------------------------
- ------
FOOD--3.3% ConAgra, Inc., 7.40% Sub. Nts., 9/15/04
250,000 232,922
- -------------------------------------------------------------------------------------------------
RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98
1,000,000 1,058,428
-----------
1,291,350
<PAGE>
------------------------------------------------------------
------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
</TABLE>
<TABLE>
<CAPTION>
FACE
MARKET VALUE
AMOUNT SEE
NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- ------
<S> <C>
<C>
ENERGY--2.2% McDermott, Inc., 9.375% Nts., 3/15/02 $
100,000 $ 103,757
- -------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02
400,000 415,619
- -------------------------------------------------------------------------------------------------
Tenneco, Inc.:
7.875% Nts., 10/1/02 250,000
244,622
10% Debs., 3/15/08 100,000
110,090
-----------
874,088
- -------------------------------------------------------------------------------------------------------------------------
- ------
FINANCIAL--7.7% American Car Line Co., 8.25% Equipment Trust Ctfs.,
Series 1993-A, 4/15/08 270,000
261,900
- -------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97
200,000 201,612
- -------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99
300,000 322,226
- -------------------------------------------------------------------------------------------------
First Chicago, 9% Sub. Cap. Nts., 6/15/99 100,000
104,402
- -------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
8% Nts., 10/1/96 100,000
101,332
7.75% Nts., 4/15/97 300,000
300,328
5.50% Nts., 12/15/01 100,000
85,232
- -------------------------------------------------------------------------------------------------
Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000
303,421
- -------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 800,000(1)
520,608
- -------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99
300,000 303,039
- -------------------------------------------------------------------------------------------------
NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04
250,000 233,662
- -------------------------------------------------------------------------------------------------
PaineWebber Group, Inc.:
7% Nts., 3/1/00 160,000
149,590
7.75% Sub. Nts., 9/1/02 200,000
187,020
-----------
3,074,372
- -------------------------------------------------------------------------------------------------------------------------
- ------
INDUSTRIAL--0.3%
- -------------------------------------------------------------------------------------------------------------------------
- ------
TRANSPORTATION--0.3% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00
100,000
107,371
- -------------------------------------------------------------------------------------------------------------------------
- ------
TECHNOLOGY--5.6%
- -------------------------------------------------------------------------------------------------------------------------
- ------
AEROSPACE/DEFENSE--0.5% AMR Corp., 10% Nts., 4/15/21
200,000
195,822
- -------------------------------------------------------------------------------------------------------------------------
- ------
CABLE TELEVISION--5.1% TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07
1,300,000
1,412,125
- -------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Nts.,
3/15/23 700,000
613,676
-----------
2,025,801
- -------------------------------------------------------------------------------------------------------------------------
- ------
UTILITIES--4.0% Coastal Corp., 11.75% Sr. Debs., 6/15/06
500,000 548,750
- -------------------------------------------------------------------------------------------------
Commonwealth Edison Co.:
6.50% Nts., 7/15/97 225,000
217,551
6.40% Nts., 10/15/05 75,000
60,573
- -------------------------------------------------------------------------------------------------
Consumers Power Co., 6.375% Nts., 9/15/03
110,000 94,720
- -------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 200,000
160,242
- -------------------------------------------------------------------------------------------------
Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds,
3/1/22 250,000
243,826
- -------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02
275,000 288,996
-----------
1,614,658
- -------------------------------------------------------------------------------------------------
Total Long-Term Corporate Bonds and Notes (Cost $12,983,493)
$12,208,497
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACE
MARKET VALUE
DATE/PRICE AMOUNT
SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- ------
<S> <C> <C>
<C>
- -------------------------------------------------------------------------------------------------------------------------
- ------
PUT OPTIONS PURCHASED --0.0% European OTC Deutsche Mark/U.S. Dollar Put Nov.2/1.60
DEM
$2,579,158(1) $5,319
- -------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar Put Nov.4/1.60 DEM
1,289,579(1)
2,909
- -------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar Put Nov.8/1.60 DEM
1,289,579(1)
3,388
- -------------------------------------------------------------------------------------------------
Total Put Options Purchased (Cost $56,204)
11,616
- -------------------------------------------------------------------------------------------------------------------------
- ------
STRUCTURED INSTRUMENTS--3.4% Citibank, 10.50%--16% CD, 3/17/95--8/17/95
167,876,833(1) 856,102
- -------------------------------------------------------------------------------------------------
Goldman Sachs International Limited, 5.10%, 2/28/95
80,000 77,808
- -------------------------------------------------------------------------------------------------
Swiss Bank Corporation Investment Banking, Inc.,
10% CD Sterling Rate Linked Nts., 7/3/95
410,000 404,424
- -------------------------------------------------------------------------------------------------
Total Structured Instruments (Cost $1,340,894)
1,338,334
- -------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $41,856,073)
100.0% 39,886,164
- -------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.0%
8,902
- -------------------------------------------------------------------------------------------------
Net Assets 100.00%
$39,895,066
------ -----------
------ -----------
<FN>
1. Face amount is reported in foreign currency.
2. Restricted security--See Note 6 of Notes to Financial Statements.
3. Represents the current interest rate for a variable rate security.
4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest
rates decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated.
The price of these securities is typically more sensitive to changes in
prepayment rates than traditional mortgage backed securities
(for example, GNMA pass-throughs).
</TABLE>
5. Securities with an aggregate market value of $139,996 are held in escrow to
cover outstanding call options as follows:
<TABLE>
<CAPTION>
FACE EXPIRATION EXERCISE
PREMIUM MARKET
VALUE
SUBJECT TO CALL DATE PRICE
RECEIVED SEE
NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- ------
<S> <C> <C> <C>
<C> <C>
European OTC Deutsche Mark/U.S. Dollar 1,125,584 11/2/94 1.50 DEM
$ 5,229 $
2,968
European OTC Deutsche Mark/U.S. Dollar 505,697 11/2/94 1.60 DEM
13,188
16,854
European OTC Deutsche Mark/U.S. Dollar 582,792 11/4/94 1.50 DEM
2,709
1,662
European OTC Deutsche Mark/U.S. Dollar 252,848 11/4/94 1.60 DEM
6,644
8,351
European OTC Deutsche Mark/U.S. Dollar 562,792 11/8/94 1.54 DEM
6,715
6,919
European OTC Deutsche Mark/U.S. Dollar 252,848 11/8/94 1.60 DEM
6,876
8,651
------- -------
$41,361
$45,405
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
<C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
- -------------------------------------------------------------------------------------------------------------------------
- ------
ASSETS Investments, at value (cost $41,856,073)--see accompanying statement
$39,886,164
- -------------------------------------------------------------------------------------------------
Receivables:
Interest
763,532
Shares of beneficial interest sold
76,063
Investments sold
20,920
- -------------------------------------------------------------------------------------------------
Deferred organization costs
5,700
- -------------------------------------------------------------------------------------------------
Other
7,625
- -----------
Total assets
40,760,004
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
LIABILITIES Bank overdraft
353,543
- -------------------------------------------------------------------------------------------------
Options written, at value (premium received $41,361) see accompanying
statement--Note 4
45,405
- -------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed
242,246
Investments purchased
63,418
Distribution and service plan fees--Note 5
24,782
Dividends
59,937
Other
75,607
- -----------
Total liabilities
864,938
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
NET ASSETS
$39,895,066
- -----------
- -----------
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
COMPOSITION OF Paid-in capital
$42,589,149
NET ASSETS
- -------------------------------------------------------------------------------------------------
Overdistributed net investment income
(360,167)
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment, written option
and foreign currency transactions
(360,871)
- -------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, options written and translation
of assets
and liabilities denominated in foreign currencies
(1,973,045)
- -----------
Net assets
$39,895,066
- -----------
- -----------
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $24,955,906
and 5,296,079 shares of beneficial interest outstanding)
$4.71
Maximum offering price per share (net asset value plus sales charge of
4.75% of
offering price)
$4.94
- -------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets
of $14,939,160 and 3,173,620 shares of beneficial interest outstanding)
$4.71
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
<C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended September 30, 1994
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
INVESTMENT INCOME Interest (net of withholding taxes of $15,989)
$
3,458,069
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
EXPENSES Management fees--Note 5
319,025
- -------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 5
67,190
Class B--Note 5
142,407
- -------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5
82,169
- -------------------------------------------------------------------------------------------------
Shareholder reports
34,016
- -------------------------------------------------------------------------------------------------
Custodian fees and expenses
23,204
- -------------------------------------------------------------------------------------------------
Legal and auditing fees
11,880
- -------------------------------------------------------------------------------------------------
Trustees' fees and expenses
381
- -------------------------------------------------------------------------------------------------
Other
17,899
- ---------
Total expenses
698,171
- -------------------------------------------------------------------------------------------------
Less reimbursement from Oppenheimer Management Corporation--Note 5
(19,540)
- -------------------------------------------------------------------------------------------------
Net expenses
678,631
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
NET INVESTMENT INCOME
2,779,438
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
REALIZED AND UNREALIZED Net realized loss from:
GAIN (LOSS) ON INVESTMENTS, Investments and options written
(689,604)
OPTIONS WRITTEN AND Expiration and closing of option contracts written--Note 4
(10,859)
FOREIGN CURRENCY Foreign currency transactions
(215,015)
TRANSACTIONS
- -----------
Net realized loss
(915,478)
- -----------
Net change in unrealized appreciation or depreciation on:
Investments and options written
(3,112,420)
Translation of assets and liabilities denominated in foreign currencies
383,409
- -------------------------------------------------------------------------------------------------
Net change
(2,729,011)
- -------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments, options written
and foreign currency transactions
(3,644,489)
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(865,051)
- -------------
- -------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED
SEPTEMBER 30,
1994
1993
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
<S> <C> <C>
<C>
OPERATIONS Net investment income
$2,779,438 $2,142,329
- -------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (915,478)
(368,788)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated
in foreign currencies (2,729,011)
659,287
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations
(865,051) 2,432,828
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS Class A ($.240 and $.372 per share, respectively)
(1,253,403)
(1,890,652)
TO SHAREHOLDERS Class B ($.205 and $.270 per share, respectively)
(750,521)
(278,604)
- -------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.010 per share) (27,359)
--
Class B ($.010 per share) (16,382)
--
- -------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options written
and foreign currency transactions:
Class A ($.003 per share) --
(13,770)
Class B ($.003 per share) --
(654)
- -------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments, options
written and foreign currency transactions:
Class A ($.016 per share) (83,250)
--
Class B ($.016 per share) (49,849)
--
- -------------------------------------------------------------------------------------------------
Tax return of capital:
Class A ($.079 per share) (420,265)
--
Class B ($.079 per share) (251,649)
--
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS Class A beneficial interest transactions--Note 2
(3,401,990)
14,546,029
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 5,432,516
10,687,971
- -------------------------------------------------------------------------------------------------------------------------
- ------
- -------------------------------------------------------------------------------------------------------------------------
- ------
NET ASSETS Total increase (decrease)
(1,687,203) 25,483,148
- -------------------------------------------------------------------------------------------------
Beginning of year 41,582,269
16,099,121
-----------
- -----------
End of year (including overdistributed
net investment income of $360,167 in 1994)
$39,895,066 $41,582,269
-----------
- -----------
-----------
- -----------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS
B
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR
ENDED
SEPTEMBER 30, SEPT.
30,
1994 1993 1992(2) 1994
1993(1)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $5.14 $5.16 $5.00
$5.14 $4.95
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 .36 .14
.34 .27
Net realized and unrealized gain (loss)
on investments, options written and foreign
currency transactions (.43) (.01) .19 (.46)
.19
------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.09) .35 .33 (.12)
.46
------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.24) (.37) (.14)
(.21) (.27)
Dividends in excess of net investment income (.01) -- --
(.01) --
Distributions from net realized gain on
investments, options written and foreign
currency transactions -- -- (.03) --
--
------------------------------------------------------------------------------------------------
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions (.01) -- -- (.01)
--
Tax return of capital (.08) -- -- (.08)
--
Total dividends and distributions
to shareholders (.34) (.37) (.17) (.31)
(.27)
-------------------------------------------------------------------------------------------------
Net asset value, end of period $4.71 $5.14 $5.16
$4.71 $5.14
----- ----- ----- ----- ------
----- ----- ----- ----- ------
TOTAL RETURN, AT NET ASSET VALUE (3) (1.76)%
7.24% 6.67% (2.45)%
9.54%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $24,956 $30,783 $16,099
$14,939 $10,800
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,294 $25,972 $4,939
$14,232 $5,310
- --------------------------------------------------------------------------------------------------
Number of shares outstanding at end
of period (in thousands) 5,296 5,989 3,117
3,174 2,103
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.80% 7.18%
7.28%(4) 6.01%
6.28%(4)
Expenses, before voluntary reimbursement
by the Manager 1.38% 1.46% 2.00%(4)
2.16% 2.20%(4)
Expenses, net of voluntary reimbursement
by the Manager 1.33% 1.12% .29%(4)
2.12% 1.84%(4)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 68.6% 90.3% 30.6%
68.6% 90.3%
<FN>
1. For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
2. For the period from April 22, 1992 (commencement of operations) to
September 30, 1992.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date,
and redemption at the net asset value calculated on the last business day of
the fiscal period.
Sales charges are not reflected in the total returns.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a
maturity or expiration date at the time of acquisition of one year or less are
excluded from
the calculation. Purchases and sales of investment securities (excluding
short-term securities)
for the year ended September 30, 1994 were $33,753,825 and $26,698,460,
respectively.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Strategic Investment Grade Bond Fund
ACCOUNTING POLICIES 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 advisor
is Oppenheimer Management Corporation (the
Manager). The Fund offers both Class A and Class
B shares. Class A shares are sold with a
front-end sales charge. Class B
shares may be subject to a contingent deferred
sales charge. Both classes of shares have
identical rights to earnings, assets and voting
privileges, except that
each class has its own distribution and/or
service plan, expenses directly attributable to
a particular class and exclusive voting rights
with respect to matters affecting a single class.
Class B shares will automatically convert to
Class A shares six years after the date of
purchase. The following is a summary of
significant accounting policies consistently
followed by the Fund.
- -------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at 4:00 p.m. (New York time) on each trading day.
Listed and unlisted securities for which such
information is regularly reported are valued at
the last sale price of the day or, in the absence
of sales, at values based on the closing bid or
asked price or the last sale price on the prior
trading day. Long-term debt securities are valued
by a portfolio pricing service approved by the
Board of Trustees. Long-term debt securities
which cannot be valued by the approved
portfolio pricing service are valued by averaging
the mean between the bid and asked prices
obtained from two active market makers in such
securities. Short-term debt securities having a
remaining maturity of 60 days or less are valued
at cost (or last determined market
value) adjusted for amortization to maturity of
any premium or discount. Securities for which
market quotes are not readily available are
valued under procedures established by the Board
of Trustees to determine fair value in good
faith. An option is valued based upon the
last sales price on the principal exchange on
which the option is traded or, in the absence of
any transactions that day, the value is based
upon the last sale on the prior trading date if
it is within the spread between
the closing bid and asked prices. If the last
sale price is outside the spread, the closing bid
or asked price closest to the last reported sale
price is used. Forward foreign currency contracts
are valued at the forward rate on a daily basis.
- -------------------------------------------------------
FOREIGN CURRENCY The accounting records
TRANSLATION of the Fund are maintained in U.S. dollars.
Prices of securities denominated in foreign
currencies are translated into U.S. dollars at
the closing rates of exchange. Amounts related
to the purchase and sale of
securities and investment income are translated
at the rates of exchange prevailing on the
respective dates of such transactions.
The Fund generally enters into forward foreign
currency exchange contracts as a hedge, upon the
purchase Or Sale of a security denominated in a
foreign currency.
In addition, the Fund may enter into such
contracts as a hedge against changes in foreign
currency exchange rates on portfolio positions.
A forward exchange
contract is a commitment to purchase or sell a
foreign currency at a future date, at a
negotiated rate. Risks may arise from the
potential inability of the
counterparty to meet the terms of the contract
and from unanticipated movements in the value of
a foreign currency relative to the U.S. dollar.
The effect of changes in foreign currency
exchange rates on investments is separately
identified from the fluctuations arising from
changes in market values of securities held and
reported with all other foreign
currency gains and losses in the fund's results
of operations.
- -------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian
to take possession, to have legally segregated
in the Federal Reserve Book Entry System or to
have segregated within the custodian's vault, all
securities held as collateral for repurchase
agreements. If the seller of
the agreement defaults and the value of the
collateral declines, or if the seller enters an
insolvency proceeding, realization of the value
of the collateral by the Fund may be delayed or
limited.
- -------------------------------------------------------
OPTIONS WRITTEN. The Fund may write covered call and
put options. When an option is written, the Fund
receives a premium and becomes obligated to sell
the underlying security at a fixed price, upon
exercise of the option. In writing an option, the
Fund bears the market risk of an unfavorable
change in the price of
the security underlying the written option.
Exercise of an option written by the Fund could
result in the Fund selling or purchasing a
security at a price different
from the current market value. All securities
covering call options written are held in escrow
by the custodian bank and the Fund maintains
liquid assets sufficient to cover written put
options in the event of exercise by the holder.
- -------------------------------------------------------
ALLOCATION OF INCOME, Income, expenses (other than those attributable
EXPENSES AND GAINS 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.
<PAGE>
1. SIGNIFICANT FEDERAL The Fund intends to continue to
INCOME TAXES comply with provisions of the Internal Revenue
ACCOUNTING POLICIES Code applicable to regulated investment companies
(CONTINUED) 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. At
September 30, 1994, the Fund had available for
federal income tax
purposes an unused capital loss carryover of
approximately $24,000 expiring in 2002.
- -------------------------------------------------------
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 The Fund intends to
SHAREHOLDERS declare dividends separately for Class A and
Class B shares from net investment income each
day the New York Stock Exchange is open for
business and pay such
dividends monthly. Distributions from net
realized gains on investments, if any, will be
declared at least once each year.
- -------------------------------------------------------
CHANGE IN ACCOUNTING Effective October 1, 1993, the Fund adopted
FOR DISTRIBUTIONS Statement of Position 93-2: Determination,
TO SHAREHOLDERS Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a
result, the Fund changed the
classification of distributions to shareholders
to better disclose the differences between
financial statement amounts and distributions
determined in accordance with income tax
regulations. Accordingly, subsequent to September
30, 1993, amounts have been
reclassified to reflect a decrease in
undistributed net investment income of $510,955,
and a decrease in undistributed capital loss on
investments of $510,955.
During the year ended September 30, 1994, in
accordance with Statement of Position 93-2,
paid-in capital was decreased by $671,914,
undistributed net investment
income was increased by $86,885 and undistributed
capital loss was decreased by $585,029.
- -------------------------------------------------------
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 The Fund has authorized an unlimited number of
BENEFICIAL INTEREST no par value shares of beneficial interest of
each class.
Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994
PERIOD ENDED
SEPTEMBER 30, 1993(1)
------------------------------
- -----------------------------------
SHARES AMOUNT SHARES
AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
- --------
<S> <C> <C> <C>
<C>
Class A:
Sold 1,541,101 $7,739,640 5,266,098
$27,442,371
Dividends and distributions reinvested 284,805 1,388,625 248,836
1,263,984
Redeemed (2,518,406) (12,530,255) (2,643,764)
(14,160,326)
---------- ------------ ---------- -----------
Net decrease (692,500) $(3,401,990) 2,871,170
$14,546,029
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
-------------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,732,642 $8,472,995 2,252,666
$11,452,295
Dividends and distributions reinvested 74,300 587,645 33,869
173,117
Redeemed (736,073) (3,628,124) (183,784)
(937,441)
---------- ------------ ---------- -----------
Net increase 1,070,869 $5,432,516 2,102,751
$10,687,971
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
<FN>
1. For the year ended September 30, 1993 for Class A shares and for the period
from November 30, 1992 (inception of offering) to September 30, 1993 for Class B
shares.
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3. Unrealized Gains and At September 30, 1994, net unrealized depreciation
Losses on Investments on investments and options written of $1,973,953
was composed of gross appreciation of $295,626,
and gross depreciation of $2,269,579.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
4. OPTION ACTIVITY Option activity for the year ended September 30, 1994
was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT
OPTIONS
------------ -----------
NUMBER AMOUNT
NUMBER AMOUNT
OF OPTIONS OF PREMIUMS OF
OPTIONS OF
PREMIUMS
---------- ----------- ---------- -----------
<S> <C> <C> <C>
<C>
Options outstanding at September 30, 1993 100 $14,219 --
$--
------------------------------------------------------------------------------------------------------------------------
Options written 3,262,561 41,361 860
3,359
------------------------------------------------------------------------------------------------------------------------
Options expired prior to exercise (100) (14,219) (860)
(3,359)
------------------------------------------------------------------------------------------------------------------------
Options exercised -- -- --
- --
------------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1994 3,262,561 $41,361
- -- $--
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
5. MANAGEMENT FEES Management fees paid to the Manager were in accordance
AND OTHER TRANSACTIONS with the investment advisory agreement with the Fund
WITH AFFILIATES 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. A voluntary undertaking to reimburse
Fund expenses to the level needed to maintain a stable
dividend was terminated November 24, 1993.
For the year ended September 30, 1994, commissions
(sales charges paid by investors) on sales of Class A
shares totaled $212,013, of which $77,763 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, 1994, OFDI received contingent deferred
sales charges of $40,567 upon redemption of Class B
shares, as reimbursement for sales commissions advanced
by OFDI at the time of sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of
the Manager, is the transfer and shareholder servicing
agent for the Fund, and for other registered investment
companies. OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans, each class may expend up
to .25% of its net assets annually to reimburse OFDI
for costs incurred in connection with the personal
service and maintenance of accounts that hold shares of
the Fund, including amounts paid to brokers, dealers,
banks and other financial institutions. In addition,
Class B shares are subject to an asset-based sales
charge of .75% of net assets annually, to reimburse
OFDI for sales commissions paid from its own resources
at the time of sale and associated financing costs. In
the event of termination or discontinuance of the Class
B plan, the Board of Trustees may allow the Fund to
continue payment of the asset-based sales charge to
OFDI for distribution expenses incurred on Class B
shares sold prior to termination or discontinuance of
the plan. During the year ended September 30, 1994,
OFDI paid $11,485 and $1,220, respectively, to an
affiliated broker/dealer as reimbursement for Class A
and Class B personal service and maintenance expense
and retained $132,607 as reimbursement for Class B
sales commissions and service fee advances, as well as
financing costs.
<PAGE>
- -------------------------------------------------------------------------------
6. RESTRICTED SECURITIES The Fund owns securities purchased in private
placement transactions, without registration under
the Securities Act of 1933 (the Act). The
securities are valued under methods approved by
the Board of Trustees as reflecting fair value.
The Fund intends to invest no more than 10% of its
net assets (determined at the time of purchase) in
restricted and illiquid securities, excluding
securities eligible for resale pursuant to Rule
144A of the Act that are determined to be liquid
by the Board of Trustees or by the Manager under
Board-approved guidelines. Restricted and illiquid
securities, excluding securities eligible for
resale pursuant to Rule 144A of the Act amount to
$1,884,375 or 4.72% of the Fund's net assets, at
September 30, 1994. Illiquid and/or restricted
securities, including those restricted securities
that are transferable under Rule 144A of the Act
are listed below.
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS
OF
SECURITY ACQUISITION DATE COST PER
UNIT SEPTEMBER
30, 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMC Security Corp. I, 10% Collateralized
Mtg. Obligation, Series 1993-D, Cl. D-3, 7/25/23(1) 5/17/93 $108.27
$104.97
-------------------------------------------------------------------------------------------------------------------
Czechoslovakia National Bank Bonds, 7%, 4/6/96(1) 3/11/93-5/17/93 $100.05
$99.75
-------------------------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(1) 6/24/93 $99.63
$95.82
-------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994--C1, Class 2-D, 8.70%, 9/25/25 8/10/94 $98.00
$95.95
-------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994--C1, Class 2-E, 8.70%, 9/25/25 8/10/94 $94.88
$92.48
<FN>
1. Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
<PAGE>
Appendix
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, utilities are divided into
"industries" according to their services (e.g. gas utilities, gas
transmission utilities, electric utilities and telephone utilities each
will be considered a separate industry).
<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 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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
