Oppenheimer Strategic Short-Term Income Fund
3410 South Galena Street, Denver, CO 80231
Telephone 1-800-525-7048
Oppenheimer Strategic Short-Term Income Fund (referred to in this
Prospectus as the "Fund") is an investment company with the investment
objective to seek as high a level of current income, consistent with
stability of principal, as is available from a portfolio of investment
grade debt securities having a remaining maturity of not more than three
years. The Fund normally invests primarily in: (i) investment grade
domestic bonds, (ii) U.S. government securities, (iii) money market
instruments and (iv) foreign corporate and government debt securities
denominated in U.S. dollars and selected foreign currencies. The Fund may
also use certain hedging instruments. See "Special Investment Methods."
The Fund offers two classes of shares which may be purchased at a
price equal to their respective net asset value per share, plus a sales
charge. The investor may elect to purchase shares with a sales charge
imposed (1) at the time of purchase (the "Class A shares"), or (2) on a
contingent deferred basis (the "Class B shares"). Class B shares are also
subject to an asset-based sales charge. The contingent deferred sales
charge will be imposed on most redemptions of Class B shares within five
years of purchase. These alternatives permit an investor to choose the
method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. See"How To Buy Shares
- -- Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely information about the Fund that
prospective investors should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement") dated
January 25, 1994, has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon written request
to Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
telephone number shown above. The Additional Statement (which is
incorporated in its entirety by reference in this Prospectus) contains
more detailed information about the Fund and its management.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the FDIC or
any other agency, and involve investment risks, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective January 25, 1994.
<PAGE>
Table Of Contents
Page
Fund Expenses
Financial Highlights
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Alternative Sales Arrangements
Class A Shares
Class A Sales Charge Table
Class A Contingent Deferred Sales Charge
Reduced Sales Charges for Class A Purchases
Class A Service Plan
Class B Shares
Class B Contingent Deferred Sales Charge
Class B Conversion Feature
Class B Distribution and Service Plan
Purchase Programs for Class A and Class B Shares
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
CheckWriting
Distributions from Retirement Plans
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares and Retirement Plans
Dividends, Distributions and Taxes
Fund Performance Information
Additional Information
Appendix: Description of Ratings
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses paid by the Fund during its fiscal year ended
September 30, 1993 (as to Class A shares) and its fiscal period ended
September 30, 1993 (as to Class B shares). The public sale of Class B
shares commenced on or about November 30, 1992.
Shareholder Transaction Expenses Class A Shares Class B Shares
Maximum Sales Charge on Purchases 3.50% None
(as a percentage of offering price)
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred None1 4.0%2
Sales Charge on Redemptions
Redemption Fee None None
Exchange Fee $5.00 $5.00
Restated Annual Fund Operating Expenses Class A Shares Class B Shares
(as a percentage of average net assets)
Management Fees .65% .65%
12b-1 (Distribution and/or Service
Plan) Fees .25% 1.00%
Other Expenses .48% .57%
Total Fund Operating Expenses 1.38% 2.22%
_______________
(1) Certain Class A share purchases of $1 million or more are not subject
to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares--Class A Contingent
Deferred Sales Charge," below.
(2) A contingent deferred sales charge is imposed on the proceeds of Class
B shares redeemed within five years of the end of the calendar month of
their purchase, subject to certain exceptions. That charge is imposed as
a percentage of net asset value at the time of purchase or redemption,
whichever is less, and declines from 4.0% in the first year that shares
are held, to 3.0% in the second year, 2.0% in the third and fourth years,
1.0% in the fifth year and eliminated thereafter. There is no charge on
Class B shares held for more than five years. See "How To Buy Shares--
Class B Contingent Deferred Sales Charge."
The purpose of this table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
directly (shareholder transaction expenses) or indirectly (annual fund
operating expenses). The sales charge rate shown for Class A shares is
the current maximum rate applicable to purchases of Class A shares of the
Fund. Investors in Class A shares may be entitled to reduced sales
charges based on the amount purchased or the value of shares already owned
and may be subject to a contingent deferred sales charge in limited
circumstances (see "How to Buy Shares--Class A Contingent Deferred Sales
Charge"). "Other Expenses" includes such expenses as custodial and
transfer agent fees, audit, legal and other business operating expenses,
but excludes extraordinary expenses. The "Annual Fund Operating Expenses"
have been restated to reflect the elimination (effective November 30,
1993) of a voluntary expense assumption undertaken by the Fund's
investment adviser, Oppenheimer Management Corporation (the "Manager").
The Management Fee and Annual Fund Operating Expenses have been restated
to show what they would have been in the fiscal year ended September 30,
1993 had the Manager's voluntary expense undertaking not been in effect
during that fiscal year. As a result of the effect of the voluntary
expense undertaking by the Manager, the management fee during that fiscal
year for Class A shares was .48% of average net assets, and "Total Fund
Operating Expenses" were 1.21% for Class A shares. For further details,
see "Dual Class Methodology" and the Fund's financial statements, both
included in the Additional Statement.
The following examples apply the above-stated expenses (without
expense assumption) and the current maximum sales charges to a
hypothetical $1,000 investment in shares of the Fund over the time periods
shown below, assuming a 5% annual rate of return on the investment. The
amounts shown below are the cumulative costs of such hypothetical $1,000
investment for the periods shown and, except as indicated in lines 3 and
4, assume that the shares are redeemed at the end of each stated period.
1 year 3 years 5 years 10 years(1)
1. Class A Shares $49 $77 $108 $195
2. Class B Shares $63 $89 $129 $215
3. Class A Shares,
assuming no redemption $49 $77 $108 $195
4. Class B Shares,
assuming no redemption $23 $69 $119 $215
______________
(1)Class B shares convert to Class A shares under the terms and conditions
described under "How to Buy Shares - Class B Conversion Feature."
Therefore, years 7 through 10 reflect the Class A expenses shown above.
Long-term shareholders of Class B shares could pay the economic
equivalent, through the asset-based sales charge and contingent deferred
sales charge imposed on Class B shares, of more than the maximum front-end
sales charges permitted under applicable regulatory requirements. The
Class B Conversion Feature is intended to minimize the likelihood that
this will occur.
These examples should not be considered a representation of past or future
expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a Class A share and Class B share of the Fund
outstanding throughout each period
<TABLE>
<CAPTION>
CLASS A CLASS B
Period Ended
Year Ended September 30, September 30,
1993 1992+ 1993++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 4.93 $ 5.00 $ 4.75
Income (loss) from investment operations:
Net investment income .33 .05 .22
Net realized and unrealized gain (loss)
on investments and foreign currencies (.11) (.07) .08
Total income (loss) from investment operation .22 (.02) .30
Dividends and distributions to shareholders:
Dividends from net investment income (.31) (.05) (.21)
Distributions from net realized gain on
investments - - -
Total dividends and distributions to
shareholders (.31) (.05) (.21)
Net asset value, end of period $ 4.84 $ 4.93 $ 4.84
Total Return, at Net Asset Value*** 4.58% (.27)% 6.93%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $25,314 $12,670 $3,421
Average net assets (in thousands) $20,663 $ 8,643 $1,428
Number of shares outstanding at end of period
(in thousands) 5,231 2,572 707
Ratios to average net assets:
Net investment income 6.83% 6.38%* 5.88%*
Expenses, before voluntary reimbursement
by the Manager 1.38% 1.87%* 2.22%*
Expenses, net of voluntary reimbursement
by the Manager 1.21% .92%* 2.21%*
Portfolio turnover rate** 104.0% 11.2% 104.0%
<FN>
*Annualized.
**The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$25,371,804 and $17,716,396, respectively.
***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.
+For the period from August 4, 1992 (commencement of operations) to
September 30, 1992.
++For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
</TABLE>
The information in the table below has been audited by Deloitte &
Touche, independent auditors, whose report on the financial statements of
the Fund is included in the Additional Statement. The public sale of
Class B shares of the Fund commenced on or about November 30, 1992.
<PAGE>
The Fund and Its Investment Policies
The Fund is an open-end diversified management investment company
organized as a Massachusetts business trust on October 22, 1991. The
Fund's investment objective is to seek as high a level of current income,
consistent with stability of principal, as is available from a portfolio
of investment grade debt securities having a remaining maturity of not
more than three years. The Fund's investment policies and practices are
not "fundamental" policies (as defined below) unless a particular policy
is identified as fundamental. The Board may change non-fundamental
investment policies without shareholder approval.
The Fund intends to invest principally in: (i) domestic bonds, notes
and debentures of investment grade, that is, rated "Baa" or better by
Moody's Investors Service, Inc. ("Moody's") or "BBB" or better by Standard
& Poor's Corporation ("Standard & Poor's") or, if unrated, determined by
the Fund's investment adviser, Oppenheimer Management Corporation (the
"Manager"), to be comparable to securities meeting those rating
requirements; (ii) U.S. Government Securities; (iii) money market
instruments and (iv) investment grade foreign corporate and government
debt securities denominated in U.S. dollars or in selected foreign
currencies. "Foreign Securities" below describes the factors the Manager
will consider in selecting foreign securities. Under normal
circumstances, at least 65% of the Fund's total assets will be invested
in investment grade debt securities in the respective sectors described
above. The remaining assets may be invested in other securities,
including domestic and foreign equity securities (described below in
"Other Investments").
The Appendix to this Prospectus describes the rating categories for debt
securities listed above, and explains the degree to which bonds in the
lowest permitted rating categories have or may develop speculative
characteristics. Lower-rated securities, while generally offering higher
income and greater opportunities for gain than investments in higher-rated
securities, are considered speculative and involve greater volatility of
price and risk of principal and income default than higher-rated
securities. Securities rated "Baa" by Moody's or "BBB" by Standard &
Poor's may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
condition of the issuer, affecting its ability to make principal and
interest payments, than is the case with higher grade bonds. As of
September 30, 1993, the Fund's portfolio contained domestic and foreign
corporate bonds in the following rating categories of Standard & Poor's
(the percentages relate to the weighted average value of the bonds in each
rating category as a percentage of the Fund's total assets): A+, .96%, A,
2.59%; A-, .60%; BBB+, .75%; BBB, 1.81%; BBB-, 5.65%; BB+, 1.15%; BB,
1.75%; and B, 1.05%. The Manager will not rely solely on the ratings
assigned by rating services and may invest, without limitation, in unrated
securities that offer, in the opinion of the Manager, comparable yields
and risks as those rated securities in which the Fund may invest.
Although the Fund is not obligated to dispose of securities that fall
below the above-stated ratings subsequent to purchase, no more than 35%
of the value of the Fund's total assets will be invested in securities
rated below "Baa" by Moody's or "BBB" by Standard & Poor's as a result of
downgrades of the issues' ratings. If the ratings of securities held by
the Fund fall below those listed above, the Manager will determine what
action, if any, is appropriate.
Under normal circumstances, the Fund will maintain a dollar-weighted
average portfolio maturity of not more than three years. In calculating
maturity, the Fund will consider various factors, including anticipated
payments of principal. The Fund may hold securities with maturities of
more than three years if, under normal circumstances, it maintains a
dollar-weighted average maturity of not more than three years. See
"Investment Objective and Policies" in the Additional Statement for more
information on the Fund's calculation of portfolio maturity.
In the future, the Fund may invest in instruments that are not
presently contemplated but which may be developed, if such investments are
consistent with the Fund's investment objective and their use is
disclosed. The allocation of the Fund's assets among the respective
sectors will vary according to the Manager's assessment of various market
conditions. The Fund's distributable income will fluctuate as the Fund
shifts its assets among the four sectors. There can be no assurance that
the Fund will achieve its investment objective.
Investment Grade Bonds and Debentures
The Fund's investments in investment grade domestic fixed-income
securities may include those issued by domestic corporations in any
industry (for example, industrial, financial or utility) which may be
denominated in U.S. dollars or in non-U.S. currencies. There is no
requirement that the issuer be of a particular size, although it is
expected that, for the most part, the Fund will invest in securities of
issuers that have total assets in excess of $100 million. These
investments may include debt obligations such as bonds, debentures (i.e.,
unsecured bonds) and notes (including variable and floating rate
instruments), as well as sinking fund and callable bonds.
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, the values of U.S.
Government Securities (and of most fixed-income securities generally) will
vary inversely to changes in prevailing domestic interest rates. Yields
on U.S. Government securities are generally lower than the yields on
corporate debt securities.
Certain U.S. Government Securities, including U.S. Treasury notes and
bonds, and mortgage-backed securities guaranteed by 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
ability of the issuer to borrow from the U.S. Treasury (which is not under
a legal obligation to make such loans), such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs"), and obligations supported by the
credit of the instrumentality, such as Federal National Mortgage
Association bonds ("Fannie Maes"). Among other U.S. Government Securities
in which the Fund may invest are zero coupon U.S. Treasury securities,
mortgage-backed securities and money market instruments.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury. Zero coupon Treasury securities
are U.S. Treasury notes and bonds which have been stripped of their
unmatured interest coupons and receipts. Because a zero coupon security
pays no interest to its holder during its life or for a substantial period
of time, it usually trades at a deep discount from its face or par value,
does not pay current cash income and will be subject to greater
fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities that make current distributions
of interest.
- Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities that 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 that 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. The issuer's obligation to make interest
and principal payments is secured by the underlying portfolio of mortgages
or mortgage-backed securities. Mortgage-backed securities created by
private issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance,
and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers. There can be no assurance that
private issuers of such securities will be able to meet their obligations.
The Fund may invest in CMOs that are "stripped"; that is, the security is
divided into two parts, one of which receives some or all of the principal
payments and the other which receives some or all of the interest.
Stripped securities that receive interest only are subject to increased
volatility due to interest rate changes, and have the additional risk that
if the principal underlying the CMO is prepaid, which is more likely to
happen if interest rates fall, the Fund will lose the anticipated cash
flow from the interest on the mortgages that were prepaid. See "Mortgage-
backed Securities" in the Additional Statement for more details.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease, as do the values of other debt securities,
but when prevailing interest rates decline, the values of pass-through
securities may not be as likely to rise to the same degree as the values
of other debt securities because of the pre-payment feature of pass-
through securities.
The Fund may also enter into "forward roll" transactions under which
it sells mortgage-backed securities 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 "Borrowing" herein. The Fund is 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 a roll; that amount is subject to
the limitation on borrowing described in "Borrowing" below. The principal
risk of forward rolls is the risk of default by the counterparty.
Foreign Securities
The Fund may invest in equity or 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 their 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 debt
obligations such as bonds (including sinking fund and callable bonds),
debentures and notes (including variable and floating rate instruments).
The Manager will consider an issuer's relationship with a foreign
government as one of the factors in determining what foreign securities
to purchase. See "Other Investments," below, and "Investment Objective
and Policies" in the Additional Statement for further details about these
investments.
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 foreign country. No more than 25% of the Fund's total assets
will be invested in government securities of any one foreign country or
in securities issued by companies organized under the laws of any one
foreign country. The percentage of the Fund's assets that will be
allocated to 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 climates of such countries and the relationship of such
countries' currencies to the U.S. dollar. The Manager evaluates
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.
Other than as set forth above, the Fund has no other restrictions on
the amount of its assets that may be invested in foreign securities and
may purchase securities issued in any country, developed or
underdeveloped. Investments in securities of issuers in non-
industrialized countries generally involve more risk and may be considered
highly speculative. Securities of foreign issuers that are represented
by American Depositary Receipts, or that are listed on a U.S. securities
exchange, or are traded in the U.S. over-the-counter market are not
considered "foreign securities" because they are not subject to many of
the special considerations and risks (discussed below and in the
Additional Statement) that apply to foreign securities traded and held
abroad. If the Fund's securities are held abroad, the countries in which
such securities may be held and the sub-custodians holding them, in most
cases, must be approved by the Fund's Board of Trustees under applicable
SEC rules.
Investment in foreign securities involves considerations and risks
not associated with investment in securities of U.S. issuers. For
example, foreign issuers are not required to use generally-accepted
accounting principles ("GAAP"). If foreign securities are not registered
under the Securities Act of 1933, the issuer may not have to comply with
the disclosure requirements of the Securities Exchange Act of 1934. The
values of foreign securities investments will be affected by a variety of
factors, including, among others, incomplete or inaccurate information
available as to foreign issuers, changes in currency rates, exchange
control regulations or currency blockage, expropriation or nationalization
of assets, application of foreign tax laws (including withholding taxes),
changes in governmental administration or economic or monetary policy (in
the U.S. or abroad), or changed circumstances in dealings between nations.
In addition, it is generally more difficult to obtain court judgments
outside the United States. Foreign currency losses incurred by the Fund
after it has distributed income in a particular period may result in the
Fund having distributed more income than was available from investment
income, which could result in a return of capital to shareholders.
Additional costs may be incurred in connection with investments in foreign
securities because of generally higher foreign brokerage commissions and
the additional custodial costs associated with holding foreign securities.
Money Market Instruments
The Fund may invest in the following types of money market
instruments (which are debt obligations generally having a maturity of one
year or less):
- U.S. Government Securities. Obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
- Bank Obligations. Certificates of deposit, bankers' acceptances,
time deposits, and letters of credit if they are payable in the United
States or London, England, and are issued or guaranteed by a domestic or
foreign bank having total assets in excess of $1 billion and which the
Manager has determined to be creditworthy, considering, among other
factors, ratings assigned to such securities by one or more "nationally-
recognized statistical rating organizations" ("NRSROs"), as such term is
defined in Rule 2a-7 under the Investment Company Act of 1940 (the
"Investment Company Act"), if rated.
- Commercial Paper. Obligations rated at least in the second highest
rating category of a NRSRO, or, if not rated, issued by a corporation
having an existing debt security that meets such rating requirement or
that is determined by the Manager to be of comparable quality to
obligations so rated. The Fund's commercial paper investments may include
variable amount master demand notes and floating rate or variable rate
notes.
- Corporate Obligations. Corporate debt obligations (including
master demand notes and obligations other than commercial paper) if they
are issued by domestic corporations and are rated at least "A" by Standard
& Poor's or Moody's, or unrated securities that are of comparable quality
as determined by the Manager.
- Other Obligations. Money market instruments 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 "A" by a NRSRO.
- Board-Approved Instruments. Other short-term investments of a type
that the Fund's Board of Trustees, or the Manager under guidelines
established by the Board, determines present minimal credit risks and that
are of "high quality" as determined by any NRSRO or, in the case of an
instrument that is not rated, of comparable quality as determined by the
Board, or by the Manager under guidelines established by the Board.
Other Investments
The Fund may invest up to 35% of its assets that are not invested in
the four sectors described above in the following types of securities:
- Common and Preferred Stocks. The Fund may invest in common and
preferred stock issued by domestic or foreign corporations. Common stock
represents an equity interest in a corporation and may pay dividends.
Preferred stock, unlike common stock, generally offers a stated dividend
rate payable from the corporation's earnings. Preferred stock dividends
may be cumulative or non-cumulative, fixed, participating, auction rate
or other. If interest rates rise, a fixed dividend on preferred stocks
may be less attractive, causing the price of preferred stocks to decline
either absolutely or relative to alternative investments. Preferred stock
may have mandatory sinking fund provisions, as well as provisions for call
or redemption prior to maturity, generally a negative feature when
interest rates decline. The rights to payment of dividends on preferred
stocks are generally subordinate to rights associated with a corporation's
debt securities. No more than 25% of the Fund's assets, will be invested
in debt securities and in common and preferred stock of companies
organized under the laws of any one foreign country.
- Participation Interests. The Fund may acquire participation
interests in senior, fully-secured floating rate loans. The Fund
currently intends to invest no more than 5% of its net assets in
participation interests in the coming year. Such participation interests,
which may take the form of interests in, or assignments of, a loan, may
be acquired from banks or other lenders which have made loans or are
members of a lending syndicate. The Fund's investments in participation
interests are subject to the limitation that its investments in illiquid
securities not exceed 15% of its net assets (see "Illiquid and Restricted
Securities," below). Further details are set forth in the Additional
Statement under "Domestic Securities - Participation Interests."
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by corporations or private issuers. These zero coupon
securities are: (i) notes or debentures that 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. Investment in zero coupon securities helps the
Fund in seeking its objective of current income because the Fund accrues
interest income on such securities from the date of settlement. Such zero
coupon securities are subject to certain risks, in addition to the risks
identified above under "U.S. Government Securities - Zero Coupon
Securities," such as the risk of the issuer's failure to pay interest and
repay principal in accordance with the terms of the obligation.
- Asset-Backed Securities. The Fund may invest in securities that
represent fractional undivided interests in pools of consumer loans,
similar in structure to the mortgage-backed securities in which the Fund
may invest, described above. 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, 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 and a decrease in the value of the
asset-backed security. Further details are set forth in the Additional
Statement under "Domestic Securities -- Asset-Backed Securities."
Portfolio Characteristics
During periods of falling interest rates, the values of outstanding
fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Because the Fund will actively trade
its portfolio 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 that invest substantially all of
their assets on a long-term basis. The portfolio turnover rate cannot be
predicted, but it is anticipated that its annual turnover rate generally
will not exceed 200% (excluding turnover of securities having a maturity
of one year or less).
Higher portfolio turnover results in increased Fund expenses,
including brokerage commissions, dealer mark-ups and other transaction
costs on the sale of securities and on the reinvestment of sale proceeds
in other securities, and results in the acceleration of realization of
capital gains or losses for tax purposes. To the extent that increased
portfolio turnover results in sales of securities held less than three
months, the Fund's ability to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), may be affected. Although changes in the value of the Fund's
portfolio securities subsequent to their acquisition are reflected in the
net asset value of the Fund's shares, such changes will not affect the
income received by the Fund from such securities. The dividends paid by
the Fund will increase or decrease in relation to the income received by
the Fund from its investments, which will in any case be reduced by the
Fund's expenses before being distributed to the Fund's shareholders.
Special Investment Methods
In pursuing its investment objective, the Fund may use the following
special investment methods.
Special Risk Considerations--Borrowing
From time to time, the Fund may increase its ownership of securities
by borrowing from banks on an unsecured basis and investing the borrowed
funds (on which the Fund will pay interest), subject to the 300% asset
coverage requirement of the Investment Company Act. "Forward roll"
transactions, discussed under "Mortgage-Backed Securities and CMOs" are
also considered to be a form of borrowing by the Fund subject to that
asset coverage requirement. Purchasing securities with borrowed funds is
a speculative investment method known as "leverage." There are risks
associated with leveraging purchases of portfolio securities by borrowing,
including possible reduction of income and increased fluctuation of net
asset value per share. If the Fund uses leverage it will be subject to
relatively greater risks and costs than a fund that does not use leverage.
For further discussion of such risks and other details, see "Borrowing"
in "Investment Objective and Policies" in the Additional Statement.
Writing Covered Calls
The Fund may write (i.e., sell) call options ("calls") on debt
securities, preferred stock, common stock and other securities that are
traded on U.S. and foreign securities exchanges and over-the-counter
markets, to enhance income through the receipt of premiums from expired
calls and any net profits from closing purchase transactions. After any
such sale, up to 100% of the Fund's total assets may be subject to calls.
All calls written by the Fund must be "covered" while the call is
outstanding (i.e. the Fund must own the securities subject to the call or
other securities acceptable for applicable escrow requirements). The Fund
may also write calls on Futures (discussed below) which must be covered
by deliverable securities or by liquid assets (e.g., cash, U.S. Government
Securities or other high-grade debt securities) segregated to satisfy the
Futures contract.
Hedging
For hedging purposes, the Fund may use Interest Rate Futures;
Financial Futures (defined below, and, together with Interest Rate
Futures, "Futures"), and Forward Contracts; call and put options on debt
securities, Futures, bond indices and foreign currencies; and Interest
Rate Swap transactions (all of the foregoing are referred to as "Hedging
Instruments"). Hedging Instruments may be used to attempt to: (i) protect
against possible declines in the market value of the Fund's portfolio
resulting from downward market trends (generally due to a rise in interest
rates), (ii) protect unrealized gains or limit unrealized losses in the
value of the Fund's debt securities, (iii) facilitate selling debt
securities for investment reasons, (iv) establish a position in the debt
securities markets as a temporary substitute for purchasing particular
debt securities, or (v) reduce the risk of adverse currency fluctuations.
A call or put may be purchased only if, after such purchase, the value of
all call and put options held by the Fund would not exceed 5% of the
Fund's total assets. The Fund will not use Futures and options on Futures
for speculation. All puts and calls on securities, bond indices, Interest
Rate Futures or Financial Futures or options on such futures purchased or
sold by the Fund will be listed on a national or foreign securities or
commodities exchange, or in the national or foreign over-the-counter
markets. At present, the Fund does not intend to enter into Futures,
Forward Contracts and options on Futures if, after any such purchase, the
sum of margin deposits on Futures and premiums paid on Futures options
exceeds 5% of the value of the Fund's total assets. The Fund's potential
liability under Futures contracts and options will generally be
significantly in excess of such amount. The Hedging Instruments the Fund
may use are described below.
- Interest Rate Futures and Financial Futures. The Fund may buy and
sell Futures. An Interest Rate Future obligates the seller to deliver and
the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
A financial index assigns relative values to the securities included in
that index, such as U.S. Government Securities, foreign government
securities or corporate debt securities, and is used as a basis for
trading Financial Futures contracts. Financial Futures reflect the price
movements of securities included in the index. They differ from Interest
Rate Futures in that settlement is made in cash rather than by delivery
of the underlying investment.
- Purchasing Calls on Securities and Futures. The Fund may purchase
calls on debt securities or on Futures that are traded on U.S. or foreign
securities exchanges or over-the-counter markets in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of debt securities. The value
of debt securities underlying calls purchased by the Fund will not exceed
the value of the portion of the Fund's portfolio invested in cash or cash
equivalents (i.e. securities with maturities of less than one year).
- Puts on Securities and Futures. The Fund may purchase put options
("puts") which relate to debt securities (whether or not it holds such
securities in its portfolio) or Futures. It may also write puts on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. The Fund will not write puts if, as a result, more than
50% of the Fund's net assets would be required to be segregated liquid
assets.
- Foreign Currency Options. The Fund may purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or over-the-counter market or quoted by major recognized dealers
in such options, for the purpose of protecting against declines in the
dollar value of foreign securities and against increases in the dollar
cost of foreign securities to be acquired. If a rise is anticipated in
the dollar value of a foreign currency in which securities to be acquired
are denominated, the increased cost of such securities may be partially
offset by purchasing calls or writing puts on that foreign currency. If
a decline in the dollar value of a foreign currency is anticipated, the
decline in value of portfolio securities denominated in that currency may
be partially offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, the Fund would lose the premium it paid and
transactions costs.
- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. The Fund may enter into a
Forward Contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which
has not yet settled, or to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a
foreign currency. There is a risk that use of Forward Contracts may
reduce the gain that would otherwise result from a change in the
relationship between the U.S. dollar and a foreign currency. Forward
contracts include standardized foreign currency futures contracts which
are traded on exchanges and are subject to procedures and regulations
applicable to other Futures. The Fund may also enter into a forward
contract to sell a foreign currency denominated in a currency other than
that in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign
currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the currency of the
underlying investment. This technique is referred to as "cross hedging."
The success of cross hedging depends on many factors including the ability
of the Manager to correctly identify and monitor the correlation between
foreign currencies and the U.S. dollar. To the extent that the
correlation is not identical, the Fund may experience losses or gains on
both the underlying security and the cross currency hedge.
The Fund will not speculate in foreign currency exchange contracts.
There is no limitation as to the percentage of the Fund's assets that may
be committed to foreign currency exchange contracts. The Fund does not
enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Hedging Instruments" in the Additional Statement for a discussion of the
tax treatment of foreign currency exchange contracts.
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest
on a security (e.g., an exchange of floating rate payments for fixed rate
payments.) The Fund will not use interest rate swaps for leverage. Swap
transactions will be entered into only as to security positions held by
the Fund. The Fund may not enter into swap transactions with respect to
more than 50% of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal to the
net excess, if any, of its obligations over its entitlements under the
swap and will mark to market that amount daily. Interest rate swaps are
subject to interest rate risks, in that the Fund could be obligated to pay
more under its swap agreements than it receives, as a result of interest
rate changes. The credit risk of an interest rate swap depends on the
counterparty's ability to perform. The value of the swap may decline if
the counterparty's creditworthiness deteriorates. If the counterparty
defaults, the Fund risks the loss of the net amount of interest payments
that it is contractually entitled to receive. The Fund may be able to
reduce or eliminate its exposure to losses under swap agreements either
by assigning them to another party or by entering into an offsetting swap
agreement with the same counterparty or another creditworthy party. See
"Covered Calls and Hedging" in the Additional Statement for further
details.
- Risks of Options and Futures Trading. "Covered Calls and Hedging"
in the Additional Statement contains more information about the
characteristics, risks, tax effects, and possible benefits of options,
Futures, Forward Contracts, options on such Futures and foreign
currencies, segregation arrangements for Forward Contracts and the Fund's
other limitations (which are not fundamental policies) relating to
investment in Futures and options. There are certain risks in writing
calls. If a call written by the Fund is exercised, the Fund forgoes any
profit from any increase in the market price above the call price of the
underlying investment on which the call was written. In addition, the
Fund could experience capital losses which might cause previously-
distributed short-term capital gains to be re-characterized as non-taxable
returns of capital to shareholders. In writing puts, there is the risk
that the Fund may be required to buy the underlying security at a
disadvantageous price. The principal risks of Futures trading are: (a)
possible imperfect correlation between the prices of the Futures and the
market value of the debt securities in the Fund's portfolio; (b) possible
lack of a liquid secondary market for closing out a Futures position; (c)
the need for additional skills and techniques beyond those required for
normal portfolio management; and (d) losses on Futures resulting from
interest rate movements not anticipated by the Manager.
Repurchase Agreements
The Fund may acquire securities subject to repurchase agreements, to
generate income while providing liquidity to meet anticipated redemptions,
or pending the investment of proceeds from sales of Fund shares or
settlement of purchases of portfolio investments. The Fund's repurchase
agreements will be fully collateralized. However, if the seller of the
securities fails to pay the agreed-upon repurchase price on the delivery
date, the Fund's risks may include the costs of disposing of the
collateral for the agreement and losses that might result from any delays
in foreclosing on the collateral. The Fund will not enter into a
repurchase agreement that will cause more than 15% of the Fund's net
assets to be subject to repurchase agreements maturing in more than seven
days. There is no limit on the amount of the Fund's net assets that may
be subject to repurchase agreements maturing in seven days or less. See
"Repurchase Agreements" in "Investment Objective and Policies" in the
Additional Statement for more details.
Loans of Portfolio Securities
To attempt to increase its income, the Fund may lend its portfolio
securities to qualified borrowers (other than in repurchase transactions)
if the loan is collateralized in accordance with applicable regulatory
requirements, and if, after any loan, the value of securities loaned does
not exceed 25% of the value of the Fund's total assets. The Fund
presently does not intend that the value of securities loaned will exceed
5% of the value of the Fund's total assets in the coming year. See
"Investment Objective and Policies - Loans of Portfolio Securities" in the
Additional Statement for further information on securities loans.
Restricted and Illiquid Securities
The Fund will not purchase or otherwise acquire any security, if, as
a result, more than 15% of its net assets would be invested in securities
that are illiquid by virtue of the absence of a readily available market,
or because of legal or contractual restrictions on resale ("restricted
securities"). This limitation applies to participation interests, bank
time deposits, master demand notes, repurchase transactions having a
maturity beyond seven days, over-the-counter options held by the Fund and
that portion of Fund assets used to cover such options. This policy is not
a fundamental policy and does not limit the acquisition of restricted
securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the Securities Act of 1933 that are determined
to be liquid by the Board of Trustees, or by the Manager under Board-
approved guidelines. Such guidelines take into account trading activity
for such securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in particular
Rule 144A securities, the Fund's holdings of those securities may be
illiquid.
There may be undesirable delays in selling illiquid and restricted
securities at prices representing their fair value (see "Restricted and
Illiquid Securities" in "Investment Objective and Policies" in the
Additional Statement for further details). The Fund currently intends to
invest no more than 10% of its net assets in illiquid and restricted
securities, excluding securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the
Board of Trustees or by the Manager under Board-approved guidelines.
When-Issued and Delayed Delivery Transactions
The Fund may purchase securities on a "when-issued" basis, and may
purchase or sell such securities on a "delayed delivery" basis. "When-
issued" or "delayed delivery" refer to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. The Fund does not intend to make such
purchases for speculative purposes. During the period between the
purchase and settlement, no payment is made for the security and no
interest accrues to the buyer from the investment. The commitment to
purchase a security for which payment will be made on a future date may
be deemed a separate security and involve a risk of loss if the value of
the security declines prior to the settlement date. See "Investment
Objective and Policies - When-Issued and Delayed Delivery Transactions"
in the Additional Statement for further details.
Short Sales Against-the-Box
The Fund may not sell securities short except in transactions
referred to as "short sales against-the-box." Short sales against-the-box
may be made to defer, for Federal income tax purposes, recognition of gain
or loss on the sale of securities "in the box" until the short position
is closed out. No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by the vote
of a "majority" (as defined in the Investment Company Act) of the Fund's
outstanding voting securities. Under some of those restrictions, the Fund
cannot: (1) Purchase securities issued or guaranteed by any one issuer
(except the U.S. Government or its agencies or instrumentalities), if,
with respect to 75% of its total assets, more than 5% of the Fund's total
assets would be invested in securities of that issuer or the Fund would
then own more than 10% of that issuer's voting securities; (2) Concentrate
investments to the extent that 25% or more of the value of its total
assets is invested in securities of issuers in the same industry
(excluding the U.S. Government, its agencies and instrumentalities); for
purposes of this limitation, utilities will be divided according to their
services; for example, gas, gas transmission, electric and telephone each
will be considered a separate industry; (3) Make loans, except by
purchasing debt obligations in accordance with its investment objectives
and policies, or by entering into repurchase agreements, or as described
in "Loans of Portfolio Securities"; (4) Buy securities of an issuer which,
together with any predecessor, has been in operation for less than three
years, if as a result, the aggregate of such investments would exceed 5%
of the value of the Fund's total assets; or (5) Make short sales of
securities or maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or by virtue
of ownership of other securities has the right, without payment of any
further consideration, to obtain an equal amount of securities sold short
("short sales against-the-box").
The percentage restrictions described above and in the Additional
Statement (other than those described under "Borrowing") apply only at the
time of investment and require no action by the Fund as a result of
subsequent changes in value of the investment or the size of the Fund.
A supplementary list of investment restrictions is contained in the
Additional Statement, which also contains further information regarding
the Fund's investment policies.
Management of the Fund
The Fund's Board of Trustees has overall responsibility for the
management of the Fund under the laws of Massachusetts governing the
responsibilities of trustees of business trusts. Subject to the authority
of the Board of Trustees, the Manager is responsible for day-to-day
management of the Fund's business, supervises the investment operations
of the Fund and the composition of its portfolio and furnishes the Fund
advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an
investment advisory agreement with the Fund (the "Agreement").
The Agreement contains provisions relating to the selection of
brokers and dealers ("brokers") for the Fund's portfolio transactions.
Subject to the Agreement, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager and its
affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions. Under the Agreement, the Fund pays a monthly
management fee to the Manager at the following annual rates, which are
higher than the rates paid by most other investment companies: 0.65% of
the first $500 million of average annual net assets, 0.62% of the next
$500 million, 0.59% of the next $500 million, and 0.50% of average annual
net assets in excess of $1.5 billion. "Investment Management Services"
in the Additional Statement contains further information about the
Agreement, including a description of expense reimbursement arrangements,
exculpation provisions, and brokerage practices.
Arthur P. Steinmetz is a Senior Vice President and David Negri is a
Vice President of the Manager and each serves as a Portfolio Manager and
as Vice President of the Fund. Since the Fund's inception in November
1992, Messrs. Steinmetz and Negri have been the persons principally
responsible for the day-to-day management of the Fund's portfolio. During
the past five years, Messrs. Steinmetz and Negri have also served as
officers and portfolio managers for other OppenheimerFunds. For more
information about the Fund's other officers and Trustees, see "Trustees
and Officers" in the Additional Statement.
The Manager has operated as an investment adviser since April 30,
1959. The Manager and its affiliates currently advise U.S. investment
companies with assets aggregating over $25 billion as of December 31,
1993, and having more than 1.8 million shareholder accounts. The Manager
is owned by Oppenheimer Acquisition Corp., a holding company owned in part
by senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies.
How to Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (1) at the time of purchase or on a
contingent deferred basis on redemption of shares purchased in amounts
over $1 million (the "Class A shares"), or (2) on a contingent deferred
basis (the "Class B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within five years of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order for $1 million or more of Class B shares
of one or more of the "Eligible Funds" listed in "Right of Accumulation"
below on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because it generally will be more advantageous for
such investor to purchase Class A shares of such Eligible Fund(s) instead.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charges with respect to Class B shares
are the same as those of the initial sales charge with respect to Class
A shares. Any financial intermediaries or other person entitled to
receive compensation for selling or servicing Fund shares may receive
different compensation with respect to one class of shares than the other.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, as described in this
Prospectus, each class has different shareholder privileges and features.
The net income attributable to Class B shares and the dividends payable
on Class B shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker which has a sales agreement with the Distributor, a subsidiary
of the Manager. There are two ways to make an initial investment: either
(1) complete an OppenheimerFunds New Account Application and mail it with
payment to the Distributor at P.O. Box 5270, Denver, Colorado 80217 (if
no dealer or broker is named in the Application, the Distributor will be
listed as the dealer of record), or (2) order the shares through your
dealer or broker. Be certain to specify whether you intend to purchase
Class A shares or Class B shares. If no such instructions are provided,
initial investments will be made in Class A shares and subsequent
investments will be made in the same class as the most recent previous
investment.
The minimum initial investment is $1,000, except as otherwise
described in this Prospectus. Subsequent purchases must be at least $25,
and may be made (1) through authorized dealers or brokers, (2) by
forwarding payment to the Distributor at the above address with the names
of all account owners, the account number and the name of the Fund, (3)
automatically through Asset Builder Plans or (4) by telephone using
AccountLink or PhoneLink, described below. Under an Asset Builder Plan,
Automatic Exchange Plan, 403(b)(7) Custodial Plan or military allotment
plan, initial and subsequent investments must be at least $25. The
minimum initial and subsequent purchase requirements are waived on
purchases made by reinvesting dividends from any of the "Eligible Funds"
listed in "Right of Accumulation" below, or by reinvesting distributions
from unit investment trusts for which reinvestment arrangements have been
made with the Distributor. No share certificates will be issued for Class
B shares. No share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day The New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of the class outstanding. The Fund's Board of
Trustees has established procedures for valuing the Fund's securities.
In general, those valuations are based on market value, with special
provisions for: (i) securities (including restricted securities) not
having readily-available market quotations, (ii) short-term debt
securities and (iii) covered calls and Hedging Instruments. Further
details are in "Purchase, Redemption and Pricing of Shares" in the
Additional Statement. The net asset values per share of Class A and Class
B shares are expected to be substantially the same; however, from time to
time the net asset values of each class may differ, due to differences in
expenses borne by each class, as described under "Dual Class Methodology"
in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is determined
that day will receive such offering price if the order was received by the
dealer or broker from its customer prior to 4:00 P.M. and was transmitted
to and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Purchase orders received on other than a regular
business day will be executed on the next regular business day. The
Distributor, in its sole discretion, may accept or reject any order for
purchase of the Fund's shares. The sale of shares will be suspended
during any period when the determination of net asset value is suspended
and may be suspended by the Board of Trustees whenever it judges it in the
Fund's best interest to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject a front-end sales charge, the
offering price is net asset value. The offering price is determined as
of 4:00 P.M. each regular business day. Class A shares may not be
converted into Class B shares.
The following table shows the regular front-end sales charge rates
for Class A shares for a "single purchaser" (defined below), together with
the dealer discount paid to authorized dealers and the agency commissions
paid to authorized brokers (collectively, "commissions"):
<TABLE>
<CAPTION>
Front-End
Front-End Sales Charge Commission
Sales Charge as Approximate as Percentage
as Percentage Percentage of Offering
of Offering of Amount Price
Amount of Purchase Price Invested
- ------------------ ------------- -------------- -------------
<S> <C> <C> <C>
Less than $100,000 3.50% 3.63% 3.00%
$100,000 or more but
less than $250,000 3.00% 3.09% 2.50%
$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% 1.50%
$1 million or more None* None* None*
- ---------------------
<FN>
*See "Class A Contingent Deferred Sales Charge," below.
</TABLE>
Under certain circumstances, commissions up to the amount of the
entire sales charge may be paid to dealers or brokers, who then may be
deemed to be "underwriters" as defined in the Securities Act of 1933.
Commission rates may vary among the funds for which the Manager and its
affiliates act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans.
If a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (both terms are defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative, that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales
for a specific period of time, shares of certain or all of the "Eligible
Funds" held by the dealer and/or its customers or some combination
thereof.
Dealers whose sales of Class A shares of "Eligible Funds" other than
"Money Market Funds" (defined below) under OppenheimerFunds-sponsored
403(b)(7) custodial plans exceed a rate of $5 million per year, calculated
per calendar quarter, will receive monthly one-half of the Distributor's
retained commissions on such sales. Dealers whose sales of such plans
exceed a rate of $10 million per year, calculated per calendar quarter,
will receive the Distributor's entire retained commission on such sales.
- Class A Contingent Deferred Sales Charge. On certain purchases of
Class A shares of any one or more "Eligible Funds" by a "single purchaser"
(defined below in "Right of Accumulation") aggregating $1 million or more,
the Distributor will pay authorized dealers a commission equal to 1.0% of
the first $2.5 million of such purchases, plus 0.50% of the next $2.5
million, plus 0.25% of purchases in excess of $5 million. However, that
commission will be paid only on the amount of those share purchases in
excess of $1 million that were not previously subject to a front-end sales
charge and dealer commission (the shares with respect to which this
commission is paid are called "Class A CDSC Shares"). A contingent
deferred sales charge (the "Class A CDSC") will be deducted from the
redemption proceeds of Class A CDSC Shares redeemed within 18 months of
the end of the calendar month of their purchase. The Class A CDSC shall
be an amount equal to 1.0% of the lesser of either (1) the aggregate net
asset value of the Class A CDSC Shares (not including shares purchased by
reinvestment of dividends or capital gains) or (2) the original cost of
such shares. However, the total Class A CDSC paid on the redemption of
those shares shall not exceed the aggregate commissions paid to dealers
on all Class A Shares of "Eligible Funds" purchased by that "single
purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below and will be waived in the case
of redemptions of shares made for: (i) retirement distributions (or loans)
to participants or beneficiaries from retirement plans qualified under
Section 401(a) of the Internal Revenue Code or from Individual Retirement
Accounts ("IRAs"), 403(b)(7) plans, deferred compensation plans created
under Section 457 of the Code or other employee benefit plans
(collectively, "Retirement Plans"); (ii) returns of excess contributions
to such Retirement Plans; (iii) Automatic Withdrawal Plan payments limited
to no more than 12% of the original account value annually; and (iv)
involuntary redemptions of shares by operation of law or under procedures
set forth in the Fund's Declaration of Trust or as adopted by the Board
of Trustees (collectively, "Involuntary Redemptions"). See "Transfer of
Shares" in "Purchase, Redemption and Pricing of Shares" in the Additional
Statement for further details.
Some or all of the proceeds of redeemed shares on which a Class A
CDSC was paid on redemption and which are subsequently reinvested under
the "Reinvestment Privilege" (described below) may be reinvested within
6 months of redemption without sales charge at net asset value on the
reinvestment date if the investor notifies the Distributor that the
privilege applies. Additionally, no Class A CDSC is charged on exchanges,
pursuant to the Fund's Exchange Privilege (described below), of shares
purchased subject to a CDSC, except that if the Class A shares acquired
by exchange are redeemed within 18 months of the end of the calendar month
of the initial purchase of the exchanged shares, the Class A CDSC will
apply. In determining whether a CDSC is payable, and the amount of any
such charge, shares not subject to a CDSC are redeemed first, including
shares purchased by reinvestment of dividends and capital gains
distributions, and then other shares are redeemed in the order of
purchase.
- Reduced Sales Charges for Class A Purchases. The Class A sales
charge rates in the table above may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate
applicable to current purchases of Class A shares, a "single purchaser"
(defined below) is entitled to cumulate current purchases with the greater
of: (1) amounts previously paid for, or (2) the current value (at offering
price) of Class A shares of the Fund and certain other "Eligible Funds"
if sold subject to an initial sales charge and if the investment is still
held in one of the Eligible Funds. The Eligible Funds are those for which
the Distributor or an affiliate acts as the distributor and include the
following: (i) the Fund, Oppenheimer Strategic Income Fund, Oppenheimer
Strategic Income & Growth Fund, Oppenheimer Strategic Investment Grade
Bond Fund, Oppenheimer Time Fund, Oppenheimer Target Fund, Oppenheimer
Tax-Free Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer
California Tax-Exempt Fund, Oppenheimer Pennsylvania Tax-Exempt Fund,
Oppenheimer Florida Tax-Exempt Fund, Oppenheimer Intermediate Tax-Exempt
Bond Fund, Oppenheimer Insured Tax-Exempt Bond Fund, Oppenheimer High
Yield Fund, Oppenheimer Champion High Yield Fund, Oppenheimer Total Return
Fund, Inc., Oppenheimer Asset Allocation Fund, Oppenheimer Mortgage Income
Fund, Oppenheimer Discovery Fund, Oppenheimer U.S. Government Trust,
Oppenheimer Government Securities Fund, Oppenheimer Global Bio-Tech Fund,
Oppenheimer Global Environment Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer Global Fund, Oppenheimer Fund, Oppenheimer Special Fund,
Oppenheimer Equity Income Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Investment Grade Bond Fund, Oppenheimer Value Stock Fund,
Oppenheimer Main Street Income & Growth Fund and Oppenheimer Main Street
California Tax-Exempt Fund; and (ii) the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust, Centennial California Tax Exempt Trust, Centennial
America Fund, L.P., Daily Cash Accumulation Fund, Inc., Oppenheimer Cash
Reserves and Oppenheimer Tax-Exempt Cash Reserves. There is an initial
sales charge on the purchase of Class A shares of each Eligible Fund
except Money Market Funds (under certain circumstances described herein,
redemption proceeds of Money Market Fund shares may be subject to a
CDSC). The reduced sales charge applies only to current purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code, including related plans of the same employer. To
be entitled to a reduced sales charge under the Right of Accumulation, at
the time of purchase the purchaser must ask the Distributor for such
entitlement and provide the account number(s) for shares of Eligible Funds
owned by the "single purchaser," and the age of any minor children for
whom shares are held.
Letter of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent to the Distributor, a "single purchaser" may
purchase Class A shares of the Fund and other Eligible Funds (other than
the Money Market Funds) during a 13-month period at the reduced sales
charge rates, or at net asset value but subject to the Class A CDSC, if
applicable, applying to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90
days before the date of the Letter. The Fund and the Distributor reserve
the right to amend or terminate such program at any time without prior
notice. For further details, including escrow requirements, see "Letters
of Intent" in the Additional Statement.
Other Circumstances. No sales charge is imposed on Class A shares
of the Fund: (i) sold to the Manager or its affiliates, or to present and
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates, and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions which have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's spouse or minor children); (v) purchased by the
reinvestment of (a) loan repayments by a participant in a retirement plan
for which the Manager or its affiliates act as Sponsor, or (b) dividends
or other distributions reinvested from the Fund or other "Eligible Funds"
(other than Cash Reserves Funds) or from unit investment trusts for which
reinvestment arrangements have been made with the Distributor; or (vi)
sold to 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 the clients of the dealer, broker or investment adviser.
"Reduced Sales Charges" in the Additional Statement discusses this policy.
- Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") pursuant to Rule 12b-1 of the Investment Company Act under
which the Fund will reimburse the Distributor quarterly for a portion of
its costs incurred in connection with the personal service and maintenance
of accounts that hold Class A shares. The Distributor will use such fee
received from the Fund in its entirety: (i) to compensate brokers,
dealers, banks and other institutions (collectively, "Recipients") each
quarter for providing personal service and maintenance of accounts that
hold Class A shares; and (ii) to reimburse itself (to the extent
authorized by the Board of Trustees) for its other expenditures under the
Plan and its direct costs for personal service and maintenance of
accounts. The Board of Trustees has not presently authorized any
reimbursement to the Distributor under (ii) above. The services to be
provided under the Class A Plan include, but shall not be limited to, the
following: answering routine inquiries from the Recipient's customers
concerning the Fund, providing such customers with information on their
investment in Class A shares, assisting in the establishment and
maintenance of accounts or sub-accounts in the Fund, making the Fund's
investment plans and dividend payment options available, and providing
such other information and customer liaison services and the maintenance
of accounts as the Distributor or the Fund may reasonably request.
Payments by the Distributor to Recipients will be made quarterly and
computed as of the close of business each day at a rate not to exceed
.0625% (0.25% annually) of the net assets of Class A shares held in
accounts of the Recipient or its customers.
The Class A Plan has the effect of increasing annual expenses of
Class A shares of the Fund by up to 0.25% of the class's average annual
net assets from what its expenses would otherwise be. In addition, the
Manager and the Distributor may, under the Class A Plan, from time to time
from their own resources (which, as to the Manager, may include profits
derived from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution Plans" in the Additional Statement.
Class B Shares
Class B shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
- Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B shares redeemed within five years of the end of the
calendar month of their purchase (not including shares purchased by
reinvestment of dividends or capital gains). The charge will be assessed
on an amount equal to the lesser of the then current net asset value or
the original purchase price of the Class B shares being redeemed.
Accordingly, no Class B CDSC will be imposed on amounts representing
increases in net asset value above the initial purchase price. In
determining whether a Class B CDSC applies to a redemption, Class B shares
are redeemed in the following order: (1) those acquired pursuant to
reinvestment of dividends or distributions, (2) those held for over five
years, and (3) those held longest during the five-year period.
Proceeds from the Class B CDSC are paid to the Distributor and are
used by it to reimburse its expenses related to providing distribution-
related services to the Fund in connection with the sale of Class B
shares. The combination of the Class B CDSC and the distribution fee
retained by the Distributor (as described under "Class B Distribution
Plan") facilitate the sale of Class B shares without a sales charge being
deducted at the time of purchase. Any Class B CDSC required to be imposed
on Class B share redemptions will be assessed according to the following
schedule:
Year(s) Since End of Month Contingent Deferred Sales Charge on
In Which Purchase Order Was Redemptions In That Year (as % of Gross
Accepted Redemption Proceeds)
- --------------------------- ---------------------------------------
0-1 4.0%
1-2 3.0%
2-3 2.0%
3-4 2.0%
4-5 1.0%
5 or more None
In the table above, a "year" is a period of twelve calendar months.
In determining the amount of the Class B CDSC that applies and when Class
B shares convert as described in the following paragraph, all purchases
shall be considered as having been made on the first regular business day
of the month in which the purchase was made. The Class B CDSC will be
waived upon the request of the shareholder for redemptions for: (1)
distributions to participants or beneficiaries from Retirement Plans,
which distributions are made either (a) under an Automatic Withdrawal Plan
(described under "How to Redeem Shares") after the participant attains age
59-1/2, and which are limited to no more than 10% of the account value
annually (determined in the first year, as of the date the redemption
request is received by the Transfer Agent, and in subsequent years, as of
the most recent anniversary of that date) or (b) following the
participant's or beneficiary's (i) "disability" (as defined in the
Internal Revenue Code) that occurs since the account was established or
(ii) death; (2) redemptions other than from Retirement Plans following the
(i) death or (ii) complete disability (as evidenced by a certificate from
the U.S. Social Security Administration), of all persons individually
owning such shares of record and not as fiduciaries or agents, that occurs
since the account was established, and (3) returns of excess contributions
to such Retirement Plans. In addition, no Class B CDSC is imposed on
shares of the Fund (i) sold to the Manager or its affiliates; (ii) sold
to registered investment companies or separate accounts of insurance
companies having an agreement with the Manager or the Distributor; (iii)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers to which the Fund is a party; or (iv) redeemed in
Involuntary Redemptions. See "Transfer of Shares" in "Purchase,
Redemption and Pricing of Shares" in the Additional Statement for further
information.
- Class B Conversion Feature. At the end of the month sixty months
after an investor's purchase order for Class B shares is accepted, such
"Matured Class B Shares" automatically will convert to Class A shares, on
the basis of the relative net asset value of the two classes, without the
imposition of any sales load or other charge. Each time any Matured Class
B shares convert to Class A shares, any Class B shares acquired by the
reinvestment of dividends or distributions on such Matured Class B shares
that are still held will also convert to Class A Shares, on the same
basis. The conversion feature is intended to relieve holders of Matured
Class B shares of the asset-based sales charge under the Class B
Distribution Plan after such shares have been outstanding long enough that
the Distributor may have been compensated for distribution expenses
related to such shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the
effect that the conversion of Matured Class B shares does not constitute
a taxable event for the holder under the Internal Revenue Code. If such
a private letter ruling or opinion is no longer available, the automatic
conversion feature may be suspended, in which event no further conversions
of Matured Class B shares would occur while such suspension remained in
effect. Although Matured Class B shares could then be exchanged for Class
A shares on the basis of relative net asset value of the two classes,
without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for
longer than six years.
- Class B Distribution and Service Plan. The Fund has adopted a
Distribution and Service Plan (the "Class B Plan") under Rule 12b-1 of the
Investment Company Act, pursuant to which it will compensate the
Distributor for its services and costs incurred in connection with the
distribution and service of the Fund's Class B shares. Pursuant to the
Class B Plan, the Fund will pay the Distributor an asset-based sales
charge of 0.75% per annum on Class B shares outstanding for 5 years or
less, plus a service fee of 0.25% per annum, each of which is computed on
the average net assets of Class B shares of the Fund as of the close of
business each day. Asset-based sales charges and service fees will be
paid by the Fund to the Distributor monthly and quarterly, respectively.
The Distributor will use the service fee payment to compensate
Recipients for providing personal service and the maintenance of
shareholder accounts that hold Class B shares, examples of which are
described under "Class A Service Plan." 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 such shares, in
an amount equal to 0.25% of the net asset value of the Class B 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 net asset value of Class B shares held in
accounts of the Recipient or its customers. Other terms and options under
the Class B Plan for payment of the service fee by the Distributor to
Recipients, and other terms and conditions of the Class B Plan are
described under "Distribution Plans" in the Additional Statement.
The Distributor currently expects to pay sales commissions from its
own resources to authorized dealers or brokers at the time of sale equal
to 2.75% of the purchase price of Fund shares sold by such dealer or
broker, and to advance the first year service fee of 0.25%. The asset-
based sales charge payments by the Fund to the Distributor under the Class
B Plan are intended to allow it to recoup such sales commissions plus
financing costs. The Distributor anticipates that it will take a number
of years to recoup the sales commissions paid to authorized brokers or
dealers from the Fund's payments to the Distributor under the Class B
Plan.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. Actual
distribution expenses for any given year may exceed the aggregate of
payments received pursuant to the Class B Plan and contingent deferred
sales charges, and such expenses will be carried forward and paid in
future years. The Fund will be charged only for interest expenses,
carrying charges or other financial costs that are directly related to the
carry-forward of actual distribution expenses. 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. If the Class B Plan were
terminated or not continued, the Fund would be contractually obligated to
pay the Distributor for any expenses incurred for shares sold prior to
termination that were not previously reimbursed by the Fund or recovered
through contingent deferred sales charges. At September 30, 1993, the
Distributor had incurred unreimbursed expenses under the Class B Plan of
$147,337 (equal to 4.31% of the Fund's net assets attributable to Class
B shares of the Fund on that date) which have been carried over into the
present Class B Plan year.
The Class B Plan contains a provision which contractually obligates
the Fund to continue payments to the Distributor for certain expenses it
incurred for Class B shares sold prior to termination of the Class B Plan.
If the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses (incurred prior to termination) from such
payments and from the Class B CDSC. The accounting treatment of the
Fund's obligations under the Class B plan for future payments is discussed
in "Distribution Plans" in the Additional Statement. The accounting
standards now used are currently under review by the American Institute
of Certified Public Accountants and it is possible that those standards
will change and that the Fund's plan would be changed as a result.
The Class B Plan has the effect of increasing annual expenses of
Class B shares of the Fund by up to 1.00% of the class's average annual
net assets from what its expenses would otherwise be. In addition, the
Manager and the Distributor may, under the Plan, from time to time from
their own resources (which, as to the Manager, may include profits derived
from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution Plans" in the Additional Statement.
Purchase Programs for Class A and Class B Shares
The special purchase programs described below may be used to purchase
either Class A or Class B shares.
- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below). To speak to service
operators to initiate such purchases, call the Distributor at 1-800-852-
8457. All such calls will be recorded. To initiate such purchases
automatically using PhoneLink, call 1-800-533-3310. Shares will be
purchased on the regular business day the Distributor is instructed to
initiate the ACH transfer to buy the shares. Dividends will begin to
accrue on such shares on the day the Fund receives Federal Funds for such
purchase through the ACH system before 4:00 P.M., which is normally three
days after the ACH transfer is initiated. If such Federal Funds are
received after that time, dividends will begin to accrue on the next
regular business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends and Distributions"). AccountLink privileges must be requested
on the application used to buy shares or the dealer settlement
instructions establishing the account, or on subsequent signature-
guaranteed instructions to the Transfer Agent, from all shareholders of
record for an account, and such privileges thereupon apply to each
shareholder of record and the dealer representative of record unless and
until the Transfer Agent receives written instructions from a shareholder
of record canceling such privileges. Changes of bank account information
must be made by signature-guaranteed instructions to the Transfer Agent
by all shareholders of record for an account. If an account has multiple
owners, the Transfer Agent and the Distributor may rely on instructions
from any registered owner. The Transfer Agent, the Fund and the
Distributor have adopted reasonable procedures to confirm that telephone
instructions under AccountLink (described above) and "PhoneLink,"
"Telephone Redemptions" and the "Exchange Privilege" described below) are
genuine, by requiring callers to provide tax identification number(s) and
other account data and by recording calls and confirming such transactions
in writing. If the Transfer Agent and the Distributor do not use such
procedures, they may be liable for losses due to unauthorized
transactions, but otherwise they will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
The Fund reserves the right to amend, suspend or discontinue AccountLink
privileges at any time without prior notice.
-PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege" below), redemptions (see "How
to Redeem Shares-Telephone Redemptions," below) and purchases (see
"AccountLink" above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Indentification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
- Asset Builder Plans. Investors may purchase shares of the Fund
(and up to four other Eligible Funds) automatically under Asset Builder
Plans. With AccountLink, Asset Builder Plans may be used to make regular
monthly investments ($25 minimum) from the investor's account at a bank
or other financial institution. See "AccountLink" above for details.
Asset Builder Plans also enable shareholders of Oppenheimer Tax-Exempt
Cash Reserves or Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds,
and an application should be obtained from the Transfer Agent and
completed and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating payments. The amount
of the Asset Builder investment may be changed or the automatic
investments terminated at any time by writing to the Transfer Agent. A
reasonable period (approximately 15 days) is required after receipt of
such instructions to implement them. The Fund reserves the right to
amend, suspend, or discontinue offering such plans at any time without
prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not
represented by certificates) under the Fund's regular redemption
procedures, a shareholder must send the following to the Fund's transfer
agent, Oppenheimer Shareholder Services ("the Transfer Agent"), P.O. Box
5270, Denver, Colorado 80217 [send courier or express mail deliveries to
10200 East Girard Avenue, Building D, Denver, Colorado 80231]: (1) a
written request for redemption signed by all registered owners exactly as
the shares are registered, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of shares
to be redeemed; (2) a guarantee of the signatures of all registered owners
on the redemption request or on the endorsement on the share certificate
or accompanying stock power, by a U.S. bank, trust company, credit union
or savings association, or a foreign bank having a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, registered securities association or clearing agency; (3) any
share certificates issued for any of the shares to be redeemed; and (4)
any additional documents which may be required by the Transfer Agent for
redemption by corporations, partnerships or other organizations,
executors, administrators, trustees, custodians, guardians, or from an
OppenheimerFunds-sponsored Retirement Plan, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waiver of the Class B CDSC on the grounds of
age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Shareholders owning shares of both classes must specify whether they
intend to redeem Class A or Class B shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedure described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly-purchased (within the prior 15 days) shares, for
OppenheimerFunds-sponsored Retirement Plans, or for shares represented by
certificates.
Telephone redemption privileges apply automatically to each
shareholder and the dealer representative of record unless the Transfer
Agent receives cancellation instructions from a shareholder of record.
If an account has multiple owners, the Transfer Agent may rely on the
instructions of any one owner. Telephone redemption privileges may be
amended, suspended or discontinued by the Fund at any time without prior
notice.
- Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in
every seven-day period. The check must be payable to the shareholder(s)
of record and sent to the address of record for the account. This
privilege is not available within 30 days of a change of the address of
record.
- Redemptions Paid Through AccountLink. If AccountLink privileges
have been established for an account, any amount may be redeemed by
telephone, wire or written instructions to the Transfer Agent, and the ACH
transfer for the redemption proceeds to the designated bank account
normally will be initiated by the Transfer Agent on the next bank business
day after the redemption. There are no dollar or frequency limitations
on telephone redemptions sent to a designated bank account through
AccountLink. No dividends are paid on the proceeds of redeemed shares
awaiting transmittal by ACH transfer. See "AccountLink" under "How To Buy
Shares" for instructions on establishing this privilege.
Check Writing
Upon request, the Transfer Agent will provide a shareholder whose
Class A shares are not represented by certificates with forms of drafts
("checks") payable through a bank selected by the Fund (the "Bank").
Checkwriting privileges are not available for accounts holding either
Class B shares, or Class A shares subject to a CDSC. Checks may be
written by a shareholder in any amount not less than $100, and will be
subject to the Bank's rules and regulations governing checks. If a check
is presented for an amount greater than the account value, it will not be
paid. The Transfer Agent will arrange for checkwriting after obtaining
a specimen signature card from the shareholder(s). A check should not be
written in an amount close to the total value of the account because the
net asset value of Class A shares fluctuates from day to day. The Fund
will charge a handling fee of $10 for any check that is not paid because
of an insufficient share balance or at the request of a shareholder or
because the check was written for less than $100. Shareholders of a joint
account may elect to have checks honored with a single signature. Shares
purchased by check or Asset Builder payments within the prior 15 days may
not be redeemed by check writing, and a check that would require the
redemption of some or all of the shares so purchased is subject to non-
payment. The Bank will present checks to the Fund to redeem shares 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 office of the Bank
or the Fund's Custodian. That limitation does not affect the use of
checks for the payment of bills or cashing at other banks. Checks issued
for one account in the Fund must not be used if the shareholder's account
has been transferred to a new account or if the account number or
registration has changed. The Fund reserves the right to amend, suspend
or discontinue check-writing privileges at any time without prior notice.
Distributions From Retirement Plans
Requests for distributions from OppenheimerFunds-sponsored IRAs,
403(b)(7) custodial plans, or pension or profit-sharing plans for which
the Manager or its affiliates act as sponsors should be addressed to
"Trustee, OppenheimerFunds Retirement Plans, c/o Oppenheimer Shareholder
Services" at the above address, and must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's redemption requirements above. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from such plans are subject to additional requirements under
the Internal Revenue Code and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available
from the Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any penalties assessed.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly or quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholder for receipt of the payment. Automatic
withdrawals of up to $1,500 per month may be requested by telephone if
payments are by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored Retirement Plans may not be arranged on this
basis. Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account
designated on the OppenheimerFunds New Account Application or signature-
guaranteed instructions. The Fund cannot guarantee receipt of the payment
on the date requested and reserves the right to amend, suspend or
discontinue offering such plans at any time without prior notice. Because
of the sales charge assessed on share purchases, Class A shareholders
should not make regular additional purchases while participating in an
Automatic Withdrawal Plan. Class B shareholders normally should not
establish withdrawal plans because of the imposition of the Class B CDSC
on such withdrawals (except where the Class B CDSC is waived as described
in "Class B Contingent Deferred Sales Charge"). For further details,
refer to "Automatic Withdrawal Plan Provisions" in the Additional
Statement.
Shareholders can also authorize the Transfer Agent to exchange a pre-
determined amount of shares of the Fund for shares of up to five other
Eligible Funds (minimum of $25 per fund account) automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are otherwise
subject to the conditions and terms applicable to exchanges described in
"Exchange Privilege," below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M. and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) guaranteed as
described above.
Reinvestment Privilege
Within six months of a redemption of Class A shares or of Class B
shares on which a Class B CDSC was paid, the investor may reinvest all or
part of the redemption proceeds in Class A shares of the Fund or any of
the Eligible Funds into which shares of the Fund are exchangeable as
described below. The reinvestment price will be the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order,
and will not be subject to sales charge. The shareholder must ask the
Distributor for such entitlement at the time of reinvestment. A realized
gain on the redemption is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a loss on the
redemption, some or all of the loss may not be tax deductible, depending
on the timing and amount of the reinvestment in the Fund. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which
a sales charge was paid are reinvested in shares of the Fund or another
Eligible Fund within 90 days of payment of the sales charge, the
shareholder's basis in the Fund shares redeemed may not include the amount
of the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed
after the date of such amendment, suspension or cessation.
General Information on Redemptions
The redemption price will be the net asset value per share of the
class next determined after the Transfer Agent receives redemption
instructions in proper form. The market value of the securities in the
Fund's portfolio is subject to daily fluctuations and the net asset value
of each class of the Fund's shares will fluctuate accordingly. Therefore,
the redemption value may be more or less than the investor's cost. Under
certain unusual circumstances, shares may be redeemed in kind (i.e., by
payment in portfolio securities). The Fund may involuntarily redeem small
accounts (if the value of the account has fallen below $200 for reasons
other than market value fluctuations) and may redeem shares in amounts
sufficient to compensate the Distributor for any loss due to cancellation
of a share purchase order; for details, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement. Under the Internal
Revenue Code, the Fund may be required to impose "backup" withholding of
Federal income tax at the rate of 31% from dividends, distributions and
redemption proceeds (including exchanges), if the shareholder has not
furnished the Fund a certified tax identification number or has not
complied with provisions of the Code relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the date
of purchase. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank on which the purchase payment was drawn. The Fund makes no charge for
redemption. Dealers or brokers may charge a fee for handling redemption
transactions, but such charge can be avoided by requesting the redemption
directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class B CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges of Shares and Retirement Plans
Exchange Privilege
Shares of the Fund and of the other Eligible Funds listed under
"Right of Accumulation" may be exchanged at net asset value per share at
the time of exchange, without sales charge, if all of the following
conditions are met: (1) shares of the fund selected for exchange are
available in the investor's state of residence; (2) the respective
prospectuses of the funds whose shares are to be exchanged and acquired
offer the Exchange Privilege to the investor; (3) newly-purchased (by
initial or subsequent investment) shares are held in an account for at
least 7 days and all other shares at least 1 day prior to the exchange;
and (4) the aggregate net asset value of shares surrendered for exchange
is at least equal to the minimum investment requirements of the fund whose
shares are to be acquired.
In addition to the conditions stated above, shares of a particular
class of an Eligible Fund may be exchanged only for shares of the same
class of another Eligible Fund. If a Fund has only one class of shares
that is not otherwise denominated, its shares shall be considered "Class
A" shares for this purpose. Certain of the Eligible Funds offer Class A,
Class B and/or Class C shares, and a list can be obtained by calling the
Distributor at 1-800-525-7048, or by referring to "Purchase, Redemption
and Pricing of Shares" in the Additional Statement. In addition, Class
A shares of Eligible Funds may be exchanged for shares of any Money Market
Fund; shares of any Money Market Fund purchased without a sales charge may
be exchanged for shares of Eligible Funds offered with a sales charge upon
payment of the sales charge or, if applicable, may be used to purchase
shares of Eligible Funds subject to a contingent deferred sales charge;
and shares of this Fund acquired by reinvestment of dividends or
distributions from any other Eligible Fund or from any unit investment
trust for which reinvestment arrangements have been made with the
Distributor may be exchanged at net asset value for shares of any Eligible
Fund. No CDSC is imposed on exchanges of shares of either class purchased
subject to a CDSC. However, when Class A shares acquired by exchange of
Class A shares purchased subject to a Class A CDSC are redeemed within 18
months of the end of the calendar month of the initial purchase of the
exchanged Class A shares, the Class A CDSC is imposed on the redeemed
shares (see "Class A Contingent Deferred Sales Charge," above), and the
Class B CDSC is imposed on Class B shares redeemed within five years of
the end of the calendar month of the initial purchase of the exchanged
Class B shares (see "Class B Contingent Deferred Sales Charge," above).
- How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time and will do
so on 60 days' notice if such notice is required by regulations adopted
under the Investment Company Act. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk on behalf of 10
or more accounts. Telephone and written exchange requests must be
received by the Transfer Agent by 4:00 P.M. on a regular business day to
be effected that day. The number of shares exchanged may be less than the
number requested if the number requested would include shares subject to
a restriction cited above or shares covered by a certificate that is not
tendered with such request. Only the shares available for exchange
without restriction will be exchanged.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" for the imposition of the
Class B CDSC for redeeming such shares will be followed in determining the
order in which shares are exchanged. Shareholders should take into
account the effect of any exchange on the applicability and rate of any
CDSC that may be imposed in the subsequent redemption of remaining shares.
Shareholders owning shares of both classes must specify whether they
intend to exchange Class A or Class B shares.
- Telephone Exchanges. Telephone exchange requests may either be
placed through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink by calling 1-800-533-3310.
If all telephone exchange lines are busy (which might occur, for example,
during periods of substantial market fluctuations), shareholders might not
be able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans, Automatic Withdrawal or Exchange
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is otherwise instructed. Telephone
exchange privileges automatically apply to each shareholder of record and
the dealer representative of record unless and until the Transfer Agent
receives written instructions from a shareholder of record canceling such
privileges. If an account has multiple owners, the Transfer Agent may
rely on the instructions of any one owner. The Transfer Agent reserves
the right to require shareholders to confirm in writing their election
of telephone exchange privileges for an account. Shares acquired by
telephone exchange must be registered exactly as the account from which
the exchange was made. Certificated shares are not eligible for telephone
exchange.
- General Information on Exchanges. Shares to be exchanged are
redeemed on the regular business day the Transfer Agent receives an
exchange request in proper form (the "Redemption Date"). Normally, shares
of the fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. The Fund in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or price disadvantageous to the Fund.
No sales commissions are paid by the Distributor on exchanges of shares
(unless a front-end sales charge is assessed on the exchange).
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes an exchange is treated as a redemption and purchase of shares
(see "How to Redeem Shares - Reinvestment Privilege" for a discussion of
certain tax effects of exchanges).
Retirement Plans
The Distributor has available forms of: (i) pension and profit-
sharing plans for corporations and self-employed individuals, (ii) IRAs,
including Simplified Employee Pension Plans ("SEP IRAs" and "SAR-SEPs"),
and (iii) 403(b)(7) custodial plans for employees of qualified employers.
Loans are permitted only from Oppenheimer 403(b)(7) plan accounts holding
Class A shares. The minimum initial investment for pension and profit-
sharing plans is $250, and for IRAs also unless made under an Asset
Builder Plan. For further details, including the administrative fees, the
appropriate retirement plan should be requested from the Distributor. The
Fund reserves the right to discontinue offering its shares to such plans
at any time without prior notice.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws. The Fund's
dividends and distributions may also be subject to state and local
taxation. See "Tax Aspects of Covered Calls and Hedging" and "Tax Status
of the Fund's Dividends and Distributions" in the Additional Statement for
more information on tax aspects of the Fund's investments in Hedging
Instruments and other tax matters. This discussion is not exhaustive, and
a qualified tax adviser should be consulted.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A shares
and Class B shares from net investment income on each regular business
day, and to pay such dividends monthly. Dividends for both classes of
shares will normally be paid on the fourth Wednesday of each month, or
such other day as the Board of Trustees may select. In addition,
distributions may be made monthly out of any net short-term capital gains
realized from the sale of securities. The amount of a class's
distributions may vary from time to time depending upon market conditions,
the composition of the Fund's portfolio, expenses borne by the Fund, or
borne separately by that class as described in "Dual Class Methodology"
in the Additional Statement. Dividends are calculated in the same manner,
at the same time, and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower than on Class A
shares on a pro rata basis as a result of the asset-based sales charge on
Class B shares, and such dividends also will differ in amount as a
consequence of any difference between the net asset values of Class A and
Class B shares.
Dividends will be payable on shares held of record at the time of the
previous determination of net asset value, or as otherwise described in
"How To Buy Shares." Daily dividends on newly purchased shares will not
be declared or paid until such time as Federal Funds (funds credited to
a member bank's account at the Federal Reserve Bank) are available from
the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day.
Dividends will be declared on shares repurchased by a dealer or broker for
four business days following the trade date (i.e., to and including the
day prior to settlement of the repurchase). If all shares in an account
are redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
In addition, distributions may be made annually in December out of
any net short-term or long-term capital gains realized from the sale of
securities, premiums from expired calls written by the Fund, and net
profits from Hedging Instruments and closing purchase transactions
realized in the twelve months ending on October 31 of that current year.
Any difference in the net asset values of Class A and Class B shares will
be reflected in such distributions. Distributions from net short-term
capital gains are taxable to shareholders as ordinary income and when paid
are considered "dividends." The Fund may make a supplemental distribution
of capital gains and ordinary income following the end of its fiscal year.
Any long-term capital gains distribution will be identified separately
when paid and when tax information is distributed by the Fund. If prior
distributions must be recharacterized at the end of the fiscal year as a
result of the effect of the Fund's investment policies, shareholders may
have a non-taxable return of capital which will be identified in notices
to shareholders. During the Fund's fiscal year ended September 30, 1993,
the Fund sought to pay distributions to shareholders at a targeted level
of $.303 cents per Class A share each month. The Board of Trustees may
change that targeted level at any time, and there is otherwise no fixed
dividend rate. There can be no assurance as to the payment of any
dividends or the redemption of any capital gains. The Fund was able to
pay dividends at the targeted level from net investment income and other
distributable income as a result of the assumption of Fund expenses by the
Manager. The effect of the expense assumption was the reduction of
expenses and thus the increase of the net asset value per share.
All dividends and capital gains distributions are automatically
reinvested in shares of the same class at net asset value, as of a date
selected by the Board of Trustees, unless the shareholder notifies the
Transfer Agent in writing to pay dividends and capital gains distributions
in cash, or to reinvest them in another Eligible Fund, as described in
"Additional Information" in the Additional Statement. That request must
be received prior to the record date for a dividend to be effective as to
that dividend. Under AccountLink, dividends and distributions may be
automatically transferred to a designated account at a financial
institution. See "AccountLink" in "How to Buy Shares" and the
OppenheimerFunds New Account Application for more details. For existing
accounts, such privileges may be established only by signature-guaranteed
instructions from all shareholders to the Transfer Agent. Dividends,
distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service
as undeliverable will be invested in shares of Oppenheimer Money Market
Fund, Inc., as promptly as possible after the return of such checks to the
Transfer Agent, to enable the investor to earn a return on otherwise idle
funds.
Tax Status of the Fund's Dividends and Distributions
Dividends paid by the Fund derived from net investment income or net
short-term capital gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested. Long-term capital gains
distributions, if any, are taxable as long-term capital gains whether
received in cash or reinvested and regardless of how long Fund shares have
been held. A shareholder purchasing Fund shares immediately prior to the
declaration of a capital gains distribution will receive a distribution
subject to income tax, and the distribution will have the effect of
reducing a class's net asset value per share by the amount of the
distribution. For information as to "backup" withholding on dividends,
see "How to Redeem Shares."
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified
during its last fiscal period, and intends to qualify in current and
future fiscal years, but reserves the right not to do so. The Code
contains a number of complex tests relating to qualification which the
Fund might not meet in any particular year. For example, if the Fund
derives 30% or more of its gross income from the sale of securities held
less than 3 months, it may fail to qualify (see "Investment Objective and
Policies - Tax Aspects of Hedging Instruments" in the Additional Statement
for more information). If it did not qualify, the Fund would be treated
for tax purposes as an ordinary corporation and receive no tax deduction
for distributions made to shareholders.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "average annual total
return," "total return," "total return at net asset value" and "dividend
yield" of an investment in each class of shares of the Fund may be
advertised. Under rules adopted by the SEC, "yield" is computed in a
standardized manner for mutual funds, by dividing net investment income
per share earned during a 30-day base period by the maximum offering price
per share on the last day of the period. This yield calculation is
compounded on a semi-annual basis, and multiplied by 2 to provide an
annualized yield.
Total return is the change in value of a hypothetical investment in
a class of shares of the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested. 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 actual year-by-year performance of a class of
shares. When total returns are quoted for Class A shares, they reflect
the payment of the maximum initial sales charge. Total returns may be
quoted at "net asset value," without considering the sales charge, and
those returns would be reduced if sales charges were deducted. 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 the
total return is shown, or else they may be shown based on the change in
net asset value without considering the sales charge. All total returns
are based on historical earnings and are not intended to predict future
performance. The Additional Statement contains more information about the
calculation of the performance data used by the Fund.
The "dividend yield" of a class of shares represents dividends
derived from net investment income during a stated period divided by the
maximum offering price of shares of that class on the last day of the
period, to show the rate of return based on actual distributions paid to
shareholders of that class. Yields and returns are based on historical
per share earnings and are not intended to indicate future performance.
Yields and returns are calculated separately and will differ for shares
of each class, and the higher anticipated expenses of Class B shares
should result in shares of that class having lower yields than Class A
shares for the same period of time. "Yield, Total Return and Tax
Information" in the Additional Statement contains more detailed
information about calculating the Fund's yields and returns and other
performance information.
Management's Discussion of Fund Performance
During the Fund's fiscal period from August 4, 1992 (commencement of
operations) to September 30, 1993, U.S. interest rates declined and the
U.S. economy remained in a slow-growth mode. The Manager strategically
allocated assets among the following sectors in seeking its objective of
high current income consistent with stability of principal: U.S.
Government securities, domestic corporate bonds, foreign fixed income
securities, and money market instruments. The Manager focused on short-
term securities to help protect the value of the Fund's shares from risks
associated with a rise in interest rates because the prices of short-term
securities are less sensitive to interest rate risk than long-term
securities. To reduce the risk of issuer default, the Manager focused on
investing principally in investment grade securities. To maximize current
income, the Manager concentrated on GNMAs and mortgage-backed securities,
which offer higher yields than U.S. Treasuries. To protect the value of
the Fund's foreign holdings, the Manager engaged in currency hedging
transactions.
Comparison of Total Return of Oppenheimer Strategic Short-Term Income Fund
with The Lehman Aggregate Bond Index and
The Lehman Intermediate Government/Corporate Bond Index -
Change in Value of a $10,000 Hypothetical Investment
[PERFORMANCE GRAPH]
Attached hereto as Appendix A
Past Performance is not predictive of future performance.
Oppenheimer Strategic Short-Term Income Fund
Average Annual Total Returns
1 Year Since Inception (8/4/92)
------ ------------------------
Class A 0.92% 0.49%
Class B 3.53%*
__________________
*Class B shares were first offered for sale on November 30, 1992.
The performance graph set forth above compares the Fund's total
return of Class A shares since commencement of operations (August 4,
1992), and the Fund's total return of Class B shares since November 30,
1992, against the performance of The Lehman Aggregate Bond Index and The
Lehman Intermediate Government/Corporate Bond Index. The Lehman Aggregate
Bond Index is an unmanaged index of investment grade debt securities with
a maturity of at least one year, consisting of treasury issues, agency
issues, corporate bond issues and mortgage-backed securities, and is
widely regarded as a measure of the performance of the general fixed-rate
investment grade debt market. The Lehman Government/Corporate Bond Index
includes the Government and Corporate Bond Indices, including U.S.
government treasury and agency securities, corporate and yankee bonds.
Each index includes a factor for the reinvestment of interest but does not
reflect expenses or taxes. The Fund's return for Class A shares reflects
the deduction of the current maximum sales charge of 3.50% and includes
reinvestment of all dividends and capital gains distributions, but does
not consider taxes.
Additional Information
Description of the Fund and Its Shares
The Board of Trustees may divide the Fund into more than one series,
each of which would issue its own shares, having its own investment
portfolio and having its own assets and liabilities. Shares of any series
may be divided by the Board, without shareholder approval, into two or
more classes, each having its own dividends, distributions and expenses.
Each class may have a different net asset value per share. The Fund
currently has only one series which has been divided into two classes of
shares, Class A and Class B. Each share has one vote at shareholder
meetings, with fractional shares voting proportionately. Shares of a
class vote together as a single class on matters that affect only that
class. Shares are fully transferable. When issued, such shares are
fully-paid and non-assessable (except as described in the Additional
Statement under "Additional Information") and have no preemptive,
subscription or cumulative voting rights. The Fund does not anticipate
holding annual meetings. Under certain circumstances, shareholders of the
Fund have the right to remove a Trustee. Shareholders may be held
personally liable as "partners" for the Fund's obligations; however, the
risk of a shareholder incurring any financial loss is limited to the
relatively remote circumstances in which the Fund is unable to meet its
obligations. See "Additional Information" in the Additional Statement for
details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is The Bank of New York. The
Manager and its affiliates have banking relationships with the Custodian.
See "Additional Information" in the Additional Statement for further
information. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such uninsured
balances may at times be substantial.
The Transfer Agent, a division of the Manager, acts as transfer and
shareholder servicing agent on an at-cost basis for the Fund and certain
other open-end funds advised by the Manager. The fees to the Transfer
Agent do not include payments for any services of the type paid, or to be
paid, by the Fund to Recipients under the Distribution Plans.
Shareholders should direct any inquiries to the Transfer Agent at the
address or toll-free phone number listed on the back cover of this
Prospectus.
<PAGE>
APPENDIX A TO PROSPECTUS OF
OPPENHEIMER STRATEGIC SHORT-TERM INCOME FUND
Graphic material included in the Prospectus of Oppenheimer Strategic
Short-Term Income Fund: "Comparison of Total Return of Oppenheimer
Strategic Short-Term Income Fund with The Lehman Aggregate Bond Index and
The Lehman Intermediate Government/Corporate Bond Index - Change in Value
of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Strategic
Short-Term Income Fund (the "Fund") depicting the initial account value
and subsequent account value of a hypothetical $10,000 investment in the
Fund during each of the Fund's fiscal periods since the commencement of
the Fund's operations (November 30, 1992) and comparing such values with
the same investments over the same time periods with The Lehman Aggregate
Bond Index and The Lehman Intermediate Government/Corporate 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 and The Lehman
Intermediate Government/Corporate Bond Index, is set forth in the
Prospectus under "Fund Performance Information - Management's Discussion
of Performance."
<TABLE>
<CAPTION>
Lehman
Oppenheimer Intermediate
Strategic Lehman Government/
Fiscal Year Short-Term Aggregate Bond Corporate
(Period) Ended Income Fund A Index Bond Index
- -------------- ------------- -------------- ------------
<S> <C> <C> <C>
8/4/92 9,650 $10,000 $10,000
09/30/92 9,603 10,221 10,237
09/30/93 10,056 11,241 11,078
Lehman
Oppenheimer Intermediate
Strategic Lehman Government/
Fiscal Year Short-Term Aggregate Bond Corporate
(Period) Ended Income Fund B Index Bond Index
- -------------- ------------- -------------- ------------
11/30/92 $10,000 $10,000 $10,000
09/30/92 10,693 11,141 11,003
</TABLE>
<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.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of change
in circumstances and economic conditions.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the "A" category.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representation must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such offer in such state.
PR295 (1/94) * Printed on recycled paper
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Strategic Short-Term Income
Fund
Effective January 25, 1994
[OppenheimerFunds Logo]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER STRATEGIC SHORT-TERM INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus dated January 25, 1994 (the "Prospectus"),
of Oppenheimer Strategic Short-Term Income Fund, which may be obtained by
written request to Oppenheimer Shareholder Services ("OSS"), P.O. Box
5270, Denver, Colorado 80217, or by calling OSS at the toll-free number
shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Special Investment Methods 10
Investment Restrictions 20
Trustees and Officers 21
Investment Management Services 23
Brokerage 25
Purchase, Redemption and Pricing of Shares 26
Distribution and Service Plans 29
Performance, Dividend and Tax Information 32
Additional Information 36
Automatic Withdrawal Plan Provisions 37
Letters of Intent 39
Independent Auditors' Report 42
Financial Statements 43
This Additional Statement is effective January 25, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are discussed in the
Prospectus. Set forth below is supplemental information about those
policies. Certain capitalized terms used in this Additional Statement are
defined 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 an issuer, including
its historic and current financial condition, the trading activity in its
securities, present and anticipated cash flow, estimated current value of
its assets in relation to their historical cost, the issuer's experience
and managerial expertise, responsiveness to changes in interest rates and
business conditions, debt maturity schedules, current and future borrowing
requirements, and any change in the financial condition of an issuer and
the issuer's continuing ability to meet its future obligations. The
Manager also may consider anticipated changes in business conditions,
levels of interest rates of bonds as contrasted with levels of cash
dividends, industry and regional prospects, the availability of new
investment opportunities and the general economic, legislative and
monetary outlook for specific industries, the nation and the world.
All fixed-income securities are subject to two types of risks: credit
risk and interest rate risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they become due.
Generally, higher yielding bonds are subject to credit risk to a greater
extent than higher quality bonds. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting solely from the
inverse relationship between price and yield of fixed-income securities.
An increase in interest rates will generally reduce the market value of
outstanding fixed-income investments, and a decline in interest rates will
tend to increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect the interest
payable on those securities, and thus the cash income received by the Fund
from such securities, but will be reflected in the valuations of those
securities used to compute the Fund's net asset value.
As stated in the Prospectus, the Fund will not invest in debt
securities rated lower than "Baa" by Moody's or "BBB" by Standard &
Poors. If the ratings of securities held by the Fund fall below those
ratings described above, and if the Fund retains those securities, it may
be subject to greater risks. 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 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 the premature redemption proceeds
of those securities only in lower-yielding 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 stated in the Prospectus, under normal circumstances the Fund will
maintain a dollar-weighted average portfolio maturity of not more than
three years. The Manager will in good faith determine the maturity of
debt obligations purchased by the Fund and will consider various factors
applicable to each type of debt obligation, including those set forth
below. With respect to corporate debt obligations, the Manager will
consider sinking fund and call provisions as well as the current price of
the obligation and the relationship between the price and estimated
likelihood that the obligation will be called. In determining the
maturity of mortgage-backed securities, the Manager reviews the prepayment
history of the obligation and similar securities, current interest rates
and median estimates of maturity for the obligation available from
dealers. With respect to hedging instruments, the Manager looks at the
term of both the hedging instrument and the underlying security and the
relationship between the instruments. Subject to the requirement that the
dollar weighted average portfolio maturity will not exceed three years,
the Fund may invest in individual debt obligations of any maturity,
including obligations with a remaining stated maturity of more than three
years.
Domestic Securities. The Fund's investments in investment grade fixed-
income securities and other securities issued by domestic corporations may
include, among others, debt obligations (bonds, debentures and notes),
money market instruments, common stocks and preferred stocks.
Preferred Stocks. Dividends on some preferred stocks may be
"cumulative," requiring all or a portion of prior unpaid dividends to be
paid. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation
of the corporation, and may be "participating," which means that it may
be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on distribution of a corporation's assets
in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities.
Participation Interests. The Fund may invest in participation
interests, subject to the limit, described in "Restricted and Illiquid
Securities" in the Prospectus, that no more than 15% of the Fund's net
assets may be held in illiquid investments. 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. Participation
interests are primarily dependent upon the creditworthiness of the
borrower for payment of interest and principal, and there is a risk that
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.
Collateralized Mortgage-Backed Obligations ("CMO's"). CMO's are fully-
collateralized bonds which are general obligations of the issuer thereof,
either a private issuer, the U.S. Government or a U.S. Government
instrumentality. See "Investment Objective and Policies - U.S. Government
Securities" immediately below for further details.
Asset-Backed Securities. The value of an asset-backed security is
affected by changes in the market's perception of the asset backing the
security, the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individuals.
As a purchaser of an asset-backed security, the Fund would generally have
no recourse to the entity that originated the loans in the event of
default by a borrower. The underlying loans are subject to prepayments,
which shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as described 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. 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 Government National Mortgage
Association); some are supported by the right of the issuer to borrow from
the U.S. Government (e.g., obligations of Federal Home Loan Mortgage
Corporation); and some are backed by only the credit of the issuer itself.
Those 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 those government agencies may also 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 the values of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security
may not be as likely to rise to the extent that the values of other debt
securities rise, because of the prepayment feature of pass-through
securities. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at times when available
investments offer higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by
the Fund have a compounding effect which may increase the yield to the
Fund more than debt obligations that pay interest semi-annually. Because
of those factors, mortgage-backed securities may be less effective than
Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. The Fund may purchase mortgage-backed
securities at par or at a premium or a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their principal amount) and may involve
additional risk of loss of principal because the premium may not have been
fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
The Fund may invest in "stripped" mortgage backed securities, in which
the principal and interest portions of the security are separated and
sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the "interest-
only" or "IO" class), while the other class will receive all of the
principal (the "principal-only" or "PO" class). Interest only securities
are extremely sensitive to interest rate changes, and prepayments of
principal on the underlying mortgage assets. An increase in principal
payments or prepayments will reduce the income available to the IO
security. In other types of CMOs, the underlying principal payments may
apply to various classes in a particular order, and therefore the value
of certain classes or "tranches" of such securities may be more volatile
than the value of the pool as a whole, and losses may be more severe than
on other classes.
GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence
an undivided interest in a pool or pools of mortgages ("GNMA
Certificates"). The GNMA Certificates that the Fund may purchase are of
the "modified pass-through" type, which entitle the holder to receive
timely payment of all interest and principal payments due on the mortgage
pool, net of fees paid to the "issuer" and GNMA, regardless of whether the
mortgagor actually makes the payments.
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 mortgage pass-through
certificates ("Freddie Macs"). Freddie Macs resemble GNMA Certificates
in that each represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FHLMC guarantees timely
monthly payment of interest on Freddie Macs and the ultimate payment of
principal. The FHLMC guaranty is not backed by the full faith and credit
of the U.S. government.
Zero Coupon Securities. Because the Fund accrues taxable income from
zero coupon securities issued by either the U.S. Treasury or corporations
without receiving cash, the Fund may be required to sell portfolio
securities in order to pay a dividend that includes such accrued income,
depending, among other things, upon the number 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.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. Such bonds generally are secured by an assignment
to a trustee (under the indenture pursuant to which the bonds are issued)
of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages
are not passed through to the holders of the CMOs as such (i.e., the
character of payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such
payments are dedicated to payment of interest on and repayment of
principal of the CMOs. CMOs often are issued in two or more classes with
different characteristics such as varying maturities and stated rates of
interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive
maturities in sequence. Unlike other mortgage-backed securities
(discussed above), CMOs are designed to be retired as the underlying
mortgages are repaid. In the event of prepayment on such mortgages, the
class of CMO first to mature generally will be paid down. Therefore,
although in most cases the issuer of CMOs will not supply additional
collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities issued by GNMA,
FNMA or FHLMC. In a forward roll transaction, which is considered to be
a borrowing by the Fund, the Fund will sell a mortgage security to a bank
or other permitted entity and simultaneously agree to repurchase a similar
security from the institution at a later date at an agreed upon price.
The mortgage securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories than those sold.
Risks of mortgage-backed security rolls include: (i) the risk of
prepayment prior to maturity, (ii) the possibility that the Fund may not
be entitled to receive interest and principal payments on the securities
sold and that the proceeds of the sale may have to be invested in money
market instruments (typically repurchase agreements) maturing not later
than the expiration of the roll, and (iii) the possibility that the market
value of the securities sold by the Fund may decline below the price at
which the Fund is obligated to purchase the securities. 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 Securities. As noted in the Prospectus, the Fund may invest in
debt obligations and other securities (which may be denominated in U.S.
dollars or non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (described below) and foreign
governments or their agencies or instrumentalities, and in debt
obligations and other securities issued by U.S. corporations denominated
in non-U.S. currencies. The types of foreign debt obligations and other
securities in which the Fund may invest are the same types of debt
obligations and other securities identified under "Domestic Securities,"
above.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of supranational entities include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited
to a percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves and net income.
There is no assurance that foreign governments will be able or willing to
honor their commitments.
The Fund may invest in U.S. dollar-denominated, collateralized "Brady
Bonds," as described in the Prospectus. These debt obligations of foreign
entities may be fixed-rate par bonds or floating-rate discount bonds and
are generally collateralized in full as to principal due at maturity by
U.S. Treasury zero coupon obligations that have the same maturity as the
Brady Bonds. Brady Bonds are often viewed as having three or four
valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts
constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations
of the issuer are accelerated, the zero coupon Treasury securities held
as collateral for the payment of principal will not be distributed to
investors, nor will such obligations be sold and the proceeds distributed.
The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal
the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including contractual obligations, and could be
subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and its income available for distribution. In addition, although
a portion of the Fund's investment income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, and absorb the cost of currency fluctuations.
The Fund may engage in foreign currency exchange transactions for hedging
purposes to protect against changes in future exchange rates. See
"Special Investment Methods - Covered Calls and Hedging."
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to changes in a variety of factors including those
of U.S. and foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
Money Market Instruments. The money market instruments in which the Fund
may invest include the following:
Bank Obligations and Instruments Secured Thereby. These include 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 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 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 15% limitation on the Fund's net assets that may be
invested in illiquid investments, set forth in the Prospectus under
"Illiquid and Restricted Securities."
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.
Commercial Paper. The Fund's commercial paper investments in addition
to those described in the Prospectus include the following.
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 purchases 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 bank time deposits and master
demand notes are subject to the 15% of total assets limitation on illiquid
securities.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
Bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
SPECIAL INVESTMENT METHODS
Covered Calls and Hedging. As described in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments.
When hedging to attempt to protect against declines in the market value
of the Fund's portfolio, to permit the Fund to retain unrealized gains in
the value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons, the Fund may: (i) sell
Futures, (ii) buy puts on such Futures or securities, or (iii) write calls
on securities held by it or on Futures. When hedging to attempt to
protect against the possibility that portfolio securities are not fully
included in a rise in value of the debt securities market, the Fund may:
(i) buy Futures, or (ii) buy calls on such Futures or on securities. The
Fund's strategy of hedging with Futures and options on Futures will be
incidental to the Fund's activities in the underlying cash market.
Covered calls and puts may also be written on debt securities to attempt
to increase the Fund's income. When hedging to protect against declines
in the dollar value of a foreign currency-denominated security, the Fund
may: (a) buy puts on that foreign currency and on foreign currency
Futures, (b) write calls on that currency or on such Futures, or (c) enter
into Forward Contracts at a higher or lower rate than the spot ("cash")
rate. Additional Information about the Hedging Instruments the Fund may
use is provided below. In the future, the Fund may employ hedging
instruments and strategies that are not presently contemplated but which
may be developed, to the extent such investment methods are consistent
with the Fund's investment objective, legally permissible and adequately
disclosed.
Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
Writing Put Options. A put option on securities gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to the Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put lapses unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium.
If the put is exercised, the Fund must fulfill its obligation to purchase
the underlying investment at the exercise price, which will usually exceed
the market value of the investment at that time. In that case, the Fund
may incur a loss, equal to the sum of the current market value of the
underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to pay
for the underlying security, the Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing
purchase transaction by purchasing a put of the same series as that
previously sold. Once the Fund has been assigned an exercise notice, it
is thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying
security from being put. Furthermore, effecting such a closing purchase
transaction will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments
by the Fund. The Fund will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more than
the premium received from writing the option. As above for writing
covered calls, any and all such profits described herein from writing puts
are considered short-term gains for Federal tax purposes, and when
distributed by the Fund, are taxable as ordinary income.
Purchasing Calls and Puts. When the Fund purchases a call (other than
in a closing purchase transaction), it pays a premium and, except as to
calls on indices or Financial Futures, has the right to buy the underlying
investment from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. When the Fund purchases
a call on an index or Financial Future, it pays a premium, but settlement
is in cash rather than by delivery of the underlying investment to the
Fund. In purchasing a call, the Fund benefits only if the call is sold
at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the
transaction costs and the premium paid and the call is exercised. If the
call is not exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and, except as to puts
on indices, has the right to sell the underlying investment to a seller
of a corresponding put on the same investment during the put period at a
fixed exercise price. Buying a put on an investment the Fund owns enables
the Fund to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling
such underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date,
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit.)
Buying a put on an investment it does not own, either a put on an index
or a put on a Future not held by the Fund, permits the Fund either to
resell the put or buy the underlying investment and sell it at the
exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. When the
Fund purchases a put on an index, or on a Future not held by it, the put
protects the Fund to the extent that the index moves in a similar pattern
to the securities held. In the case of a put on an index or Future,
settlement is in cash rather than by delivery by the Fund of the
underlying investment.
Options on Foreign Currencies. The Fund intends to write and purchase
both covered and uncovered calls and puts on foreign currencies. A call
written on a foreign currency by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held in its portfolio. An uncovered call may be written by the
Fund on a foreign currency to provide a hedge against a decline in the
U.S. dollar value of a security which the Fund owns or has the right to
acquire and which is denominated in the currency underlying the option,
due to an expected adverse change in the exchange rate. This is a "cross-
hedging" strategy. In such circumstances, the Fund collateralizes the
option by maintaining, in a segregated account with the Fund's Custodian,
cash or U. S. Government Securities in an amount not less than the value
of the underlying foreign currency in U. S. dollars marked-to-market
daily.
Interest Rate Futures and Financial Futures. No price is paid or
received upon the purchase or sale of an Interest Rate Future, Financial
Future or a foreign currency exchange contract ("Forward Contract"),
discussed below. Upon entering into a Futures transaction, the Fund will
be required to deposit an initial margin payment in cash or U.S. Treasury
bills with the futures commission merchant (the "futures broker"). The
initial margin will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the
Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to or
by the futures broker on a daily basis. Prior to expiration of the
Future, if the Fund elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional
cash is required to be paid by or released to the Fund, and any loss or
gain is realized for tax purposes. Although Interest Rate Futures by
their terms call for settlement by delivery or acquisition of debt
securities, in most cases the obligation is fulfilled by entering into an
offsetting position. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
Financial Futures. Financial Futures are similar to Interest Rate
Futures except that settlement is made in cash, and net gain or loss on
options on Financial Futures depends on price movements of the securities
included in the index. The strategies which the Fund employs regarding
Financial Futures are similar to those described above with regard to
Interest Rate Futures.
Forward Contracts. A Forward Contract involves bilateral obligations
of one party to purchase, and another party to sell, a specific currency
at a future date (which may be any fixed number of days from the date of
the contract agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that a 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 entered into with respect to position
hedges and cross hedges. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed
in the account on a daily basis so that the value of the account will
equal the amount of the Fund's commitments with respect to such contracts.
As an alternative to maintaining all or part of the separate account, the
Fund may purchase a call option permitting the Fund to purchase the amount
of foreign currency being hedged by a forward sale contract at a price no
higher than the forward contract price, or the Fund may purchase a put
option permitting the Fund to sell the amount of foreign currency subject
to a forward purchase contract at a price as high or higher than the
forward contract price. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not
entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense
of such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may close out a Forward Contract requiring
it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a
result of entering into such an offsetting Forward Contract under either
circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
Interest Rate Swap Transactions. Swap agreements entail both interest
rate risk and credit risk. There is a risk that, based on movements of
interest rates in the future, the payments made by the Fund under a swap
agreement will have been greater than those received by it. Credit risk
arises from the possibility that the counterparty will default. If the
counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund
has not yet received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing
basis. The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting
agreement provides that all swaps done between the Fund and that
counterparty under the master agreement shall be regarded as parts of an
integral agreement. If on any date amounts are payable in the same
currency in respect of one or more swap transactions, the net amount
payable on that date in that currency shall be paid. In addition, the
master netting agreement may provide that if one party defaults generally
or on one swap, the counterparty may terminate the swaps with that party.
Under such agreements, if there is a default resulting in a loss to one
party, the measure of that party's damages is calculated by reference to
the average cost of a replacement swap with respect to each swap (i.e.,
the mark-to-market value at the time of the termination of each swap).
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred
to as "aggregation."
Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer,
which would establish a formula price at which the Fund would have the
absolute right to repurchase that OTC option. That formula price would
generally be based on a multiple of the premium received for the option,
plus the amount by which the option is exercisable below the market price
of the underlying security (that is, the extent to which the option is
"in-the-money"). When the Fund writes an OTC option, it will treat as
illiquid (for purposes of the limit on its assets that may be invested in
illiquid securities, stated in the Prospectus) the mark-to-market value
of any OTC option held by it. The Securities and Exchange Commission is
evaluating whether OTC options should be considered liquid securities, and
the procedure described above could be affected by the outcome of that
evaluation.
The Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise of calls written by the Fund may cause the Fund
to sell related portfolio securities, thus increasing its turnover rate
in a manner beyond the Fund's control. The exercise by the Fund of puts
on securities or Futures may cause the sale of related investments, also
increasing portfolio turnover. Although such exercise is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons which would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a put,
a call, or an underlying investment in connection with the exercise of a
put or call. Such commissions may be higher than those which would apply
to direct purchases or sales of the underlying investments. Premiums paid
for options are small in relation to the market value of the related
investments, and consequently, put and call options offer large amounts
of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value
of the underlying investments.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which exempts the Fund from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. Under these restrictions the Fund will not,
as to any positions, whether short, long or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule.
Under the restrictions, the Fund also must, as to its short positions, use
Futures and options thereon solely for bona-fide hedging purposes within
the meaning and intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. Due to requirements under the Investment Company Act,
when the Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends
to qualify as a "regulated investment company" under the Internal Revenue
Code. One of the tests for such qualification is that less than 30% of
its gross income (irrespective of losses) must be derived from gains
realized on the sale of securities held for less than three months. Due
to this limitation, the Fund will limit the extent to which it engages in
the following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) purchasing calls or puts which expire in less than three months;
(iii) effecting closing transactions with respect to calls or puts
purchased less than three months previously; (iv) exercising puts or calls
held by the Fund for less than three months; and (v) writing calls on
investments held for less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including foreign currency
forward contracts) generally are treated as ordinary income or loss. In
addition, section 1256 contracts held by the Fund at the end of each
taxable year are "marked-to-market" with the result that unrealized gains
or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of the excise tax applicable to
investment company distributions and for other purposes under rules
prescribed pursuant to the Code. An election can be made by the Fund to
exempt these transactions from this mark-to-market treatment.
Certain foreign currency forward contracts entered into by the Fund may
result in "straddles" for Federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a
position(s) making up a straddle is allowed only to the extent such loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there
is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
in using short hedging by selling Futures to attempt to protect against
decline in value of the Fund's portfolio securities (due to an increase
in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depend on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Futures and/or calls
on such Futures or on debt securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the debt securities
purchased.
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or the U.S. branch of a foreign bank or a broker-
dealer which has been designated a primary dealer in government
securities) and which must meet credit requirements set by the Fund's
Board of Trustees from time to time), for delivery on an agreed-on future
date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. Additionally, the
Manager will impose creditworthiness requirements to confirm that the
vendor is financially sound, and the Manager will continuously monitor the
collateral's value.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Fund is
permitted to invest. The value of the loaned securities and the
collateral will be "marked to market" daily. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded
by the Fund if the demand meets the terms of the letter. Such terms and
the issuing bank must be satisfactory to the Fund. In a portfolio
securities lending transaction, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the
collateral securities, less any finders' or administrative fees the Fund
pays in arranging the loan. The Fund may share the interest it receives
on the collateral securities with the borrower as long as it realizes at
least a minimum amount of interest required by the lending guidelines
established by its Board of Trustees. The Fund will not lend its
portfolio securities to any officer, trustee, employee or affiliate of the
Fund or its Manager. The terms of the Fund's loans must meet certain
tests under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five business days' notice or in time to vote on any
important matter.
Borrowing. From time to time, the Fund may increase its ownership of
securities by borrowing from banks on an unsecured basis and investing the
borrowed funds, subject to the restrictions stated in the Prospectus. Any
such borrowing will be made only from banks, and pursuant to the
requirements of the Investment Company Act, will be made only to the
extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing and amounts covering the Fund's obligations under
"forward roll" transactions. If the value of the Fund's assets so
computed should fail to meet the 300% asset coverage requirement, the Fund
is required within three days to reduce its bank debt to the extent
necessary to meet such requirement and may have to sell a portion of its
investments at a time when independent investment judgment would not
dictate such sale. Borrowing for investment increases both investment
opportunity and risk. Since substantially all of the Fund's assets
fluctuate in value, but borrowing obligations are fixed, when the Fund has
outstanding borrowings, its net asset value per share correspondingly will
tend to increase and decrease more when portfolio assets fluctuate in
value than otherwise would be the case.
Restricted and Illiquid Securities. The expenses of registration of
restricted securities that are subject to legal restrictions on resale
(excluding securities that may be resold by the Fund pursuant to Rule
144A, as explained in the Prospectus) may be negotiated at the time such
securities are purchased by the Fund. When registration is required, a
considerable period may elapse between a decision to sell the securities
and the time the Fund would be permitted to sell them. Thus, the Fund
might not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund also may acquire, through private
placements, securities having contractual resale restrictions, which might
prevent their resale by the Fund at a time when such sale would be
desirable.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although the Fund will enter
into such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities 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. 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 provide 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.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are described in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the Fund's fundamental policies
and investment objective described in the Prospectus, cannot be changed
without the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority" vote is
defined as the vote of the holders of the lesser of: (i) 67% or more of
the shares present or represented by proxy at such meeting, if the holders
of more than 50% of the outstanding shares are present, or (ii) more than
50% of the 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 Fund's 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.
TRUSTEES AND OFFICERS
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 or directors of Oppenheimer Total Return
Fund, Inc., Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund,
Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Cash Reserves,
Oppenheimer Government Securities Fund, Oppenheimer Tax-Exempt Bond Fund,
The New York Tax-Exempt Income Fund, Inc., Oppenheimer Champion High Yield
Fund, Main Street Funds, Inc., Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Variable Account
Funds, Oppenheimer Integrity Funds, and Oppenheimer Strategic Investment
Grade Bond Fund, Daily Cash Accumulation Fund, Inc., Centennial Money
Market Trust, Centennial Government Trust, Centennial New York Tax Exempt
Trust, Centennial Tax Exempt Trust, Centennial California Tax Exempt
Trust, Centennial Connecticut Tax Exempt Trust and Centennial America
Fund, L.P. (collectively referred to as the "Denver OppenheimerFunds").
All of the officers except Messrs. Negri and Steinmetz hold similar
positions with each of the Denver OppenheimerFunds. Mr. Fossel is
President and Mr. Swain is Chairman of the Denver-based OppenheimerFunds.
As of December 31, 1993, the Trustees and officers of the Fund as a group
owned less than 1% of the Fund's outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson 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
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
___________________
* A Trustee who is an "interested person" of the Fund as defined
in the Investment Company Act.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager;
President and a director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a director of
HarbourView Asset Management Corp. ("HarbourView"), a subsidiary of the
Manager; a director of Shareholder Financial Services, Inc. ("SFSI")
and Shareholder Services, Inc. ("SSI"), transfer agent subsidiaries of
the Manager; formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly a Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a director of Centennial
Asset Management Corporation, an investment adviser subsidiary of the
Manager ("Centennial"); formerly President and a director of
Oppenheimer Asset Management Corporation ("OAMC"), an investment
adviser which was a subsidiary of the Manager, and Chairman of the
Board of SSI.
ANDREW J. DONOHUE, Vice President
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
___________________
* 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
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and
Secretary of OAMC.
DAVID P. NEGRI, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of
other OppenheimerFunds; formerly Vice President/Director of Internal
Audit of the Manager.
ROBERT G. ZACK, Assistant Secretary
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.
Remuneration of Trustees. The officers of the Fund (including Messrs.
Fossel and Swain) are affiliated with the Manager and receive no salary
or fee from the Fund. During the Fund's fiscal year ended September 30,
1993, the remuneration (including expense reimbursements) paid by the Fund
to all Trustees of the Fund (excluding Messrs. Fossel and Swain) in the
aggregate for services as Trustees and as members of one or more
committees totalled $345. The Fund has an Audit and Review Committee,
comprised of William A. Baker (Chairman), Charles Conrad, Jr. and Robert
M. Kirchner. This Committee meets regularly to review audits, audit
procedures, financial statements and other financial and operational
matters of the Fund.
Major Shareholders. As of December 31, 1993, the only person who owned
of record or was known by the Fund to own beneficially 5% or more of a
class of the Fund's outstanding shares was Oppenheimer Funds Distributor,
Inc., c/o George Bowen, P.O. Box 5061, Denver, CO 80217, which was the
record owner of 505,050.505 Class A shares (9% of the Class A shares then
outstanding).
INVESTMENT MANAGEMENT SERVICES
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 may serve as officers of the Fund, and two of
whom (Messrs. Fossel and Swain) serve as Trustees of the Fund.
The management fee is payable monthly to the Manager under the terms
of the investment advisory agreement between the Manager and the Fund (the
"Agreement") and is computed on the aggregate net assets of the Fund as
of the close of business each day. The Agreement requires the Manager,
at its expense, to provide the Fund with adequate office space, facilities
and equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund. Expenses not
expressly assumed by the Manager under the Agreement or by the Distributor
are paid by the Fund. The Agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to unaffiliated trustees, legal, bookkeeping
and audit expenses, custodian and transfer agent expenses, share issuance
costs, certain printing and registration costs, and non-recurring
expenses, including litigation. The Fund also pays its organizational and
start-up expenses. For the fiscal year ended September 30, 1993 and the
fiscal period from August 4, 1992 (commencement of operations) through
September 30, 1992, the management fees payable by the Fund to the Manager
were $142,053 and $8,903, respectively. Because of the $12,964 of Fund
expenses assumed by the Manager during the fiscal period ended September
30, 1992 under a voluntary expense reimbursement undertaking similar to
that described below, no management fees were paid to the Manager for that
period. During the year ended September 30, 1993, the Manager assumed
$34,955 of Fund Expenses.
The Agreement contains no expense limitation. However, independently
of the Agreement, the Manager has undertaken that 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. 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 will be reduced at the end of any month so that there will
not be an accrued but unpaid liability under that expense assumption
undertaking. The Manager reserves the right to amend or terminate that
undertaking at any time. Until December 1, 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 $.3036 per
share per annum, with the limitation that the dividend could not exceed
the Fund's annual gross earnings per share. That undertaking terminated
December 1, 1993. During the Fund's fiscal period from its commencement
of operations on August 4, 1992, through September 30, 1992, the
management fee paid to the Manager would have been $8,903, but was reduced
to $0 as a result of such undertaking. As a result of that expense
assumption, the Fund's yield and total return were higher during that
period than they otherwise would have been.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and
duties under the Agreement, the Manager is not liable for any loss
sustained by reason of good faith errors or omissions in connection with
any matters to which the Agreement relates. The Agreement permits the
Manager to act as investment adviser for any other person, firm or
corporation and to use the name "Oppenheimer" in connection with other
investment companies for which it may act as investment adviser or general
distributor. If the Manager or one of its affiliates shall no longer act
as investment adviser to the Fund, the right of the Fund to use the name
"Oppenheimer" as part of its name may be withdrawn.
BROKERAGE
Provisions of the Investment Advisory Agreement. One of the duties of the
Manager under the Agreement is to arrange the portfolio transactions of
the Fund. In doing so, the Manager is authorized by the Agreement to
employ broker-dealers ("brokers"), including "affiliated" broker-dealers
as that term is defined in the Investment Company Act, as may, in its best
judgment based on all relevant factors, implement the policy of the Fund
to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
or base its selection on "posted" rates, but is expected to be aware of
the current rates of eligible brokers and to minimize the commissions paid
to the extent consistent with the provisions of the Agreement and the
interests and policies of the Fund as established by its Board of
Trustees.
Under the Agreement, the Manager is authorized to select brokers which
provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than
another qualified broker would have charged, if a good faith determination
is made by the Manager that the commission is fair and reasonable in
relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and of other funds managed by the Manager or its affiliates as a factor
in the selection of brokers for the Fund's portfolio transactions. Most
purchases made by the Fund are principal transactions at net prices, and
the Fund incurs little or no brokerage costs.
Description of Brokerage Practices. Subject to the provisions of the
Agreement, when brokers are used for the Fund's portfolio transactions,
allocations of brokerage are made by portfolio managers under the
supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market
are generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed
securities and otherwise only if it appears likely that a better price or
execution can be obtained. When the Fund engages in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transactions in the securities to which the
option relates. Option commissions may be relatively higher than those
which would apply to direct purchases and sales of portfolio securities.
When possible, concurrent orders to purchase or sell the same security by
more than one of the accounts managed by the Manager or its affiliates are
combined. Transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each account.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of such orders at the most favorable net price.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars. The research services provided by brokers broaden the
scope and supplement the research activities of the Manager by making
available additional views for consideration and comparisons, and enabling
the Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The Board
of Trustees, including the independent Trustees of the Fund, annually
reviews information furnished by the Manager as to the commissions paid
to brokers furnishing such services so that the Board may ascertain that
the amount of such commissions was reasonably related to the value or the
benefit of such services. The Board of Trustees has permitted the Manager
to use concessions on fixed price offerings to obtain research, in the
same manner as is permitted for agency transactions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of 4:00
P.M., New York time, each day The New York Stock Exchange (the "NYSE") is
open (a "regular business day") by dividing the value of the net assets
attributable to that class by the total number of shares of that class
outstanding. The NYSE's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day; it may also close on other days. Trading may occur
in debt securities and in foreign securities at times when the NYSE is
closed (including weekends and holidays or after 4:00 P.M., New York time,
on a regular business day). Because the net asset values of the Fund will
not be calculated at such times, if securities held in the Fund's
portfolio are traded at such times, the net asset values per share of its
Class A and Class B shares may be significantly affected at times when
shareholders do not have the ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities as follows: (i) equity securities
traded on a securities exchange or on the NASDAQ are valued at the last
sale prices on their primary exchange or the NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) NASDAQ and
other unlisted equity securities for which last sales prices are not
regularly reported but for which over-the-counter market quotations are
readily available are valued at the highest closing bid price at the time
of valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) unlisted debt securities having a maturity
in excess of 60 days are valued at the mean between the bid and asked
prices determined by a portfolio pricing service approved by the Board or
obtained from active market makers in the security on the basis of
reasonable inquiry; (v) short-term debt securities having a remaining
maturity of 60 days or less are valued at cost, adjusted for amortization
of premiums and accretion of discounts; and (vi) securities traded on
foreign exchanges or in foreign over-the-counter markets are valued as
determined by a portfolio pricing service approved by the Board, based
upon last sales prices reported on a principal exchange or, if none, at
the mean between closing bid and asked prices and reflect prevailing rates
of exchange to convert their values to U.S. dollars. The value of
securities denominated in foreign currency will be converted to U.S.
dollars at the prevailing rates of exchange at the time of valuation.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in such markets
that occur between the time their prices are determined and the close of
the NYSE will not be reflected in the Fund's calculation of its net asset
value unless the Board of Trustees, or the Manager under procedures
established by the Board, determines that the particular event would
materially affect the Fund's net asset value, in which case an adjustment
would be made.
In the case of U.S. Government Securities, mortgage-backed securities,
foreign securities, and corporate bonds, when last sale information is not
generally available, such pricing procedures may include "matrix"
comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity, and other special factors involved. The Fund's
Board of Trustees has authorized the Manager to employ a pricing service
to price U.S. Government Securities, mortgage-backed securities, foreign
government securities and corporate bonds. The Trustees will monitor the
accuracy of such pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ on which they are traded, or, if
there are no sales that day, in accordance with (i) above. When the Fund
writes an option, an amount equal to the premium received by the Fund is
included in its Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The
deferred credit is adjusted ("marked-to-market") to reflect the current
market value of the option.
Dual Class Methodology. The methodology for calculating the net asset
value, 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 Fund's aggregate net assets
represented by the net assets of that class. General expenses include (i)
management fees, (ii) legal, bookkeeping and audit fees, (iii) printing
and mailing costs of shareholder reports, prospectuses, Additional
Statements and other 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 (a) Distribution Plan fees, (b) incremental transfer
agent and shareholder servicing agent fees and expenses, (c) registration
fees, and (d) shareholder meeting expenses, to the extent that such
expenses pertain to a specific class rather than to the Fund as a whole.
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 circumstances
described in the Prospectus because the Distributor incurs little or no
selling expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law, brothers
and sisters, brothers- and sisters-in-law, and sons- and daughters-in-law.
Redemptions. Information on how to redeem shares of the Fund is provided
in the Prospectus. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, if the Board of
Trustees determines that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment wholly in cash, the
Fund may pay the redemption price in whole or in part by a distribution
in kind of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable Securities and Exchange Commission rules. The
Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to redeem shares of the Fund solely
in cash up to the lesser of $250,000 or 1% of the net assets of the Fund
during any 90-day period for any one shareholder. If shares are redeemed
in kind, the redeeming shareholder might incur brokerage or other costs
in converting the assets to cash. Any securities distributed by the Fund
pursuant to an "in-kind" redemption will be readily marketable. The
method of valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described above under
"Determination of Net Asset Value Per Share," and such valuation will be
made as of the same time the redemption price is determined.
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 such shares is less than $200 or such lesser amount as the Board
may decide. The Board of Trustees will not cause the involuntary
redemption of shares in an account if the aggregate net asset value of
such shares has fallen below $200 solely as a result of market-
fluctuations. Should the Board elect to exercise this right, it may also
fix, in accordance with the Investment Company Act, the requirements for
any notice to be given to the shareholders in question (not less than 30
days), or may set requirements for permission to allow the shareholder to
increase the investment so that the shares would not be involuntarily
redeemed.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date;
that loss is equal to the amount of such decline in net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or by seeking other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A or Class B shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (to another related party, by absolute assignment, gift or
bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the CDSC, calculated as if the
transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder. If less than
all shares held in an account are transferred, and some but not all shares
in the account would be subject to a CDSC if redeemed at the time of
transfer; the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B CDSC will be followed in
determining the order in which shares are transferred.
Exchanges of Class B Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class of another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds offer Class B shares: . . . . . . . . . . . . .
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Plan for each class of shares of the
Fund under Rule 12b-1 of the Investment Company Act pursuant to which the
Fund will reimburse the Distributor 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" (those Trustees of the Fund who are
not "interested persons," as defined in the Investment Company Act, and
who have no direct or indirect financial interest in the operation of the
Plans or in any agreements relating to the Plans), cast in person at a
meeting called for the purpose of voting on the respective Plan, and (ii)
the holders of a "majority" (as defined in the Investment Company Act) of
the shares of each class. In approving each Plan, the Board determined
that the Plan will benefit the shareholders of the respective class of the
Fund.
Each Plan shall, unless terminated as described below, continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the 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 the respective 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. 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 the Plan, the
purpose for which each payment was made and the identity of each Recipient
of a payment. The report for the Class B Plan shall also include the
distribution costs for that quarter, and such costs for previous fiscal
periods that are carried forward, as explained in the Prospectus and
below. Those reports, including the allocations on which they are based,
will be subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty. Each Plan further provides that
while it is in effect, the selection and nomination of those Trustees of
the Fund who are not "interested persons" of the Fund is committed to the
discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final
decision on any such selection or nomination is approved by a majority of
the Independent Trustees.
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
fee at the maximum rate and set no minimum amount. The Plans permit the
Distributor and the Manager to make additional distribution payments to
Recipients from their own resources (including profits from previous
management fees) at no cost to the Fund. The Distributor and the Manager
may, in their sole discretion, increase or decrease the amount of
distribution assistance payments they make to Recipients from their own
assets.
For the fiscal year ended September 30, 1993, payments under the Class
A Plan totaled $51,654, all of which was paid by the Distributor to
Recipients, including $10,938 to an affiliate of the Distributor. Any
unreimbursed expenses incurred with respect to Class A shares for any
fiscal quarter by the Distributor may not be recovered under the Class A
Plan in subsequent fiscal quarters. Payments received by the Distributor
under the Class A Plan will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of overhead by
the Distributor.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations imposed by the
National Association of Securities Dealers, Inc. Rules of Fair Practice.
The asset-based sales charge paid to the Distributor by the 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. For the
fiscal period commencing November 30, 1992 to September 30, 1993, payments
under the Class B Plan to the Distributor totalled $11,872.
The Class B Plan allows for the carry-forward of distribution expenses,
to be recovered from asset-based sales charges in subsequent fiscal
periods, as described in the Prospectus. In the event the Class B Plan
is terminated, the Distributor is entitled to continue to receive the
asset-based sales charge on Class B shares sold prior to termination until
the Distributor has recovered its Class B distribution expenses incurred
prior to termination from such payments and from the Class B CDSC. The
Fund believes that current accounting standards do not require the Fund
to record as a current liability its obligation under the Class B Plan to
carry over and continue payments of the asset-based sales charge to the
Distributor in the future to reimburse it for expenses incurred as to
Class B shares sold prior to the termination of the plan. Those
accounting standards are currently being reviewed by the AICPA, as
discussed in the prospectus. If those accounting standards should be
changed to require the Fund to recognize that obligation for future
payments as a current liability, the Fund's Board would consider other
alternatives to that provision of the Class B Plan, because otherwise the
treatment of such expenses as a current liability could result in a
decrease in the net asset value per Class B share. Such decrease would
affect all then-outstanding Class B shares regardless of how long they had
been held. Furthermore, Class B shareholders whose shares had not matured
would continue to remain subject to the Class B CDSC.
The Glass-Steagall Act and other applicable laws and regulations,
among other things generally prohibit Federally-chartered or supervised
banks from engaging in the business of underwriting, selling or
distributing securities as principals. It is the understanding of the
Manager and the Distributor that the Glass-Steagall Act and other
applicable laws and regulations do not prohibit banks and other financial
institutions from providing the services required of a Recipient.
Accordingly, the Distributor may pay banks only for sales made on an
agency basis or for the performance of administrative and shareholder
servicing functions. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or
state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates, could prevent certain banks
from continuing to perform all or a part of these services. If a bank
were so prohibited, shareholders of the Fund who were clients of such bank
would be permitted to remain as shareholders, and if that bank could no
longer provide those service functions, alternate means for continuing the
servicing of such shareholders would be sought. In such event,
shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being
provided by such bank. The Fund's Board of Trustees will consider
appropriate modifications to the Fund's operations, including
discontinuance of payments under the Plans to such institutions, in the
event of any future change in such laws or regulations that may adversely
affect the ability of such institutions to provide those services. It is
not expected that shareholders would suffer any adverse financial
consequences as a result of any of those occurrences. In addition,
certain banks and financial institutions may be required to register as
dealers under state law.
PERFORMANCE, DIVIDEND AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return," "total return at net asset value" and "total return" of an
investment in each class of the Fund may be advertised. An explanation
of how standardized yield, dividend yield, average annual total return,
total return at net asset value and total return are calculated for each
class and the components of those calculations are set forth below.
The Fund's "standardized yield" for a given 30-day period for a class
of shares is calculated using the following formula set forth in the SEC
rules:
a-b 6
Yield = 2 ((---- + 1) -1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of the class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day period
may differ from its standardized 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 distributions
paid by the Fund to shareholders in the 30-day period, but is a
hypothetical yield based upon the return on the Fund's portfolio
investments, and may differ from the "dividend yield," described below.
For the 30-day period ended September 30, 1993, the standardized yield for
the Fund's Class A shares was 5.98%, net of the Manager's voluntary
expense undertaking. The standardized yield for the Fund's Class B shares
for the same period was 4.94%, net of the Manager's voluntary expense
undertaking.
From time to time the Fund may quote a "dividend yield" for each
class. Dividend yield is based on the dividends paid on shares of a class
derived from net investment income during a stated period. Under those
calculations, the dividends 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 on the last day of the period.
The result may be annualized if the period of measurement is less than one
year. From time to time similar calculations may also be made for Class
A shares and Class B shares using the class's net asset value at the end
of the period. The dividend yield is calculated as follows:
Dividend Yield = Dividend x 12
--------
MOP
In the formula above, "Dividend" is the sum of the class's
dividends declared during the stated dividend period, and "MOP" is the
maximum offering price on the last day of the period. For the 30-day
period ended September 30, 1993, the dividend yield on Class A shares was
6.05% (at maximum offering price) and 6.27% (at net asset value); the
dividend yield on Class B shares was 5.02% (at net asset value).
The "average annual total return" of a class is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) over a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses some of the same factors,
but does not average the rate of return on an annual basis. Total return
measures the cumulative (rather than average) change in value of a
hypothetical investment over a stated period. Total return of a class is
determined as follows:
ERV - P
- ------- = Total Return
P
The formulas for average annual total return and for total return
for Class A shares assume the payment of the current maximum sales charge
of 3.50% (as a percentage of the offering price) on the initial investment
("P"). The formulas for Class B shares assume the payment of the
contingent deferred sales charge of 4% for the first year, 3% for the
second year, 2% for the third and fourth years and 1% for the fifth year,
and none thereafter, applied as described in "How To Buy Shares" in the
Prospectus. The formulas also assume that all dividends and capital gains
distributions during the period are reinvested at net asset value per
share, and that the investment is redeemed at the end of the period. The
average annual total return on an investment in Class A shares for the
fiscal year ended September 30, 1993 was .92%. The total return on Class
A shares for that period was .56%. For the fiscal period November 30,
1992 to September 30, 1993, the average annual total return on an
investment in Class B shares was 3.53%. The total return on Class B
shares for that period was 2.93%.
From time to time a "total return at net asset value" may be
quoted for a class of shares. It is based on the difference in net asset
value per share at the beginning and the end of the period for that class
(without considering the sales charge) and takes into consideration the
reinvestment of dividends and capital gains (as with total return,
described above). The total return at net asset value on Class A shares
for the fiscal year ended September 30, 1993, was 4.58%. For the fiscal
period November 30, 1992 to September 30, 1993, the total return at net
asset value on Class B shares was 6.93%.
From time to time the Fund may publish the ranking of the
performance of its Class A or Class B shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent service, which
monitors the performance of regulated investment companies, including the
Fund, and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund's classes
of shares is ranked against all other funds other than money market funds.
The Lipper performance analysis includes the reinvestment of capital gains
distributions and income dividends but does not take sales charges or
taxes into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A or Class B shares by Morningstar, Inc., an
independent mutual fund monitoring service, which ranks mutual funds,
including the Fund, based upon the fund's three, five and ten-year average
annual total returns (when available) and a risk factor that reflects fund
performance relative to three-month U.S. Treasury bill monthly returns.
Such returns are adjusted for fees and sales loads. There are five
ranking categories with a corresponding number of stars: highest (5),
above average (4), neutral (3), below average (2) and lowest (1).
Morningstar ranks the Fund in relation to other rated funds.
The total return on an investment made in shares of the Fund may
be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Salomon Brothers High Grade Corporate Bond
Index, the Lehman Aggregate Bond Index, the Lehman Government/Corporate
Bond Index and the J.P. Morgan Government Bond Index. The Consumer Price
Index is generally considered to be a measure of inflation. The Salomon
Brothers World Government Bond Index generally represents the performance
of government debt securities of various markets throughout the world,
including the United States. The Salomon Brothers High Grade Corporate
Bond Index generally represents the performance of high grade long-term
corporate bonds, the Lehman Aggregate Bond Index generally represents the
performance of investment grade debt securities with a maturity of at
least one year and the Lehman Government/Corporate Bond Index generally
represents the performance of intermediate and long-term government and
investment grade corporate debt securities. The J.P. Morgan Government
Bond Index generally represents the performance of government bonds issued
by various countries including the United States. The foregoing bond
indices are unmanaged, do not reflect reinvestment of capital gains or
take sales charges into consideration, as these items are not applicable
to indices.
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 classes of shares. The yield and total return of a class
of shares are affected by portfolio quality, portfolio maturity, type of
investments held and operating expenses. When comparing yield, total
return and investment risk on an investment in the Fund with those of
other investment instruments, investors should understand that certain
other investment alternatives such as money market instruments,
certificates of deposit ("CDs"), U.S. Government securities or bank
accounts provide yields that are fixed or that may vary above a stated
minimum, and may be insured or guaranteed.
Tax Status of the Fund's Dividends and Distributions. Special provisions
of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate shareholders.
Long-term capital gains distributions are not eligible for the deduction.
In addition, the amount of dividends paid by the Fund which may qualify
for the deduction is limited to the aggregate amount of qualifying
dividends (generally, dividends from domestic corporations) which the Fund
derives from its portfolio investments held for a minimum period, usually
46 days. A corporate shareholder will not be eligible for the deduction
on dividends paid on shares held by that shareholder for 45 days or less.
To the extent the Fund's dividends are derived from its gross income from
option premiums, interest income or short-term capital gains from the sale
of securities, or dividends from foreign corporations, its dividends will
not qualify for the deduction. It is expected that for the most part the
Fund's dividends will not qualify, because of the nature of the
investments held by the Fund in its portfolio.
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's distributions will meet those requirements, the Fund's Board and
the Manager might determine in a particular year that it might be in the
best interest of the Fund not to distribute income or capital gains at the
mandated levels and to pay the excise tax on the undistributed amounts,
which would reduce the amount available for distribution to shareholders
of the Fund.
The Internal Revenue Code requires that a holder (such as the
Fund) of a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year even though the Fund
receives no interest payment in cash on the security during the year.
As an investment company, the Fund must pay out substantially all of its
net investment income each year. Accordingly, when the Fund holds zero
coupon securities, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount
of interest the Fund actually received in cash. Such distributions will
be made from the cash assets of the Fund or by liquidation of portfolio
securities, if necessary. The Fund may realize a gain or loss from such
sales. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain
distribution than they would have had in the absence of such transactions.
ADDITIONAL INFORMATION
Description of the Fund. The Fund's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the Fund's
obligations, and provides for indemnification and reimbursement of
expenses out of its property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume a defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Thus, while Massachusetts law permits a shareholder of a trust
(such as the Fund) to be held personally liable as a "partner" under
certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is highly unlikely and is limited
to the relatively remote circumstances in which the Fund would be unable
to meet its obligations described above. Any person doing business with
the Fund, and any shareholder of the Fund, agrees under the Fund's
Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings
with the Fund, and the Trustees shall have no personal liability to any
such person, to the extent permitted by law.
It is not contemplated that regular annual meetings of
shareholders will be held. The Fund will hold meetings when required to
do so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the
shareholders of 10% of its outstanding shares. In addition, if the
Trustees receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding in the aggregate shares of
the Fund valued at $25,000 or more or holding 1% or more of the Fund's
outstanding shares, whichever is less, that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either give the applicants access to the Fund's shareholder
list, mail their communication to all other shareholders at the
applicants' expense, or take alternative action as set forth in Section
16(c) of the Investment Company Act.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other funds listed in the Prospectus as
"Eligible Funds," at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. To elect this
option, the shareholder must notify OSS in writing and either must have
an existing account in the fund selected for reinvestment or must obtain
a prospectus for that fund and an application from the Distributor to
establish an account. The investment will be made at the net asset value
per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from other
Eligible Funds may be used to purchase shares of this Fund on the same
basis.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
cash, 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 its banking relationships with the Custodian
have been and will continue to be unrelated to and unaffected by the
relationship between the Fund and the Custodian. It will be the practice
of the Fund to deal with the Custodian in a manner uninfluenced by any
banking relationship the Custodian may have with the Manager and its
affiliates.
OSS, as transfer agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's Class A and Class B shares, but is not obligated to sell a specific
number of shares. Expenses normally attributable to sales other than
those paid under the Plan of Distribution, including advertising and the
cost of printing and mailing prospectuses (other than those furnished to
existing shareholders), are borne by the Distributor. During the fiscal
year ended September 30, 1993 and the fiscal period from August 4, 1992
(commencement of operations) through September 30, 1992, the aggregate
amount of sales charges on sales of the Fund's Class A shares was $466,995
and $114,661, of which the Distributor and an affiliated broker-dealer
retained in the aggregate $153,037 and $19,878, respectively.
Independent Auditors and Financial Statements. The independent auditors
of the Fund examine the Fund's financial statements and perform other
related audit services. They also act as auditors for the Manager and
certain other funds advised by the Manager and its affiliates.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated
below and elsewhere in the Application for such Plans, and the Prospectus
and this Statement of Additional Information as they may be amended from
time to time by the Fund and/or the Distributor. When adopted, such
amendments will automatically apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first
and thereafter shares acquired with reinvested dividends and distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such plans should not be considered as a yield or
income on investment. Purchases of additional shares concurrently with
withdrawals are undesirable because of sales charges on purchases when
made. Accordingly, a shareholder may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases.
1. Oppenheimer Shareholder Services ("OSS"), the transfer agent
of the Fund, will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization and application submitted to OSS.
2. Certificates will not be issued for shares of the Fund
purchased for and held under the Plan, but OSS will credit all such shares
to the account of the Planholder on the records of the Fund. Any share
certificates now held by the Planholder may be surrendered unendorsed to
OSS with the Plan application so that the shares represented by the
certificate may be held under the Plan. Those shares will be carried on
the Planholder's Plan Statement.
3. Distributions of capital gains must be reinvested in shares
of the Fund, which will be done at net asset value without a sales charge.
Dividends may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement
payments will be made at the net asset value per share determined on the
redemption date.
5. Checks or ACH payments will be transmitted three business
days prior to the date selected for receipt of the monthly or quarterly
payment (the date of receipt is approximate), according to the choice
specified in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to OSS. The Planholder should allow
at least two weeks' time in mailing such notification before the requested
change can be put in effect.
7. The Planholder may, at any time, instruct OSS by written
notice (in proper form in accordance with the requirements of the then-
current Prospectus of the Fund) to redeem all, or any part of, the shares
held under the Plan. In such case, OSS will redeem the number of shares
requested at the net asset value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder
on written notice to OSS, or by OSS upon receiving directions to that
effect from the Fund. OSS will also terminate the Plan upon receipt of
evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Plan by OSS or the Fund, shares
remaining unredeemed will be held in an uncertificated account in the name
of the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper instructions
are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
9. For purposes of using shares held under the Plan as
collateral, the Planholder may request issuance of a portion of his shares
in certificated form. Upon written request from the Planholder, OSS will
determine the number of shares as to which a certificate may be issued,
so as not to cause the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. Should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
10. OSS shall incur no liability to the Planholder for any
action taken or omitted by OSS in good faith.
11. In the event that OSS shall cease to act as transfer agent
for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
LETTERS OF INTENT
In submitting a Letter of Intent to purchase Class A shares of
the Fund and other OppenheimerFunds at a reduced sales charge, the
investor agrees to the terms of the Prospectus, the Application used to
buy such shares, and the language in this Additional Statement as to
Letters of Intent, as they may be amended from time to time by the Fund.
Such amendments will apply automatically to existing 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 sales charge) during the 13-month period from
the investor's first purchase pursuant to the Letter (the "Letter of
Intent period"), which may, at the investor's request, include purchases
made up to 90 days prior to the date of the Letter. The investor states
the intention to make the aggregate amount of purchases (excluding any
reinvestments of dividends or distributions or purchases made at net asset
value without sales charge), which together with the investor's holdings
of such funds (calculated at their respective public offering prices
calculated on the date of the Letter) will equal or exceed the amount
specified in the Letter to obtain the reduced sales charge rate (as set
forth in "How To Buy Shares" in the Prospectus) applicable to purchases
of shares in that amount (the "intended amount"). Each purchase under the
Letter will be made at the public offering price applicable to a single
lump-sum purchase of shares in the intended amount, as described in the
applicable prospectus.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within the
Letter of Intent period, when added to the value (at offering price) of
the investor's holdings of such fund shares on the last day of that
period, do not equal or exceed the intended amount, the investor agrees
to pay the additional amount of sales charge applicable to such purchases,
as set forth in "Terms of Escrow," below, as those terms may be amended
from time to time. The investor agrees that shares equal in value to 5%
of the intended amount will be held in escrow by the Fund's transfer agent
subject to the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during
the Letter of Intent period exceed the intended amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to refer to the Letter in placing any
purchase orders for the investor during the Letter of Intent period. All
of such purchases must be made through the Distributor.
Terms of Escrow
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Fund's transfer agent. For example, if the intended amount
specified under the Letter is $50,000, the escrow shall be shares valued
in the amount of $2,500 (computed at the public offering price adjusted
for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period
the total purchases pursuant to the Letter are less than the intended
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the transfer agent of the Fund as attorney-in-fact to
surrender for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the
Letter (or the holding of which may be counted toward completion of the
Letter) do not include any fund whose shares are sold without a front-end
sales charge or without being subject to a 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 a fund (described as an "Eligible Fund" in the
Prospectus) whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "Exchange
Privilege," and the escrow will be transferred to that other fund.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Strategic Short-Term
Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Strategic
Short-Term Income Fund as of September 30, 1993, the related statement of
operations for the year then ended, the statements of changes in net
assets for the year ended September 30, 1993 and for the period from
August 4, 1992 (commencement of operations) to September 30, 1992 and the
financial highlights for the period August 4, 1992 (commencement of
operations) to September 30, 1993. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned at September 30,
1993, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Strategic Short-Term Income Fund at September 30, 1993, the results of its
operations, the changes in its net assets and the financial highlights for
the respective stated periods, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
Denver, Colorado
October 21, 1993
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C> <C>
Repurchase Agreements-18.4%
Repurchase agreement with J.P. Morgan Securities,
Inc.,
3.30%, dated 9/30/93 and maturing 10/1/93,
collateralized by U.S. Treasury Bills, 3.05%,
3/24/94,
with a value of $5,408,603 (Cost $5,300,000)
$ 5,300,000 $5,300,000
International Securities-22.0%
Short-Term United Mexican States Treasury Bills, 0%, 3/3/94 1,110,690 + 335,110
Foreign Government
Obligations-1.2%
Long-Term First Australia National Mortgage Acceptance
Foreign Government Corp. Ltd. Bonds, Series 22, 11.40%, 12/15/01 517,815 + 383,333
Obligations-6.9% Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95 1,500,000,000 + 570,025
South Australia Government Finance
Authority Bonds, 10%, 1/15/03
318,000 + 241,188
Tasmanian Public Finance Authority Corp.
Gtd. Bonds, 12.50%, 1/15/01
278,000 + 234,040
Treasury Corp. of Victoria Gtd. Bonds:
12%, 9/22/01
300,000 + 250,090
8.25%, 10/15/03
450,000 + 309,327
1,988,003
Short-Term Foreign Citibank, 17% CD, 8/10/94 (3) 300,000 298,944
Corporate Bonds Salomon, Inc., 17.14% Medium-Term Nts.,
and Notes-4.1% Series D, 11/18/93 (3) 900,000 895,637
1,194,581
Long-Term Foreign Corporacion Andina de Formento, 7.25% Nts., 4/30/98 (1) 750,000 766,406
Corporate Bonds Czechoslovakia National Bank, 7% Bonds, 4/6/96 (1) 500,000 515,000
and Notes-9.8% Empresas Columbiana de Petroleos, 7.25% Nts., 7/8/98 (1) 450,000 450,000
Sears Canada, Inc., 11.70% Debs., 7/10/00
1,000,000 + 834,020
Telecommunication Corp. of Australia Ltd.,
11.50% Bonds, 10/15/02
300,000 + 245,780
2,811,206
Total International Securities (Cost $6,294,894)
6,328,900
U.S. Government Obligations-12.1%
Short-Term Small Business Administration, 6.875%-7.625%,
U.S. Government 10/1/93 (2) 2,967,998 3,172,482
Obligations-11.0%
Treasury-1.1% U.S. Treasury Nts., 5.125%, 2/28/98 300,000 305,529
Total U.S. Government Obligations (Cost
$3,472,482) 3,478,011
4 Oppenheimer Strategic Short-Term Income Fund
<PAGE>
Statement of Investments (continued)
Face Market Value
Amount See Note 1
Mortgage/Asset-Backed Obligations-24.6%
Agency-Full Faith Government National Mortgage Assn.:
and Credit-8.0% 10.50%, 12/15/17 $ 684,316 $ 771,224
10.50%, 7/15/19 29,608
33,368
10.50%, 10/15/20 79,694
89,823
10.50%, 1/15/21 78,030
87,954
10.50%, 3/15/21 60,981
68,736
10.50%, 7/15/21 630,635
710,833
10.50%, 10/15/21 468,744
528,354
2,290,292
Agency-Government Federal Home Loan Mortgage Corp. Collateralized
Sponsored-9.8% Mtg. Obligation, 9%, 3/15/21 2,794,753 2,826,530
Private- First Boston Mortgage Securities Corp.
Mortgage-6.8% Mtg. Pass-Through Certificates, 7.06%,
Series 1993-AFC-1, Cl. A, 10/25/02
750,000 749,766
Resolution Trust Corp. Commercial Mtg.
Pass-Through Certificates:
10.6323%, Series 1992-16, Cl. B3, 5/25/24 (2)
500,000 538,594
8.75%, Series 1993-C1, Cl. B, 5/25/24
600,000 655,500
1,943,860
Total Mortgage/Asset-Backed Obligations (Cost
$7,062,789) 7,060,682
Municipal Bonds and Notes-3.1%
Connecticut State General Obligation
Taxable Bonds, 6.625%, 12/15/97
350,000 367,217
New York State Environmental Facilities Corp.
State Service Contract Taxable Revenue Bonds,
Series B, 7.30%, 3/15/97
500,000 519,868
Total Municipal Bonds and Notes (Cost $847,927)
887,085
U.S. Corporate Bonds and Notes-14.5%
Banks/Savings BankAmerica Corp., 7.50% Sr. Nts, 3/15/97 100,000 107,781
and Loans-1.8% First Chicago Corp., 9% Sub. Nts., 6/15/99 150,000 172,472
Heller Financial, Inc., 7.75% Nts., 5/15/97
225,000 243,021
523,274
Broadcast Media/ Time Warner, Inc., 7.45% Nts., 2/1/98 400,000 420,000
Cable TV-1.5%
Consumer Goods- Mattel, Inc., 6.875% Sr. Nts., 8/1/97 300,000 313,221
Manufacturing-1.1%
Financial/ General Motors Acceptance Corp., 8% Nts., 10/1/96 200,000 215,211
Insurance-2.1% Shearson Lehman Brothers Holdings, Inc.,
8.375% Nts., 2/15/99
350,000 390,561
605,772
5 Oppenheimer Strategic Short-Term Income Fund
<PAGE>
Statement of Investments (continued)
Face Market Value
Amount See Note 1
U.S. Corporate Bonds and Notes (continued)
Food and RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98 $300,000 $ 331,500
Restaurants-1.1%
Gaming/Hotels-1.1% Marriott Corp., 9.625% Sr. Nts., Series B, 2/1/96 300,000 301,875
Oil and Gas- Atlantic Richfield Co., 10.375% Nts., 7/15/95 250,000 275,296
Exploration and
Production-1.0%
Oil and Gas- PDV America, Inc.:
Refining-1.7% 7.25% Gtd. Sr. Nts., 8/1/98 300,000 301,886
7.875% Gtd. Sr. Nts., 8/1/03
200,000 200,303
502,189
Utilities-3.1% Coastal Corp., 8.75% Sr. Nts., 5/15/99 300,000 328,685
Commonwealth Edison Co., 6.50% Nts., 7/15/97
225,000 233,907
Long Island Lighting Co., 7.30% Debs., 7/15/99
300,000 322,138
884,730
Total U.S. Corporate Bonds and Notes (Cost
$4,087,633) 4,157,857
Total Investments, at Value (Cost $27,065,725) 94.7% 27,212,535
Other Assets Net of Liabilities 5.3 1,522,668
Net Assets 100.0% $28,735,203
<FN>
+Face amount is reported in foreign currency.
(1)Restricted security - See Note 5 of notes to financial statements.
(2)Represents the current interest rate for a variable rate security.
(3)Indexed instrument for which the principal amount due at maturity is
affected by the relative value of a foreign currency.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <C> <C>
Assets Investments, at value (cost $27,065,725) - see accompanying statement $27,212,535
Cash
84,064
Receivables:
Shares of beneficial interest sold
1,077,721
Interest
444,680
Investments sold
327,247
Deferred organization costs
7,852
Other
5,449
Total assets
29,159,548
Liabilities Payables and other liabilities:
Investments purchased
256,224
Shares of beneficial interest redeemed
74,775
Dividends
40,123
Distribution assistance - Note 4
15,167
Other
38,056
Total liabilities
424,345
Net Assets $28,735,203
Composition of Paid-in capital $28,984,178
Net Assets Undistributed net investment income 122,495
Accumulated net realized loss from investment
and foreign currency transactions
(513,757)
Net unrealized appreciation of investments -
Note 3 281,958
Net unrealized depreciation on translation of assets
and liabilities denominated in foreign currencies
(139,671)
Net Assets
$28,735,203
Net Asset Value Per Class A Shares:
Share Net asset value and redemption price per share
(based on net assets of $25,313,872 and 5,230,663
shares of beneficial interest outstanding)
$ 4.84
Maximum offering price per share (net asset value
plus sales charge of 3.50% of offering price)
$ 5.02
Class B Shares:
Net asset value, redemption price and offering
price per share (based on net assets of $3,421,331
and 707,392 shares of beneficial interest
outstanding)
$ 4.84
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <C> <C>
Investment Income Interest $1,758,073
Expenses Management fees - Note 4 142,053
Distribution assistance:
Class A - Note 4
51,654
Class B - Note 4
11,872
Transfer and shareholder servicing agent fees -
Note 4 30,906
Shareholder reports
30,784
Custodian fees and expenses
22,639
Legal and auditing fees
11,959
Registration and filing fees:
Class A
3,781
Class B
1,055
Trustees' fees and expenses
345
Other
4,660
Total expenses
311,708
Less reimbursement from Oppenheimer
Management Corporation - Note 4 (34,955)
Net expenses
276,753
Net Investment Income 1,481,320
Realized and Net realized gain on investments 80,366
Unrealized Gain
on Investments Net change in unrealized appreciation of investments:
Beginning of year
23,168
End of year - Note 3
281,958
Net change
258,790
Net Realized and Unrealized Gain on Investments
339,156
Net Increase in Net Assets Resulting from Operations Before Foreign Exchange Loss 1,820,476
Realized and Net realized loss on foreign currency transactions (591,465)
Unrealized Foreign Net change in unrealized depreciation
Exchange Loss on translation of assets and liabilities denominated
in foreign currencies:
Beginning of year
(119,175)
End of year
(139,671)
Net change
(20,496)
Net Realized and Unrealized Foreign Exchange
Loss (611,961)
Net Increase in Net Assets Resulting from Operations $1,208,515
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992+
<S> <C> <C> <C>
Operations Net investment income $ 1,481,320 $ 87,367
Net realized gain on investments
80,366 3,140
Net realized loss from foreign currency transactions
(591,465) (2,738)
Net change in unrealized appreciation or depreciation
of investments
258,790 23,168
Net change in unrealized appreciation or depreciation
on translation of assets and liabilities denominated
in foreign currencies
(20,496) (119,175)
Net increase (decrease) in net assets resulting from
operations
1,208,515 (8,238)
Dividends and Dividends from net investment income:
Distributions to Class A ($.305 and $.053 per share, respectively) (1,297,637) (87,367)
Shareholders Class B ($.212 per share) (61,188) -
Distributions from net realized gain on investments:
Class A ($.0007 per share)
(3,024) -
Class B ($.0007 per share)
(36) -
Beneficial Interest Net increase in net assets resulting from Class A
Transactions beneficial interest transactions - Note 2 12,801,641 12,665,688
Net increase in net assets resulting from Class B
beneficial interest transactions - Note 2
3,416,849 -
Net Assets Total increase 16,065,120 12,570,083
Beginning of year
12,670,083 100,000
End of year
$28,735,203 $12,670,083
<FN>
+For the period from August 4, 1992 (commencement of operations) to September 30, 1992.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
CLASS A CLASS B
Period Ended
Year Ended September 30, September 30,
1993 1992+ 1993++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 4.93 $ 5.00 $ 4.75
Income (loss) from investment operations:
Net investment income .33 .05 .22
Net realized and unrealized gain (loss)
on investments and foreign currencies (.11) (.07) .08
Total income (loss) from investment operatio .22 (.02) .30
Dividends and distributions to shareholders:
Dividends from net investment income (.31) (.05) (.21)
Distributions from net realized gain on
investments - - -
Total dividends and distributions to
shareholders (.31) (.05) (.21)
Net asset value, end of period $ 4.84 $ 4.93 $ 4.84
Total Return, at Net Asset Value*** 4.58% (.27)% 6.93%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $25,314 $12,670 $3,421
Average net assets (in thousands) $20,663 $ 8,643 $1,428
Number of shares outstanding at end of period
(in thousands) 5,231 2,572 707
Ratios to average net assets:
Net investment income 6.83% 6.38%* 5.88%*
Expenses, before voluntary reimbursement
by the Manager 1.38% 1.87%* 2.22%*
Expenses, net of voluntary reimbursement
by the Manager 1.21% .92%* 2.21%*
Portfolio turnover rate** 104.0% 11.2% 104.0%
<FN>
*Annualized.
**The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$25,371,804 and $17,716,396, respectively.
***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.
+For the period from August 4, 1992 (commencement of operations) to
September 30, 1992.
++For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Strategic Short-Term Income Fund (the Fund) is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The Fund's investment adviser is
Oppenheimer Management Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B
shares will automatically convert to Class A shares six years after the
date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
Investment Valuation - Portfolio securities are valued at 4:00 p.m. (New
York time) on each trading day. 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.
Foreign Currency Translation - The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in non-U.S.
currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and
investment income are translated at the rates of exchange prevailing on
the respective dates of such transactions. The net gain or loss resulting
from changes in the foreign currency exchange rates is reported separately
in the Statement of Operations.
The Fund generally enters into forward foreign currency exchange contracts
as a hedge, upon the purchase or sale of a security denominated in a
foreign currency. In addition, the Fund may enter into such contracts as
a hedge against changes in foreign currency exchange rates on portfolio
positions. A forward exchange contract is a commitment to purchase or
sell a foreign currency at a future date, at a negotiated rate. Risks may
arise from the potential inability of the counterparty to meet the terms
of the contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
Repurchase Agreements - The Fund requires the custodian to take
possession, to have legally segregated in the Federal Reserve Book Entry
System or to have segregated within the custodian's vault, all securities
held as collateral for repurchase agreements. If the seller of the
agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
Allocation of Income, Expenses and Gains and Losses - Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
<PAGE>
Notes to Financial Statements (Continued)
Federal Income Taxes - The Fund intends to continue to comply with
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required.
Organization Costs - The Manager advanced $16,395 for organization and
start-up costs of the Fund. Such expenses are being amortized over a
five-year period from the date operations commenced. In the event that all
or part of the Manager's initial investment in shares of the Fund is
withdrawn during the amortization period, the redemption proceeds will be
reduced to reimburse the Fund for any unamortized expenses, in the same
ratio as the number of shares redeemed bears to the number of initial
shares outstanding at the time of such redemption.
Distributions to Shareholders - The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each
day the New York Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized gains on investments,
if any, will be declared at least once each year.
Other - Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Discount on securities
purchased is amortized over the life of the respective securities, in
accordance with federal income tax requirements. Realized gains and losses
on investments and unrealized appreciation and depreciation are determined
on an identified cost basis, which is the same basis used for federal
income tax purposes.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, 1993++ September 30,
1992+
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 6,914,934 $ 33,354,845 2,715,864 $13,473,041
Dividends and distributions reinvested 164,208 792,992 2,919 14,275
Redeemed (4,420,557) (21,346,196) (166,705) (821,628)
Net increase 2,658,585 $ 12,801,641 2,552,078 $12,665,688
Class B:
Sold 870,393 $ 4,204,678 - $ -
Dividends and distributions reinvested 9,152 44,291 - -
Redeemed (172,153) (832,120) - -
Net increase 707,392 $ 3,416,849 - $ -
<FN>
+For the period from August 4, 1992 (commencement of operations) to September 30, 1992.
++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 Losses on Investments
At September 30, 1993, net unrealized appreciation of investments of
$281,958 was composed of gross appreciation of $345,846, and gross
depreciation of $63,888.
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .65%
on the first $500 million of net assets with a reduction of .03% on each
$500 million thereafter to $1.5 billion, and .50% on net assets in excess
of $1.5 billion. The Manager has agreed to reimburse the Fund if aggregate
expenses (with specified exceptions) exceed the most stringent applicable
regulatory limit on Fund expenses. In addition, the Manager has
voluntarily undertaken to reimburse Fund expenses to the level needed to
maintain a stable dividend.
<PAGE>
Notes to Financial Statements (Continued)
For the year ended September 30, 1993, commissions (sales charge paid by
investors) on sales of Class A shares totaled $466,995, of which $153,037
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated
broker-dealer. During the year ended September 30, 1993, OFDI received
contingent deferred sales charges of $5,424 upon redemption of Class B
shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and for other
registered investment companies. OSS's total costs of providing such
services are allocated ratably to these companies.
Under separate approved plans of distribution, each class may expend up
to .25% of its net assets annually to reimburse OFDI for costs incurred
in distributing shares of the Fund, including amounts paid to brokers,
dealers, banks and other institutions. In addition, Class B shares are
subject to an asset-based sales charge of .75% of net assets annually, to
reimburse OFDI for sales commissions paid from its own resources at the
time of sale and associated financing costs. In the event of termination
or discontinuance of the Class B plan of distribution, the Fund would be
contractually obligated to pay OFDI for any expenses not previously
reimbursed or recovered through contingent deferred sales charges. During
the year ended September 30, 1993, OFDI paid $10,938 to an affiliated
broker- dealer as reimbursement for Class A distribution-related expenses
and retained $11,872 as reimbursement for Class B distribution-related
expenses and sales commissions.
5. Restricted Securities
The Fund owns securities purchased in private placement transactions,
without registration under the Securities Act of 1933 (the Act). The
securities are valued under methods approved by the Board of Trustees
as reflecting fair value. The Fund intends to invest no more than 10% of
its net assets (determined at the time of purchase) in restricted and
illiquid securities, excluding securities eligible for resale pursuant to
Rule 144A of the Act that are determined to be liquid by the Board of
Trustees or by the Manager under Board-approved guidelines.
<TABLE>
<CAPTION>
Valuation Per Unit
Security Acquisition Date Cost Per Unit as of September 30, 1993
<S> <C> <C> <C>
Corporacion Andina de
Formento, 7.25% Nts.,
4/30/98+ 4/15/93 $99.38 $102.19
Czechoslovakia National
Bank, 7% Bonds, 4/6/96+ 3/11/93 $99.70 $103.00
Empresas Columbiana de
Petroleas, 7.25% Nts.,
7/8/98+ 6/24/93 $99.63 $100.00
<FN>
+Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
