Registration No. 33-47378
File No. 811-6639
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 3 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 4 / X /
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231
(Address of Principal Executive Offices)
1-303-671-3200
(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation - Suite 3400
Two World Trade Center, New York, New York 10048-0203
(Names and Addresses of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On January 25, 1994, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / On __________________, pursuant to paragraph (a) of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended September 30, 1993, was filed on November 23, 1993.
<PAGE>
FORM N-1A
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
Cross Reference Sheet
---------------------
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Cover Page
2 Fund Expenses
3 Financial Highlights; Additional Information -
Yield and Total Return Information
4 Cover Page; The Fund and its Investment Policies; Special
Investment Methods; Investment Restrictions
5 Fund Expenses; Management of the Fund; Back Cover; Additional
Information - The Custodian and The Transfer Agent
5A Fund Performance Information
6 Dividends, Distributions and Taxes; Additional Information
7 Exchanges of Shares and Retirement Plans; Class A Service
Plan; Class B
Distribution and Service Plan; How to Buy Shares; How to
Redeem Shares
8 Exchanges of Shares and Retirement Plans
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Investment Restrictions
14 Trustees and Officers; Investment Management Services
15 Trustees and Officers - Major Shareholders; Investment
Management Services
16 Investment Management Services; Distribution and Service
Plans; Additional Information; Back Cover
17 Brokerage
18 Additional Information - Description of the Fund
19 Purchase, Redemption and Pricing of Shares; Automatic
Withdrawal Plan Provisions; Letters of Intent
20 Performance, Dividend and Tax Information
21 Distribution and Service Plans; Additional Information -
General Distributor's Agreement; Investment Management
Services; Brokerage
22 Performance, Dividend and Tax Information
23 Financial Statements
______________
* Not applicable or negative answer.
<PAGE>
Oppenheimer Strategic Income & Growth Fund
3410 South Galena Street, Denver, Colorado 80231
Telephone 1-800-525-7048
Oppenheimer Strategic Income & Growth Fund (referred to in this
Prospectus as the "Fund") is an investment company with a primary
investment objective of current income and a secondary investment
objective of capital appreciation. The Fund intends to seek its primary
investment objective of current income principally by investing in (i)
U.S. Government Securities, (ii) foreign fixed-income securities, and
(iii) domestic fixed-income securities, including lower-rated high yield,
high risk bonds. The Fund intends to seek its secondary investment
objective of capital appreciation principally by investing in domestic
equity securities. Some of the securities the Fund intends to invest in
are considered to be speculative. An investment in the Fund does not
constitute a complete investment program and is not appropriate for
persons unwilling or unable to assume the high degree of risk associated
with investing in high yield, lower rated securities.
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 six years of
purchase. These alternatives permit an investor to choose the method of
purchasing shares that is more beneficial to that investor depending on
the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. See "How to Buy Shares -
Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely information about the Fund that
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
number shown above. The Additional Statement (which is incorporated in
its entirety by reference in this Prospectus) contains more detailed
information about the Fund, its management, and more information
concerning certain risk factors. These securities may be considered to
be speculative.
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
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 expenses paid by the Fund during its fiscal year ending
September 30, 1993. The public sale of Class B shares of the Fund
commenced on or about November 30, 1992.
Shareholder Transaction Expenses Class A Shares Class B Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales
Charge on Redemptions None(1) 5.0%(2)
Redemption Fee None None
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses (as a percentage of average net assets)
Class A Shares Class B Shares
Management Fees .75% .75%
12b-1 (Distribution and/or .25% 1.00%
Service Plan) Fees
Other Expenses .36% .46%
Total Fund Operating Expenses(1) .36% 2.21%
_______________________
(1) Certain Class A share purchases of $1 million or more are not subject
to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares - Class A
Contingent Deferred Sales Charge," below.
(2) A contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of 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 5.0% in the first year that shares
are held, to 4.0% in the second year, 3.0% in the third and fourth years,
2.0% in the fifth year, 1.0% in the sixth year and eliminated thereafter.
There is no charge on Class B shares held for more than six years. See
"How to Buy Shares - Class B Contingent Deferred Sales Charge," below.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly
(shareholder transaction expenses) or indirectly (annual fund operating
expenses). The sales charge rate shown for Class A shares is the current
maximum rate applicable to purchases of Class A shares of the Fund.
Investors in Class A shares may be entitled to reduced sales charges based
on the amount purchased or the value of shares already owned and may be
subject to a contingent deferred sales charge in limited circumstances
(see "How to Buy Shares - Class A Contingent Deferred Sales Charge").
"Other Expenses" includes such expenses as custodial and transfer agent
fees, audit, legal and other business operating expenses, but excludes
extraordinary expenses. For further details, see "Dual Class Methodology"
and the Fund's financial statements, both included in the Additional
Statement.
The following examples apply the above-stated expenses and the current
maximum sales 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 $61 $89 $118 $203
2. Class B Shares $72 $99 $138 $213
3. Class A Shares,
assuming no redemption $61 $89 $118 $203
4. Class B Shares,
assuming no redemption $22 $69 $118 $213
______________
(1)Class B shares convert to Class A shares under the terms and conditions
described under "How to Buy Shares - Class B Conversion Feature."
Therefore, years 7 through 10 reflect the Class A expenses shown above.
Long-term shareholders of Class B shares could pay the economic
equivalent, through the asset-based sales charge and contingent deferred
sales charge imposed on Class B shares, of more than the maximum front-end
sales charges permitted under applicable regulatory requirements. The
Class B Conversion Feature is intended to minimize the likelihood that
this will occur.
These examples should not be considered a representation of past or future
expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a Class A share and Class B share of the Fund
outstanding throughout each period.
The information in the table below has been audited by Deloitte &
Touche, independent auditors, whose report on the financial statements of
the Fund for the fiscal year ended September 30, 1993 is included in the
Additional Statement. The public sale of Class B shares of the Fund
commenced on or about November 30, 1992.
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992++ 1993+++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.03 $ 5.00 $ 5.10
Income from investment operations:
Net investment income .22 .07+ .14
Net realized and unrealized gain on investments,
options written and foreign currencies .22 .02 .16
Total income from investment operations .44 .09 .30
Dividends and distributions to shareholders:
Dividends from net investment income (.20) (.06) (.13)
Distributions from net realized gain on investments (.01) -- (.01)
and options written
Total dividends and distributions to shareholders (.21) (.06) (.14)
Net asset value, end of period $ 5.26 $ 5.03 $ 5.26
Total Return, at Net Asset Value** 8.84% 1.74% 5.86%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $55,291 $48,397 $12,386
Average net assets (in thousands) $59,209 $30,264 $ 7,541
Number of shares outstanding at end of period
(in thousands) 10,513 9,628 2,357
Ratios to average net assets:
Net investment income 5.69% 4.59%* 5.53%*
Expenses 1.36% 1.46%*+ 2.21%*
Portfolio turnover rate*** 122.4% 25.8% 122.4%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before
distributions reinvested in additional shares on the reinvestment date,
and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total
returns.
***The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$96,138,345 and $76,691,071, respectively.
+Net investment income would have been $.07 absent the voluntary expense
reimbursement, resulting in an expense ratio of 1.74%.
++For the period from June 1, 1992 (commencement of operations) to
September 30, 1992.
+++For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
</TABLE>
<PAGE>
The Fund and Its Investment Policies
The Fund is an open-end diversified management investment company
with a primary investment objective of current income and a secondary
investment objective of capital appreciation. It is a Massachusetts
business trust organized on April 14, 1992.
The Fund intends to seek its primary investment objective of current
income principally by investing in: (i) U.S. Government Securities, (ii)
foreign fixed-income securities, and (iii) domestic fixed-income
securities, including lower-rated, high yield, high risk bonds. Factors
that the Fund's investment adviser, Oppenheimer Management Corporation
(the "Manager"), will consider in selecting foreign obligations for the
Fund's portfolio are discussed below under "Foreign Fixed-Income
Securities." The Fund intends to seek its secondary investment objective
of capital appreciation principally by investing in domestic equity
securities. For a discussion of approaches which may be utilized by the
Manager to determine the allocation of the Fund's assets between the fixed
income sectors and the domestic equity sector, see "Asset Allocation
Approaches". 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.
Under normal circumstances, the assets of the Fund will principally
be invested in each of the four sectors described above. However, the
Fund may from time to time invest up to 100% of its total assets in any
one sector (other than in the domestic equity securities sector) if, in
the judgment of the Manager, the Fund has the opportunity of seeking a
high level of current income without undue risk to principal.
Accordingly, the Fund's investments should be considered speculative.
Distributable income will fluctuate as the Fund shifts assets among these
sectors. The Fund's emphasis on securities with short, intermediate or
longer term maturities will change over time in response to market
conditions as will the Fund's investments in domestic equity securities.
There can be no assurance that the Fund will achieve its investment
objectives.
The Fund's assets may be invested in the following manner and will
be managed in accordance with the investment policies described below.
Further details are in "Investment Objective and Policies" in the
Additional Statement.
Domestic Fixed-Income Securities
The Fund may invest in fixed-income securities issued by domestic
corporations in any industry (e.g., industrial, financial or utility)
which may be denominated in U.S. dollars or in non-U.S. currencies. There
is no restriction as to the size of the issuer, although most will have
total assets in excess of $100 million. These investments may include
debt obligations such as bonds, debentures (i.e., unsecured bonds) and
notes (including variable and floating rate instruments described in
"Investment Objective and Policies" in the Additional Statement), together
with the other instruments discussed below. These investments may also
include sinking fund and callable bonds. Fixed-income securities are
subject to credit risk (the ability of the issuer to meet interest or
principal payments or both as they become due) and interest rate risk
(fluctuations in value resulting from the inverse relationship between
price and yield of fixed-income securities).
-Special Risk Considerations - High Yield Securities and Borrowing.
The higher yields and high income sought by the Fund are generally
obtainable from securities in the lower rating categories of the
established rating services. Such securities are rated "Baa" or lower by
Moody's Investors Service, Inc. ("Moody's") or "BBB" or lower by Standard
& Poor's Corporation ("Standard & Poor's"). The Fund may invest in
securities rated as low as "C" by Moody's or "D" by Standard & Poor's.
Such ratings indicate that the obligations are speculative in a high
degree and may be in default. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or if such securities
fall below the above-stated ratings. The Appendix to this Prospectus
describes these rating categories. The Fund may also invest in unrated
securities which, as determined by the Manager, offer yields and risks
comparable to those securities which are rated. 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 premature redemption
proceeds only in lower yielding portfolio securities, (v) the possibility
that earnings of the issuer may be insufficient to meet its debt service,
and (vi) the issuer's low creditworthiness and potential for insolvency
during periods of rising interest rates and economic downturn. As a
result of the limited liquidity of high yield securities, their prices
have at times experienced significant and rapid decline when a substantial
number of holders decided to sell. A decline is also likely in the high
yield bond market during an economic downturn. An economic downturn or
an increase in interest rates could severely disrupt the market for high
yield bonds and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In addition,
there have been several Congressional attempts to limit the use of tax and
other advantages of high yield bonds which, if enacted, could adversely
affect the value of these securities and the Fund's net asset value. For
example, federally-insured savings and loan associations have been
required to divest their investments in high yield bonds.
The Fund's portfolio at September 30, 1993 contained domestic
corporate bonds rated by Standard & Poor's as follows (the percentages
relate to the weighted average value of the bonds in each rating category
as a percentage of the Fund's total assets): BBB, .89%; BB-, 2.55%; B,
8.14%; CCC, .82%; and unrated, 4.46%. If a bond was not rated by Standard
& Poor's but was rated by Moody's, it is included in the comparable
category. Bonds shown as unrated were not rated by either Moody's or
Standard & Poor's. The Manager does not rely solely on the ratings of
rated securities in making investment decisions but evaluates other
economic and business factors affecting the issuer as well. The relative
proportion of securities in particular rating categories in the Fund's
portfolio will fluctuate over time.
The Fund may also leverage its purchases of portfolio securities by
borrowing, which is considered to be a speculative investment method and
subjects an investment in the Fund to relatively greater risks and costs
that may not be present in a fund that does not borrow, including possible
reduction of income and increased fluctuation of net asset value per
share. See "Special Risk Considerations - Borrowing," below.
-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 during the
coming year in participation interests. Such participation interests,
which may take the form of interests in, or assignments of, the loan, may
be acquired from banks or other lenders which have made loans or are
members of a lending syndicate. The Fund's investments in participation
interests are subject to its limitation on investments in illiquid
securities (see "Illiquid and Restricted Securities," below). Further
details are set forth in the Additional Statement under "Domestic Fixed
Income Securities - Participation Interests."
-Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by private issuers. These zero coupon securities are:
(i) notes or debentures which do not pay current interest and are issued
at substantial discounts from par value, or (ii) notes or debentures that
pay no current interest until a stated date one or more years in the
future, after which the issuer is obligated to pay interest until
maturity, usually at a higher rate than if interest were payable from the
date of issuance. Such zero coupon securities, in addition to the risks
identified below under "U.S. Government Securities - Zero Coupon
Securities," are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the
obligation. While the Fund does not receive cash payments of interest on
zero coupon securities, it does accrue taxable income on such securities.
-Asset-Backed Securities. The Fund may invest in securities which
represent fractional undivided interests in pools of consumer loans,
similar in structure to the mortgage-backed securities in which the Fund
may invest, described below. Payments of principal and interest are
passed through to holders of asset-backed securities and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety bond, limited guarantee by another entity or having a priority to
certain of the borrower's other obligations. 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 Fixed-Income Securities - Asset-Backed
Securities."
-Bank Obligations. The Fund may invest in the following Bank
Obligations (which are debt obligations generally having a maturity of one
year or less): 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. The Fund may invest in commercial paper rated at
least "A-3" by Standard & Poor's or at least "Prime-3" by Moody's or, if
not rated, issued by a corporation having an existing debt security rated
at least "BBB" or "Baa" by Standard & Poor's or Moody's, respectively.
The Fund's commercial paper investments may include variable amount master
demand notes and floating rate or variable rate notes, described under
"Domestic Fixed-Income Securities" in the Additional Statement.
-Board-Approved Instruments. The Fund may invest in other
investments, including those which may be developed in the future, of a
type which the Fund's Board of Trustees or the Manager under guidelines
established by the Board determines will enable the Fund to seek its
investment objective and are consistent with the Fund's other investment
policies.
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 and their yields are
generally lower than the yields available from corporate debt securities,
the values of U.S. Government Securities (and of most fixed-income
securities generally) will vary inversely to changes in prevailing
domestic interest rates.
U.S. Government Securities are debt obligations issued by or
guaranteed by the United States Government or one of its agencies or
instrumentalities. Certain of these obligations, including U.S. Treasury
notes and bonds, and mortgage-backed securities guaranteed by the
Government National Mortgage Association ("Ginnie Maes"), are supported
by the full faith and credit of the United States. Certain other U.S.
Government Securities, issued or guaranteed by Federal agencies or
government-sponsored enterprises, are not supported by the full faith and
credit of the United States. These latter securities may include
obligations supported by the right of the issuer to borrow from the U.S.
Treasury (which is not under a legal obligation to make such loans), such
as obligations of Federal Home Loan Mortgage Corporation ("Freddie Macs"),
and obligations supported by the credit of the instrumentality, such as
Federal National Mortgage Association bonds ("Fannie Maes"). 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 discount from its face or par value, does
not pay current cash income, and will be subject to greater fluctuations
of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. While the Fund does not receive cash payments of interest on
zero coupon securities, it does accrue taxable income on such securities.
-Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities which represent participation interests in pools of
residential mortgage loans, including collateralized mortgage-backed
obligations ("CMOs"), which may be issued or guaranteed by (i) agencies
or instrumentalities of the U.S. Government (e.g. Ginnie Maes, Freddie
Macs and Fannie Maes), or (ii) private issuers. Such securities differ
from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semi-annually) with principal payments
at maturity or specified call dates. Mortgage-backed securities provide
monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at lower rates than the original investment, thus
reducing the yield of the Fund. The issuer's obligation to make interest
and principal payments is secured by the underlying portfolio of mortgages
or mortgage-backed securities. Mortgage-backed securities created by
private issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance,
and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers. There can be no assurance that
private issuers will be able to meet their obligations. The Fund may
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.
The Fund may also enter into "forward roll" transactions under which
it sells the mortgage-backed securities in which it may invest to banks
or other permitted entities and simultaneously agrees to repurchase a
similar security from that party at a later date at an agreed-upon price.
Forward rolls are considered to be a borrowing by the Fund (see "Special
Investment Methods - Special Risk Considerations - Borrowing"). The Fund
would be required to place liquid assets (e.g., cash, U.S. Government
securities or other high-grade debt securities) in a segregated account
with its Custodian in an amount equal to its obligation under the roll;
that amount is subject to the limitation on borrowing described in
"Borrowing" below. The principal risk is the risk of default by the
counterparty. Mortgage-backed securities may be less effective than debt
obligations of similar maturity at maintaining yields during periods of
declining interest rates. As new types of mortgage-related securities are
developed and offered to investors, the Manager will, subject to the
direction of the Board of Trustees and consistent with the Fund's
investment objective and policies, consider making investments in such new
types of mortgage-related securities.
Foreign Fixed-Income Securities
The Fund may invest in debt obligations of the types identified in
"Domestic Fixed-Income Securities," above (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities, and debt obligations
issued by U.S. corporations denominated in non-U.S. currencies ("Foreign
Fixed-Income Securities"). These include U.S. dollar denominated debt
obligations known as "Brady Bonds," which are issued for the exchange of
existing commercial bank loans to foreign entities for new obligations
that generally are collateralized by zero coupon Treasury securities
having the same maturity. No more than 25% of the Fund's total assets,
at the time of purchase, will be invested in government securities of any
one foreign country or in debt securities issued by companies organized
under the laws of any one foreign country.
The percentage of the Fund's assets that will be allocated to Foreign
Fixed-Income Securities will vary from time to time depending on, among
other things, the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries, sovereign credit
risk and the relationship of such countries' currency to the U.S. dollar.
The Manager will consider an issuer's affiliation, if any, with a foreign
government as one of the factors in determining whether to purchase any
particular foreign security. These factors are judged on the basis of
fundamental economic criteria (e.g., relative inflation levels and trends,
growth rate forecasts, balance of payments status, and economic policies)
as well as technical and political data. The Fund's portfolio of foreign
securities may include those of a number of foreign countries or,
depending upon market conditions, those of a single country.
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.
Subsequent foreign currency losses may result in the Fund having
previously distributed more income in a particular period than was
available from investment income, which could result in a return of
capital to shareholders.
Other than as set forth above, the Fund has no restriction on the
amount of its assets that may be invested in foreign securities and may
purchase securities issued in any country, developed or underdeveloped.
Investments in securities of issuers in non-industrialized countries
generally involve more risk and may be considered highly speculative.
Securities of foreign issuers that are represented by American depository
receipts, or that are listed on a U.S. securities exchange, or are traded
in the U.S. over-the-counter market are not considered "foreign
securities" because they are not subject to many of the special
considerations and risks (discussed below and in the Additional Statement)
that apply to foreign securities traded and held abroad. If the Fund's
securities are held abroad, the countries in which such securities may be
held and the sub-custodians holding them must be, in most cases, approved
by the 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
("G.A.A.P."). 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. Additional costs may be incurred in connection
with investments in foreign securities because of generally higher foreign
commissions and the additional custodial costs associated with monitoring
foreign securities. See "Foreign Fixed-Income Securities" in the
Additional Statement for the risks and possible rewards of investing in
securities of foreign corporations and governments and for further
information on Brady Bonds.
Domestic Equity Securities
The Fund may invest in equity securities issued by domestic
corporations in any industry (e.g., industrial, financial or utility).
There is no restriction as to the size of the issuer, although most will
have assets in excess of $100 million. These investments may include
common stocks, preferred stocks, convertible securities and warrants. The
Fund's investment in common and preferred stocks will emphasize issues
that are listed on a U.S. securities exchange or quoted on the automatic
quotation system of the National Association of Securities Dealers, Inc.
("NASDAQ"). Although the Fund may invest in securities of small
unseasoned companies, investments in securities of such companies
(including predecessors) that have operated less than three years may not
exceed 5% of the Fund's total assets.
Portfolio Turnover
During periods of falling interest rates, the values of outstanding
fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Because the Fund will actively use
trading to benefit from short-term yield disparities among different
issues of fixed-income securities, to increase its income, and to change
its investments in domestic equity securities the Fund may be subject to
a greater degree of portfolio turnover than might be expected from
investment companies which invest substantially all of their assets on
a long-term basis. The Fund anticipates that it will invest in fixed-
income securities of longer maturity as interest rates decline and fixed-
income securities of shorter maturity as interest rates rise.
Higher portfolio turnover results in increased Fund expenses,
including brokerage commissions, dealer mark-ups and other transaction
costs on the sale of securities and on the reinvestment of sale proceeds
in other securities, and results in the acceleration of realization of
capital gains or losses for tax purposes. To the extent that increased
portfolio turnover results in gains from sales of securities held less
than three months, the Fund's ability to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") may be affected. Although changes in the
value of the Fund's portfolio securities subsequent to their acquisition
are reflected in the net asset value of the Fund's shares, such changes
will not affect the income received by the Fund from such securities. The
dividends paid by the Fund will increase or decrease in relation to the
income received by the Fund from its investments, which will in any case
be reduced by the Fund's expenses before being distributed to the Fund's
shareholders.
Asset Allocation Approaches
The Manager may, from time to time, employ different approaches to
determine the allocation of the Fund's assets between the three fixed
income sectors and the domestic equity sector. The Manager determines
that allocation periodically, in the following manner: First, the Manager
establishes a target level of current income from the Fund's portfolio
investments (which may be established with reference to a measure of
current interest rates, such as 3-month U.S. Treasury Bills). Second, the
Manager estimates what proportion of the Fund's assets are to be allocated
to the fixed income sectors to seek to achieve that level of current
income. Third, the remainder of the Fund's assets not allocated to
investment in fixed-income securities are allocated to the domestic equity
sector to attempt to achieve capital appreciation. The Manager determines
this allocation monthly (although the frequency of such determination may
vary) and to utilize the 3-month Treasury Bill rate as the measure of
current interest rates used as a benchmark to target desired portfolio
income (although a different measure may be adopted). Since the Fund's
objective of capital appreciation is secondary to its objective of current
income, there may be periods in which relatively little or none of the
Fund's assets are invested in equity securities.
Using the asset allocation approach set forth above, the proportion
of the Fund's assets allocated to the fixed income sectors and to the
domestic equity sector will vary from time to time, depending on the level
of current portfolio income targeted by the Manager, the Manager's
estimates of earnings available from the fixed income sectors, and other
factors. In general, the more that the Manager's estimate of projected
earnings available from the fixed income sectors exceeds the targeted
level of current portfolio income, the higher the percentage of the Fund's
assets that will be available to allocate to the domestic equity sector.
The Manager may, from time to time, vary, revise or discontinue this
asset allocation approach or adopt a different asset allocation approach.
The utilization of this approach is not an objective of the Fund, but
merely illustrates the investment selection and allocation methodology the
Manager presently intends to employ in seeking the Fund's objectives and
in implementing the Fund's investment policies. There can be no assurance
that any asset allocation approach will be successful in providing the
Fund or investors a particular amount of current income or achieving
particular investment results. The Fund's expenses will reduce the amount
of any income available for distribution to shareholders from the Fund's
investments, whether or not the targeted level sought by the Manager is
achieved. Investors are cautioned that the Fund is designed for the long-
term investor and should not be considered as a short-term investment
vehicle.
Special Investment Methods
In pursuing its investment objectives, the Fund may use the following
special investment methods.
Special Risk Considerations - Borrowing
From time to time, the Fund may increase its ownership of securities
by borrowing from banks on an unsecured basis and investing the borrowed
funds (on which the Fund will pay interest), subject to the 300% asset
coverage requirement of the Investment Company Act of 1940 (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 borrows, 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" under "Special
Investment Methods" 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 such calls written by the Fund must be "covered" while the call is
outstanding (i.e. the Fund must own the securities subject to the call or
other securities acceptable for applicable escrow requirements). The Fund
may also write calls on Futures (discussed below) which must be covered
by deliverable securities or by liquid assets (e.g., cash, U.S. Government
Securities or other high-grade debt securities) segregated to satisfy the
Futures contract.
Hedging
For hedging purposes, the Fund may enter into (a) contracts for the
purchase or sale for future delivery of fixed-income securities ("Interest
Rate Futures") or foreign currencies ("Forward Contracts"), (b) contracts
based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities
("Financial Futures") (collectively, "Futures"), (c) call and put options
on debt securities, Futures and foreign currencies, and (d) 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. At present, the Fund does not intend to enter into
Futures, Forward Contracts and options on Futures if, after any such
purchase or sale, the sum of margin deposits on Futures and premiums paid
on Futures options exceeds 5% of the value of the Fund's total assets.
The Fund's potential liability under Futures contracts and options
generally will be significantly in excess of such amount. The Hedging
Instruments the Fund may use are described below.
-Interest Rate Futures and Financial Futures. The Fund may buy and
sell Futures. An Interest Rate Future obligates the seller to deliver and
the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
A financial index assigns relative values to the securities included in
that index and is used as a basis for trading Financial Futures contracts.
Financial Futures reflect the price movements of securities included in
the index. They differ from Interest Rate Futures in that settlement is
made in cash rather than by delivery of the underlying investment.
-Purchasing Calls on Securities and Futures. The Fund may purchase
calls on debt securities or on Futures that are traded on U.S. or foreign
securities exchanges or over-the-counter markets, in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of long-term debt securities.
The value of debt securities underlying calls purchased by the Fund will
not exceed the value of the Fund's portfolio invested in cash or cash
equivalents (i.e., securities with maturities of less than one year).
-Puts on Securities and Futures. The Fund may purchase put options
("puts") which relate to debt securities (whether or not it holds such
securities in its portfolio) or Futures. It may also write puts on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. Such options may be traded on U.S. or foreign securities
exchanges or over-the-counter markets. The Fund will not write puts if,
as a result, more than 50% of the Fund's net assets would be required to
be segregated to cover such put obligations.
-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 will have
incurred transactions costs.
-Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. The Fund may enter into a
Forward Contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which
has not yet settled, or to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a
foreign currency. There is a risk that use of Forward Contracts may
reduce the gain that would otherwise result from a change in the
relationship between the U.S. dollar and a foreign currency. Forward
Contracts include standardized foreign currency futures contracts which
are traded on exchanges and are subject to procedures and regulations
applicable to other Futures. The Fund may also enter into a Forward
Contract to sell a foreign currency denominated in a currency other than
that in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign
currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging". The success of cross hedging depends on many factors,
including the ability of the Manager to correctly identify and monitor the
correlation between foreign currencies and the U.S. dollar. To the extent
that the correlation is not identical, the Fund may experience losses or
gains on both the underlying security and the cross currency hedge.
The Fund will not speculate in foreign currency exchange contracts.
There is no limitation as to the percentage of the Fund's assets that may
be committed to foreign currency exchange contracts. The Fund does not
enter into such Forward Contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Hedging Instruments" in the Additional Statement for a discussion of the
tax treatment of foreign currency exchange contracts.
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps. In an interest rate swap, the Fund and another party exchange
their respective commitments to pay or receive interest on a security
(e.g., an exchange of floating rate payments for fixed rate payments.)
The Fund will not use interest rate swaps for leverage. Swap transactions
will be entered into only as to security positions held by the Fund.
Under its current policy, the Fund may not enter into swap transactions
in excess of 50% of its total assets.
The Fund will segregate 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 counter party
defaults, the Fund risks the loss of the net amount of interest payments
that it is contractually entitled to receive. The Fund may be able to
reduce or eliminate its exposure to losses under swap agreements either
by assigning them to another party, or by entering into an offsetting swap
agreement with the same counterparty or another creditworthy counterparty.
See "Covered Calls and Hedging" in the Additional Statement for further
details.
-Risks of Options and Hedging. "Covered Calls and Hedging" in the
Additional Statement contains more information about the characteristics,
risks, tax effects and possible benefits of options, Futures, Forward
Contracts, segregation arrangements for Forward Contracts and the Fund's
other limitations (which are not fundamental policies) relating to
investment in Futures and options. There are certain risks in writing
calls. If a call written by the Fund is exercised, the Fund 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 a non-
taxable return of capital to shareholders. In writing puts, there is the
risk that the Fund may be required to buy the underlying security at a
disadvantageous price. The principal risks of futures trading are: (a)
possible imperfect correlation between the prices of the Futures and the
market value of the debt securities in the Fund's portfolio; (b) possible
lack of a liquid secondary market for closing out a Futures position; (c)
the need for additional skills and techniques beyond those required for
normal portfolio management; and (d) losses on Futures resulting from
interest rate movements not anticipated by the Manager.
Repurchase Agreements
The Fund may acquire securities subject to repurchase agreements for
investment and liquidity purposes, 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 vendor fails to pay the
agreed-upon resale price on the delivery date, the Fund's risks may
include any costs of disposing of the collateral and any loss from any
delay 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
"Special Investment Methods - Repurchase Agreements" 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 if the loan is collateralized in
accordance with applicable regulatory requirements, and if, after any
loan, the value of securities loaned does not exceed 25% of the value of
the Fund's total assets. The Fund presently does not intend that the
value of securities loaned will exceed 5% of the value of the Fund's total
assets during the coming year. See "Special Investment Methods - 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 (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market, or because of legal or contractual
restrictions on resale ("restricted securities"). This limitation applies
to participation interests, bank time deposits, master demand notes,
repurchase agreements having a maturity beyond seven days, over-the-
counter options held by the Fund, and that portion of Fund assets used to
cover such options. This limitation 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 securities at prices representing
their fair value (see "Restricted and Illiquid Securities" in "Special
Investment Methods" 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" refers 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 "Special
Investment Methods -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 "short sales against-
the-box." No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time. In such short sales,
while the short position is open, the Fund must own an equal amount of
such securities, or by virtue of ownership of securities have the right,
without payment of further consideration, to obtain an equal amount of the
securities sold short. 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.
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 by lending
portfolio securities in accordance with applicable regulations; (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
as short sales against-the-box.
The percentage restrictions described above and in the Additional
Statement, other than those described under "Special Investment Methods -
Special Risk Considerations - Borrowing," are applicable only at the time
of investment and require no action by the Fund as a result of subsequent
changes in value of the investment or the size of the Fund. A
supplementary list of investment restrictions is contained in the
Additional Statement, which also contains further information regarding
the Fund's investment policies.
Management of the Fund
The 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: 0.75% of
the first $200 million of average annual net assets, 0.72% of the next
$200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million, and 0.50% of the net assets in
excess of $1 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.
Robert Doll, Jr. is an Executive Vice President of the Manager,
Arthur P. Steinmetz is a Senior Vice President of the Manager and Margaret
M. Johnson and David P. Negri are Vice Presidents of the Manager and each
serves as a Portfolio Manager and as Vice President of the Fund, except
for Mr. Doll who is Senior Vice President and Portfolio Manager of the
Fund. Since the Fund's inception in 1992, they have been the persons
principally responsible for the day-to-day management of the Fund's
portfolio. During the past five years, Messrs. Doll, Steinmetz and Negri
and Ms. Johnson have also served as officers and portfolio managers for
other OppenheimerFunds. Ms. Johnson formerly was an assistant portfolio
manager for the Manager, prior to which she was a portfolio manager and
analyst for SLH, a division of Shearson Lehman Hutton, Inc., a securities
firm. 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 (i) 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 (ii) on a contingent deferred
basis (the "Class B Shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B Shares made within six years of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares of the Fund regarded as most beneficial
to that investor, taking into account 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 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 charge
with respect to Class B shares are the same as those of the initial sales
charge with respect to the 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 investments 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 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 that 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 value 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 the Board judges
it in the Fund's best interest to do so.
Class A Shares
Class A Shares are sold at their offering price, which (as used in
this Prospectus and the Additional Statement) is net asset value plus a
front-end sales charge, except that as to certain purchases described
below that are not subject to a front-end sales charge, the offering price
is net asset value. The offering price is determined as of 4:00 P.M. each
regular business day. Class A shares may not be converted into Class B
shares.
The table below shows the regular front-end sales charge rates for
Class A shares for a "single purchaser" (defined below), together with the
dealer discounts paid to authorized dealers and the agency commissions
paid to authorized brokers (collectively, "commissions"):
<TABLE>
<CAPTION>
Front-End
Front-End Sales Charge Commission
Sales Charge as Approximate as Percentage
as Percentage Percentage of of Offering
Amount of Purchase of Offering Price Amount Invested Price
- ------------------ ----------------- --------------- -------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
$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" (defined below) in a calendar year, the dealer firm is eligible to
send such representative, with a guest, to a three-day sales conference
(generally held in a resort), if one is sponsored and held by the
Distributor; or in lieu of sending such representative, that firm may, at
its option, receive the equivalent cash value of such award as additional
commission. The Distributor may, from time to time, enter into
arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales
for a specific period of time, shares of certain or all of the "Eligible
Funds" held by the dealer and/or its customers or some combination
thereof.
Dealers whose sales of Class A shares of "Eligible Funds" other than
"Money Market Funds" under OppenheimerFunds-sponsored 403(b)(7) custodial
plans exceed a rate of $5 million per year, calculated per calendar
quarter, will receive monthly one-half of the Distributor's retained
commissions on such sales. Dealers whose sales of such plans exceed a
rate of $10 million per year, calculated per calendar quarter, will
receive the Distributor's entire retained commission on such sales.
-Class A Contingent Deferred Sales Charge. On certain purchases of
Class A shares of any one or more "Eligible Funds" by a "single purchaser"
(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 such 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 CDSC was
paid at the time of 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 Class A CDSC, except that if Class A shares
acquired by exchange are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged shares, the Class
A CDSC will apply. In determining whether a 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 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 certain other "Eligible Funds" and of the Fund
if sold subject to an initial sales charge and if the investment is still
held in one of the Eligible Funds. The Eligible Funds are those for which
the Distributor or an affiliate acts as the distributor and include the
following: (i) the Fund, Oppenheimer Strategic Income Fund, Oppenheimer
Strategic Investment Grade Bond Fund, Oppenheimer Strategic Short-Term
Income Fund, Oppenheimer Time Fund, Oppenheimer Target Fund, Oppenheimer
Tax-Free Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer
California Tax-Exempt Fund, Oppenheimer High Yield Fund, Oppenheimer
Champion High Yield Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer
Asset Allocation Fund, Oppenheimer Mortgage Income Fund, Oppenheimer
Discovery Fund, Oppenheimer U.S. Government Trust, Oppenheimer Global Bio-
Tech Fund, Oppenheimer Global Environment Fund, Oppenheimer Global Growth
& Income Fund, Oppenheimer Multi-State Tax-Exempt Trust, Oppenheimer
Global Fund, Oppenheimer Fund, Oppenheimer Special Fund, Oppenheimer
Equity Income Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer
Investment Grade Bond Fund, Oppenheimer Value Stock Fund, Oppenheimer
Intermediate Tax-Exempt Bond Fund, Oppenheimer Insured Tax-Exempt Bond
Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer Government
Securities Fund; and (ii) the following "Money Market Funds": Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Centennial America Fund, L.P., Oppenheimer Money Market
Fund, Inc., Daily Cash Accumulation Fund, Inc., Oppenheimer Cash Reserves
and Oppenheimer Tax-Exempt Cash Reserves. There is an initial sales
charge on the purchase of Class A shares of each Eligible Fund except
Money Market Funds (under certain circumstances described herein,
redemption proceeds of Money Market Fund shares may be subject to a
CDSC). The reduced sales charge applies only to current purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code, including related plans of the same employer. To
be entitled to a reduced sales charge under the Right of Accumulation, at
the time of purchase, the investor 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 making an initial investment of 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 or
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates, and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions which have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's spouse or minor children); (v) sold to dealers,
brokers or 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; or (vi) purchased by
the reinvestment of (a) loan repayments by a participant in a retirement
plan for which the Manager or its affiliates acts as sponsor, or (b)
dividends or other distributions reinvested from the Fund or other
"Eligible Funds" (other than Cash Reserves Funds) or unit investment
trusts for which reinvestment arrangements have been made with the
Distributor. "Reduced Sales Charges" in the Additional Statement
discusses this policy.
Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") pursuant to Rule 12b-1 of the Investment Company Act under
which the Fund will reimburse the Distributor quarterly for a portion of
its costs incurred in connection with the personal service and maintenance
of accounts that hold Class A shares. The Distributor will use such fees
received from the Fund in their 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 of the Fund
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
previously 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 vlaue per share without the
imposition of a sales charge at the time of purchase.
-Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B Shares redeemed within six years of the end of the
calendar month of their purchase (not including shares purchased by
reinvestment of dividends or capital gains). The charge will be assessed
on an amount equal to the lesser of the then current market value or the
original purchase price of the Class B shares being redeemed.
Accordingly, no Class B CDSC will be imposed on increases in net asset
value above the initial purchase price, nor on shares purchased by
reinvestment of dividends or capital gains. In determining whether a
Class B CDSC is applicable to a redemption, Class B shares are redeemed
in the following order: (1) those acquired pursuant to reinvestment of
dividends or distributions, (2) those held for over six years, and (3)
those held longest during the six year period.
Proceeds from the Class B CDSC are paid to the Distributor and are
used by it to reimburse its expenses related to providing distribution-
related services to the Fund in connection with the sale of Class B
shares. The combination of the Class B CDSC and the distribution fee
retained by the Distributor (as described under "Class B Distribution
Plan") facilitate the sale of Class B Shares without a sales charge being
deducted at the time of purchase. Any 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 in
In Which Order Was Accepted That Year (as % of Applicable Proceeds)
- --------------------------- ---------------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 or more None
In the table above, a "year" is a period of twelve months. In
determining the amount of the Class B CDSC that applies and when Class B
shares convert as described in the following paragraph, all purchases
shall be considered as having been made on the first regular business day
of the month in which the purchase was made. The Class B CDSC will be
waived upon the request of the shareholder for redemptions of shares made
for: (1) distributions to participants or beneficiaries from Retirement
Plans, which distributions are made either (a) under an Automatic
Withdrawal Plan (described under "How to Redeem Shares") after the
participant attains age 59-1/2, and which are limited to no more than 10%
of the account value annually (determined in the first year, as of the
date the redemption request is received by the Transfer Agent, and in
subsequent years, as of the most recent anniversary of that date) or (b)
following the participant's or beneficiary's (i) "disability" (as defined
in the Internal Revenue Code) that occurs since the account was
established, or (ii) death; (2) redemptions other than from Retirement
Plans following the (i) death or (ii) complete disability (as evidenced
by a certificate from the U.S. Social Security Administration), of all
persons individually owning such shares of record and not as fiduciaries
or agents, that occurs since the account was established, and (3) returns
of excess contributions to such Retirement Plans. In addition, no CDSC
is imposed on shares of the Fund (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 details.
-Class B Conversion Feature. At the end of the month seventy-two
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 Federal income tax law. 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 6 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
each regular business day.
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 3.75% of the purchase price of Fund shares sold by such dealer or
broker, and to advance the first year service fee of 0.25%. The asset-
based sales charge 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 it 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 Funds. 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 were 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
$670,084 (equal to 5.41% 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 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 its average annual net assets
from what its expenses would otherwise be. In addition, the Manager and
the Distributor may, under the Class B Plan, from time to time from their
own resources (which, as to the Manager, may include profits derived from
the advisory fee it receives from the Fund) make payments to Recipients
for distribution and administrative services they perform. For further
details, see "Distribution and Service Plans" in the Additional Statement.
Purchase Programs for Class A and Class B Shares
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 on which such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes"). 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 Oppenheimer Shareholder Services (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 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" in "How To Buy Shares" for
details. To establish an Asset Builder Plan from a bank account, a check
(minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are
subject to the redemption restrictions for recent purchases described in
"How To Redeem Shares."
Asset Builder Plans also enable shareholders of Oppenheimer Tax-
Exempt Cash Reserves or Oppenheimer Cash Reserves to use those accounts
for monthly automatic purchases of shares of up to four other Eligible
Funds. There is a sales charge on the purchase of certain Eligible Funds,
and an application should be obtained from the Transfer Agent and
completed and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating payments. The amount
of the Asset Builder investment may be changed or the automatic
investments terminated at any time by writing to the Transfer Agent. A
reasonable period (approximately 15 days) is required after receipt of
such instructions to implement them. The Fund reserves the right to
amend, suspend, or discontinue offering such plans at any time without
prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not
represented by certificates), under the Fund's regular redemption
procedures, a shareholder must send the following to the Transfer Agent,
P.O. Box 5270, Denver, Colorado 80217 [send courier or express mail
deliveries to 10200 E. Girard Avenue, Building D, Denver, Colorado 80231]:
(1) a written request for redemption signed by all registered owners
exactly as the account is 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 redemptions 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. Telephone redemptions paid
by check are not available within 30 days of a change of the address of
record.
-Redemptions Paid Through AccountLink. If AccountLink privileges
have been established for an account, any amount may be redeemed by
telephone, wire or written instructions to the Transfer Agent, and the ACH
transfer of the redemption proceeds to the designated bank account
normally will be initiated by the Transfer Agent on the next bank business
day after the redemption. There are no dollar or frequency limitations
on telephone redemptions sent to a designated bank account through
AccountLink. No dividends are paid on the proceeds of redeemed shares
awaiting transmittal by ACH transfer. See "AccountLink" under "Purchase
Programs for Class A and Class B Shares," above, for instructions on
establishing this privilege.
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, 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 $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 next
determined after the Transfer Agent receives redemption instructions in
proper form. The market value of the securities in the Fund's portfolio
is subject to daily fluctuations and the net asset value of each class of
the Fund's shares will fluctuate accordingly. Therefore, the redemption
value may be more or less than the investor's cost. Under certain unusual
circumstances, shares may be redeemed in kind (i.e., by payment in
portfolio securities). Under certain circumstances, the Fund may
involuntarily redeem small accounts (if the value of the account has
fallen below $200 for reasons other than market value fluctuation 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 receipt by the Transfer Agent of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 or more days from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank 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 for sale 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 (Class A shares in the case of Oppenheimer Cash Reserves); 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 ["CDSC"]);
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 six years of the
end of the calendar month of the initial purchase of the exchanged Class
B shares (see "Class B Contingent Deferred Sales Charge" above).
-How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time and will do
so on 60 days' notice. 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
which shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any CDSC that may
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
- Telephone Exchanges. Telephone exchange requests may either be
placed through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans, Automatic Withdrawal or Exchange
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is otherwise instructed. Telephone
exchange privileges automatically apply to each shareholder of record and
the dealer representative of record unless and until the Transfer Agent
receives written instructions from a shareholder of record canceling such
privileges. If an account has multiple owners, the Transfer Agent may
rely on the instructions of any one owner. The Transfer Agent and the
Fund believe its policy is proper. 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 at a 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) tax-deferred custodial plans for employees of
qualified employers. Loans are permitted only from Oppenheimer 403(b)(7)
plan accounts holding Class A shares. The minimum initial investment for
pension and profit-sharing plans is $250, and 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 Hedging Instruments" 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 and
Class B shares from net investment income on each regular business day,
and to pay such dividends monthly. Such dividends for both classes of
shares will normally be paid on the first Tuesday of the following 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, and expenses borne by the Fund,
or borne separately by that class, as described under "Dual Class
Methodology" in the Additional Statement. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each
class. However, dividends on Class B shares are expected to be lower than
on Class A shares on a pro rata basis as a result of the asset-based sales
charge on Class B shares, and such dividends will also differ in amount
as a consequence of any difference between the net asset values of Class
A and Class B shares.
Dividends will be payable on shares held of record at the time of the
previous determination of net asset value, or as otherwise described in
"How to Buy Shares". Daily dividends on newly purchased shares will not
be declared or paid until such time as Federal Funds (funds credited to
a member bank's account at the Federal Reserve Bank) are available from
the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day.
Dividends will be declared on shares repurchased by a dealer or broker for
four business days following the trade date (i.e., to and including the
day prior to settlement of the repurchase). If all shares in an account
are redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
In addition, distributions may be made annually in December out of
any net short-term or long-term capital gains realized from the sale of
securities, premiums from expired calls written by the Fund, and net
profits from Hedging Instruments, realized in the twelve months ending on
October 31 of that year. Any difference in net asset values between 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. Any disparity in net
asset value between Class A and Class B shares will be reflected in such
distributions. 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 100
basis points above the 3-month Treasury Bill rate per Class A share each
month, to the extent that target was consistent with the Fund's net
investment income and other distributable income sources, although the
amount of distributions could vary from time to time, depending on market
conditions, the composition of the Fund's portfolio, and expenses borne
by that class. The Board of Trustees could 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 realization of any
capital gains. The Fund was able to pay dividends at the targeted level
from net investment income and other distributable income, without any
impact on the Manager's portfolio management practices or on the Fund's
net asset value per share.
All dividends and capital gains distributions are automatically
reinvested in Fund shares 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" 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 initial 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 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
payments made to shareholders.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "dividend yield,"
"average annual total return," "total return," and "total return at net
asset value" of an investment in each class of shares of the Fund may be
advertised. Under rules adopted by the SEC, the "yield" is computed in
a standardized manner for mutual funds, by dividing the net investment
income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period. This yield
calculation is compounded on a semi-annual basis, and multiplied by 2 to
provide an annualized yield.
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 not 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 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. The yield and returns are
calculated separately and will differ for shares of each class, and the
anticipated higher expenses of Class B shares should result in shares of
that class having lower yields than Class A shares for the same period of
time. See "Yield, Total Return and Tax Information" in the Additional
Statement for more detailed information on calculating the Fund's yields
and returns, and other performance information.
Management's Discussion of Fund Performance
During the Fund's fiscal period from June 1, 1992 (inception) 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 U.S. Government securities, higher-yielding, lower-rated
corporate bonds and foreign fixed-income securities, to seek its objective
of high current income. The remainder of the portfolio was invested in
stocks, to seek the Fund's secondary objective of capital appreciation.
The Manager expanded the Fund's diversification in foreign markets
to help reduce risk, and maintained a short average portfolio maturity to
control interest rate fluctuation risk. The Manager sold a portion of the
Fund's investments in long-term U.S. Government bonds. That strategy
produced capital gains and reduced the average maturity of the Fund's U.S.
Government investments, limiting the risks associated with a rise in U.S.
interest rates. The Manager also emphasized investment in the stocks of
financial services companies which have experienced strong profit growth
due to low interest rates.
Comparison of Total Return of Oppenheimer Strategic Income & Growth Fund
with The Lehman Aggregate Bond Index and
The Standard & Poors 500 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 Income & Growth Fund
Average Annual Total Returns
1 Year Since Inception (6/1/92)
------ ------------------------
Class A 3.67% 4.09%
Class B 1.03%*
__________________
*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 (June 1, 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
Standard & Poors 500 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. That Index includes a factor for the reinvestment of interest but
does not reflect expenses or taxes. The Standard & Poors 500 Index is an
unmanaged index of 500 widely-held common stocks traded on the New York
and American Stock Exchanges and the over-the-counter market, and is
widely recognized as a general measure of stock performance. It includes
a factor for reinvestment of dividends 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 4.75% 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 freely transferable. When issued, such shares are
fully-paid and (except as described in "Additional Information" in the
Additional Statement) non-assessable, and have no preemptive, subscription
or cumulative voting rights. 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. 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.
Oppenheimer Shareholder Services, 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 INCOME & GROWTH FUND
Graphic material included in Prospectus of Oppenheimer Strategic
Income & Growth Fund: "Comparison of Total Return of Oppenheimer Strategic
Income & Growth Fund with The Lehman Aggregate Bond Index and The Standard
& Poors 500 Index - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Strategic
Income & Growth 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 (June 1, 1992) and comparing such values with the same
investments over the same time periods with The Lehman Aggregate Bond
Index and The Standard & Poors 500 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 Standard & Poors 500 Index, is set
forth in the Prospectus under "Fund Performance Information - Management's
Discussion of Performance."
<TABLE>
<CAPTION>
Oppenheimer
Fiscal Year Strategic Income Lehman Aggregate
(Period) Ended & Growth Fund A Bond Index S&P 500 Index
- -------------- ---------------- ---------------- -------------
<S> <C> <C> <C>
06/01/92 $ 9,525 $10,000 $10,000
09/30/92 9,659 10,573 10,162
09/30/93 10,547 11,628 11,480
Oppenheimer
Fiscal Year Strategic Income Lehman Aggregate
(Period) Ended & Growth Fund B Bond Index S&P 500 Index
- -------------- ---------------- ---------------- -------------
11/30/92 $10,000 $10,000 $10,000
09/30/93 10,586 11,141 10,809
</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.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered well-assured. Often the
protection of interest and principal payments may be very moderate and not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely
poor prospects of ever retaining any real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects
of change in circumstances and economic conditions.
BBB: The bond investments in which the Fund will principally invest
will be in the lower-rated categories, described below. Bonds rated "BBB"
are regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
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.
PR275 (1\94) * Printed on recycled paper
<PAGE>
1993 Prospectus
OPPENHEIMER
Strategic
Income & Growth
Fund
Effective January 25, 1994
[OppenheimerFunds Logo]
<PAGE>
1993 Prospectus and
New Account Application
OPPENHEIMER
Strategic
Income & Growth
Fund
Effective January 25, 1994
[OppenheimerFunds Logo]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER STRATEGIC INCOME & GROWTH 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 Income & Growth Fund, which may be obtained by
written request to Oppenheimer Shareholder Services (the "Transfer
Agent"), P.O. Box 5270, Denver, Colorado 80217, or by calling OSS at the
toll-free number shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Special Investment Methods 9
Investment Restrictions 21
Trustees and Officers 21
Investment Management Services 24
Brokerage 25
Purchase, Redemption and Pricing of Shares 27
Distribution and Service Plans 30
Performance, Dividend and Tax Information 33
Additional Information 36
Automatic Withdrawal Plan Provisions 38
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 objectives 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 and domestic equity
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 outstanding
fixed-income securities. An increase in interest rates will generally
reduce the market value of fixed-income investments, and a decline in
interest rates will tend to increase their value. In addition, debt
securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities subsequent to their acquisition will not
affect the interest payable on those securities, and thus the cash income
from such securities, but will be reflected in the valuations of those
securities used to compute the Fund's net asset values.
Domestic Fixed-Income Securities. Further information about the Fund's
investments in short-term debt obligations is provided below.
Participation Interests. The Fund may invest in participation
interests, subject to the limitation, described in "Restricted and
Illiquid Securities" in the Prospectus on investments by the Fund 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. No more than 5% of the Fund's net assets
can be invested in participation interests of the same issuing bank. The
issuing financial institution may have no obligation to the Fund other
than to pay the Fund the proportionate amount of the principal and
interest payments it receives. Participation interests are primarily
dependent upon the creditworthiness of the borrowing corporation, which
is obligated to make payments of principal and interest on the loan, 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.
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 individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described in
the Prospectus and in "Mortgage-Backed Securities" below for prepayments
of a pool of mortgage loans underlying mortgage-backed securities.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds that are general obligations of the issuer thereof,
either a private issuer, the U.S. Government or a U.S. Government
instrumentality. See "U.S. Government Securities - Collateralized
Mortgage-Backed Obligations ("CMOs")" below for further details.
Money Market Securities. The money market securities 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, time deposits that are subject to
withdrawal penalties, other than those maturing in seven days or less, are
subject to the limitation on investments by the Fund in illiquid
investments, set forth in the Prospectus under "Restricted and Illiquid
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 such notes 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 master demand notes are subject to the limitation on
investments by the Fund in illiquid securities, described in the
Prospectus.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable
rates are adjustable at stated periodic intervals; floating rates are
automatically adjusted according to a specified market rate for such
investments, such as the percentage of the prime rate of a bank, or
the 91-day U.S. Treasury Bill rate. Such obligations may be secured
by bank letters of credit or other credit support arrangements.
U.S. Government Securities.
U.S. Government Securities are debt obligations issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, and
include "zero coupon" Treasury securities, mortgage-backed securities and
money market instruments.
Mortgage-Backed Securities. These securities represent participation
interests in pools of residential mortgage loans which may or may not be
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which generally
provide for periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Some of the mortgage-backed securities in which the Fund may
invest may be backed by the full faith and credit of the U.S. Treasury
(e.g., direct pass-through certificates of 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 these government agencies may also issue collateralized
mortgage-backed obligations ("CMOs"), discussed below.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
affected by a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average life of
a particular pool. Yield on such pools is usually computed by using the
historical record of prepayments for that pool, or, in the case of newly-
issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease, as do the values of other debt securities,
but, when prevailing interest rates decline, the value of a pass-through
security is not likely to rise to the extent that the value 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 at a discount. Accelerated
prepayments adversely affect yields for pass-through securities purchased
at a premium (i.e., at a price in excess of their principal amount) and
may involve additional risk of loss of principal because the premium may
not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount.
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 two types of
mortgage pass-through certificates ("FHLMC Certificates"): mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHLMC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
Zero Coupon Securities. Because the Fund accrues taxable income from
zero coupon securities issued by either the U.S. Treasury or other issuers
without receiving cash, the Fund may be required to sell portfolio
securities in order to pay a dividend depending, among other things, upon
the proportion of shareholders who elect to receive dividends in cash
rather than reinvesting dividends in additional shares of the Fund. The
Fund might also sell portfolio securities to maintain portfolio liquidity.
In either case, cash distributed or held by the Fund and not reinvested
in Fund shares will hinder the Fund in seeking a high level of current
income.
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 Fixed-Income 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 identified under "Domestic Fixed-Income Securities," above.
The Fund may invest in U.S. dollar-denominated, collateralized "Brady
Bonds", as described in the Prospectus. These debt obligations of foreign
entities may be fixed-rate par bonds or floating- rate discount bonds and
are generally collateralized in full as to principal due at maturity by
U.S. Treasury zero coupon obligations 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.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of supranational entities include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," of these entities usually make initial capital
contributions to the supranational entity and in many cases are committed
to make additional capital contributions if the supranational entity is
unable to repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's call), reserves
and net income. There is no assurance that foreign governments will be
able or willing to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization,
confiscatory taxation and potential difficulties in enforcing contractual
obligations, and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and 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", below.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investing solely in securities of domestic issuers, by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds which are general obligations of the issuer thereof,
which may be a foreign corporation or a foreign government. See
"Investment Objective and Policies - U.S. Government Securities" above for
further details as to private-issuer CMOs.
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.
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. The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
Additional Information about the Hedging Instruments the Fund may use is
provided below. 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 is more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the 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. An option position may be closed out only on a market
that provides secondary trading for option of the same series, and there
is no assurance that a liquid secondary market will exist for a particular
option. If the Fund could not effect a closing purchase transaction due
to lack of a market, it would have to hold the callable investments until
the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
Writing Put Options. A put option on securities gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to the Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put lapses unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium.
If the put is exercised, the Fund must fulfill its obligation to purchase
the underlying investment at the exercise price, which will usually exceed
the market value of the investment at that time. In that case, the Fund
may incur a loss, equal to the sum of the current market value of the
underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore 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 Futures, has the right to buy the underlying
investment from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. When the Fund purchases
a call on an index or Future, it pays a premium, but settlement is in cash
rather than by delivery of the underlying investment to the Fund. In
purchasing a call, the Fund benefits only if the call is sold at a profit
or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs
and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless
at its expiration date and the Fund will lose its premium payment and the
right to purchase the underlying investment.
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.
Puts and calls on broadly-based indices or Futures are similar to
puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index
in question (and thus on price movements in the stock market generally)
rather than on price movements in individual securities or futures
contracts. When the Fund buys a calls on an index or Future, it pays a
premium. During the call period, upon exercise of a call by the Fund, a
seller of a corresponding call on the same investment will pay the Fund
an amount of cash to settle the call if the closing level of the index or
Future upon which the call is based is greater than the exercise price of
the call. That cash payment is equal to the difference between the
closing price of the index and the exercise price of the call times a
specified multiple (the "multiplier"), which determines the total dollar
value for each point of difference. When the Fund buys a put on an index
or Future, it pays a premium and has the right during the put period to
require a seller of a corresponding put, upon the Fund's exercise of its
put, to deliver to the Fund an amount of cash to settle the put if the
closing level of the index or Future upon which the put is based is less
than the exercise price of the put. That cash payment is determined by
the multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a put or call, sells a call, or buys or sells an underlying
investment in connection with the exercise of a put or call. Such
commissions may be higher than those which would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are
small in relation to the market value of the related investments, and
consequently, put or call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net
asset value being more sensitive to changes in the value of the underlying
investments.
Options on Foreign Currencies. The Fund intends to write and
purchase calls 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. A 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 of
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 currency in U.S. dollars marked-to market daily.
Interest Rate Futures. No price is paid or received upon the
purchase or sale of an Interest Rate Future, Financial Future or a foreign
currency exchange contract ("Forward Contract"), discussed below.
Interest Rate Futures obligate one party to deliver and the other party
to take a specific debt security or amount of foreign currency,
respectively, at a specified price on a specified date. Upon entering
into a Futures transaction, the Fund will be required to deposit an
initial margin payment with the futures commission merchant (the "futures
broker"). The initial margin will be deposited with the Fund's Custodian
in an account registered in the futures broker's name; however the futures
broker can gain access to that account only under specified conditions.
As the Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to and
from the futures broker on a daily basis. Prior to expiration of the
Future, if the Fund elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional
cash is required to be paid by or released to the Fund, and any loss or
gain is realized for tax purposes. Although Interest Rate Futures by
their terms call for settlement by delivery or acquisition of debt
securities, in most cases the obligation is fulfilled by entering into an
offsetting position. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
Financial Futures. Financial Futures are similar to Interest Rate
Futures except that settlement is made in cash, and net gain or loss on
options on Financial Futures depends on price movements of the securities
included in the index. The strategies which the Fund employs regarding
Financial Futures are similar to those described above with regard to
Interest Rate Futures.
Forward Contracts. A Forward Contract involves bilateral obligations
of one party to purchase, and another party to sell, a specific currency
at a future date (which may be any fixed number of days from the date of
the contract agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund will not enter into such Forward Contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated
in that currency. The Fund, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to Forward
Contracts in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in any
currency, at least equal at all times to the amount of such excess. As
an alternative, the Fund may purchase a call option permitting the Fund
to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund
may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high
or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than
if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense
of such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a Forward
Contract requiring it to purchase a specified currency by entering into
a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would
realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate
or rates between the currencies involved moved between the execution dates
of the first contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer,
which would establish a formula price at which the Fund would have the
absolute right to repurchase that OTC option. That formula price would
generally be based on a multiple of the premium received for the option,
plus the amount by which the option is exercisable below the market price
of the underlying security (that is, the extent to which the option is
"in-the-money"). When the Fund writes an OTC option, it will treat as
illiquid (for purposes of the limit on its assets that may be invested in
illiquid securities, stated in the Prospectus) the mark-to-market value
of any OTC option held by it. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities, and the procedure described above could be affected by the
outcome of that evaluation.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate in a manner beyond the Fund's control. The exercise by the
Fund of puts on securities or Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise
is within the Fund's control, holding a put might cause the Fund to sell
the related investments for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys
or sells a put, a call, or an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those
which would apply to direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the
market value of the related investments, and consequently, put and call
options offer large amounts of leverage. The leverage offered by trading
in options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which exempts the Fund from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. Under these restrictions the Fund will not,
as to any positions, whether short, long or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. Due to requirements under the Investment Company Act,
when the Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Hedging Instruments. The Fund intends to qualify as
a "regulated investment company" under the Internal Revenue Code. One of
the tests for such qualification is that less than 30% of its gross income
(irrespective of losses) must be derived from gains realized on the sale
of securities held for less than three months. Due to this limitation,
the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Futures, held for less than three months, whether or not they
were purchased on the exercise of a call held by the Fund; (ii) purchasing
calls or puts which expire in less than three months; (iii) effecting
closing transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts or calls held by the Fund
for less than three months; and (v) writing calls on investments held for
less than three months.
Certain foreign currency exchange contracts ("Forward Contracts") in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position
making up a straddle is allowed only to the extent such loss exceeds any
unrecognized gain in the offsetting position 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, the U.S. branch of a foreign bank or a broker-dealer
which has been designated a primary dealer in government securities, which
must meet the credit requirements set by the Fund's Board of Trustees from
time to time), for delivery on an agreed-upon future date. The 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 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 collateral's value must
equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
Small, Unseasoned Companies. The securities of small, unseasoned
companies may have a limited trading market, which may adversely affect
their disposition and can result in their being priced lower than might
otherwise be the case. If other investors holding the same securities as
the Fund sell them when the Fund attempts to dispose of its holdings, the
Fund might receive lower prices than might otherwise be obtained, because
of the thinner market for such securities.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board 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 a unsecured basis and investing the
borrowed funds, subject to the restrictions stated in the Prospectus. Any
such borrowing will be made only from banks, and pursuant to the
requirements of the Investment Company Act, will be made only to the
extent that the value of that 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, it 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 allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
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 of
Trustees, 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 0.5% of the securities of such
issuer together own more than 5% of the securities of such issuer; (5)
invest in oil, gas, or other mineral exploration or development programs;
or (6) buy the securities of any company for the purpose of exercising
management control, except in connection with a merger, consolidation,
reorganization or acquisition of assets.
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, directors or managing general partners
of Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-
Exempt Cash Reserves, Oppenheimer Tax-Free Bond Fund, Oppenheimer
Government Securities Fund, The New York Tax-Exempt Income Fund, Inc.,
Centennial America Fund, L.P., Oppenheimer Champion High Yield Fund,
Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic
Short-Term Income Fund, Oppenheimer Variable Account Funds, Oppenheimer
Integrity Funds, Daily Cash Accumulation Fund, Inc., Centennial Money
Market Trust, Centennial Government Trust, Centennial New York Tax Exempt
Trust, Centennial Tax Exempt Trust and Centennial California Tax Exempt
Trust (all of the foregoing funds are collectively referred to as the
"Denver OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is
Chairman of the Denver-based OppenheimerFunds. All of the officers except
Messrs. Doll, Steinmetz, Negri and Ms. Johnson are officers of the Denver
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.
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 Corporation ("HarbourView"), a subsidiary of the Manager; a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which
he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
_____________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly President and Director of Oppenheimer Asset
Management Corporation ("OAMC"), an investment adviser which was a
subsidiary of the Manager, and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Executive Vice President and General Counsel of 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.
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.
ROBERT DOLL, JR., Senior Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Executive 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 10048-0203
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
DAVID P. NEGRI, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
MARGARET M. JOHNSON, 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;
formerly an assistant portfolio manager for the Manager, prior to which
she was a portfolio manager and analyst for SLH, a division of Shearson
Lehman Hutton, Inc., a securities firm.
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, SFSI; an officer of other OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of other
OppenheimerFunds; formerly Vice President/Director of Internal Audit of
the Manager.
Remuneration of Trustees
The officers of the Fund (including Messrs. Fossel and Swain), are
affiliated with the Manager and receive no salary or fee from the Fund.
During the fiscal year ended September 30, 1993, the remuneration
(including expense reimbursements) paid by the Fund to all Trustees of the
Fund (excluding Messrs. Fossel and Swain) in the aggregate for services
as Trustees and as members of one or more committees totalled $2,005. The
Fund has an Audit and Review Committee, comprised of William A. Baker
(Chairman), Charles Conrad, Jr. and Robert M. Kirchner. This Committee
meets regularly to review audits, audit procedures, financial statements
and other financial and operational matters of the Fund.
Major Shareholders. As of December 31, 1993, no person owned of
record or was known by the Fund to own beneficially 5% or more of the
Fund's outstanding shares.
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company ultimately controlled by Massachusetts Mutual Life
Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom may also 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 (see the Financial Statements included in this
Additional Statement). During the fiscal period from June 1, 1992
(commencement of operations) to September 30, 1992 and the fiscal year
ended September 30, 1993, the management fees payable by the Fund to the
Manager were $75,665 and $491,202, respectively. The $75,665 figure does
not reflect the expense assumption by the Manager of $27,360 for the
fiscal period ended September 30, 1992. There was no expense assumption
for the fiscal year ended September 30, 1993.
The Agreement contains no expense limitation. However, independently
of the Agreement, the Manager has undertaken that the total expenses of
the Fund in any fiscal year (including the management fee but excluding
taxes, interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) shall not
exceed (and the Manager undertakes to reduce the Fund's management fee in
the amount by which such expenses shall exceed) the most stringent state
regulatory limitation on fund expenses applicable to the Fund unless a
waiver is obtained. At present, that limitation is imposed by California
and limits expenses (with specified exclusions) to 2.5% of the first $30
million of average annual net assets, 2% of the next $70 million of
average net assets and 1.5% of average net assets in excess of $100
million. The payment of the management fee at the end of any month will
be reduced so that there will not be any accrued but unpaid liability
under either such expense limitation. The Manager reserves the right to
terminate or amend this undertaking at any time.
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 including "affiliated" broker-dealers, as that term
is defined in the Investment Company Act ("brokers"), 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 forgoing
considerations, the Manager may also consider sales of shares of the Fund
and of other funds managed by the Manager and 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, allocations of brokerage are made by portfolio managers and
traders 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 transactions involving money market instruments and fixed-income
securities 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 by using a broker. Purchases
of these securities from underwriters include a commission or concession
paid by the issuer to the underwriter, and purchases from, and sales to,
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" (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 Agreement, the Plans described below or in any agreement
relating to those Plans) 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.
During the Fund's fiscal period from June 1, 1992 (commencement of
operations) to September 30, 1992 and the fiscal year ended September 30,
1993, total brokerage commissions paid by the Fund (not including any
spreads or concessions on principal transactions on a net trade basis)
amounted to $11,309 and $70,753, respectively. During the fiscal year
ended September 30, 1993, $54,164 was paid to brokers as commissions in
return for research services (including special research, statistical
information and execution); the aggregate dollar amount of these
transactions was $30,842,128. The transactions giving rise to those
commissions were allocated in accordance with the internal allocation
procedures described above.
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 Fund's net
assets attributable to that class by the 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
Class A and Class B shares of the Fund may be significantly affected at
times when shareholders do not have the ability to purchase or redeem
shares.
The 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 NASDAQ are valued at the last sale
prices on their primary exchange or NASDAQ that day (or, in the absence
of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) 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 Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (v) short-term debt securities having
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vi) securities
traded on foreign exchanges or in foreign over-the-counter markets are
valued as determined by a portfolio pricing service approved by the Board,
based upon last sales prices reported on a principal exchange or, if none,
at the mean between closing bid and asked prices, and reflect prevailing
rates of exchange to convert their values to U.S. dollars. Foreign
currency will be valued as close to the time fixed for the valuation date
as is reasonably practicable. The value of securities denominated in
foreign currency will be converted to U.S. dollars at the prevailing rates
of exchange at the time of valuation.
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 fixed-income securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Fund's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ National Market on which they are
traded, or, if there are no sales that day, in accordance with (i) above.
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
values, dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the net assets of such class to
the Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management fees,
(ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs
of shareholder reports, Prospectuses, Additional Statements and other
materials for current shareholders, (iv) fees to unaffiliated Trustees,
(v) custodian expenses, (vi) share issuance costs, (vii) organization and
start-up costs, (viii) interest, taxes and brokerage commissions, and (ix)
non-recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
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 Fund's Board of Trustees will not cause the involuntary
redemption of shares held in an account if the aggregate net asset value
of such shares has fallen below the stated minimum solely as a result of
market fluctuations. Should the Board elect to exercise this right, it
may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or may set requirements for permission to allow
the shareholder to increase the investment so that the shares would not
be involuntarily redeemed.
Cancellation of Purchase Orders. Cancellation of purchase orders for 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 Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer 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 for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the
shares of that class, as described in the prospectus. Each Plan has been
approved by a vote of (i) the Board of Trustees of the Fund, including a
majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on that Plan, and (ii) the holders of a
"majority" (as defined in the Investment Company Act) of the shares of
each class [for the Distribution and Service Plan for the Class B shares
(the "Class B Plan"), such vote having been cast by the Manager as the
sole initial holder of Class B shares of the Fund].
Each Plan shall, unless terminated as described below, continue in
effect from year to year 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 that class. Neither
Plan may be amended to increase materially the amount of payments to be
made unless such amendment is approved by shareholders of the class
affected by the amendment. All material amendments must be approved by
the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations upon 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
fees 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 $4,338, all of which was retained by the Distributor
to reimburse it for its direct distribution costs, including Class A
dealer commissions. Effective July 1, 1993, 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 charge 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.
Payments under the Class B Plan for the period November 30, 1992 to
September 30, 1993 totalled $62,456.
The asset-based sales charge paid to the Distributor by the Fund
under the Class B Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders) and state "blue sky" registration fees.
The 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 services required of a Recipient.
Accordingly, the Distributor may pay banks only for sales made on an
agency basis or for performance of administrative and shareholder
servicing functions under the Plans. However, judicial or administrative
decisions or interpretations of such laws, as well as changes in either
Federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent
certain banks from continuing to perform all or a part of these services.
If a bank were so prohibited, shareholders of the Fund who were clients
of such bank would be permitted to remain as shareholders, and if that
bank could no longer provide those service functions, alternate means for
continuing the servicing of such shareholders would be sought. In such
event, shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being
provided by such bank. The 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 which may adversely
affect the ability of such institutions to provide these services. It is
not expected that shareholders would suffer any adverse financial
consequences as a result of any of those occurrences. In addition, state
securities laws on this issue may differ from the interpretations of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
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
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of the class on the
last day of the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period
may differ from its 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 and Class B shares was 2.95% and 2.21%, respectively.
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
3.88% (at maximum offering price) and 4.08% (at net asset value); the
dividend yield on Class B shares was 3.19% (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
4.75% (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 5% for the first year, 4% for the
second year, 3% for the third and fourth years, 2% for the fifth year and
1% for the sixth 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 4.09%.
The total return on Class A shares for that period was 8.84%. For the
fiscal period November 30, 1992 to September 30, 1993, the cumulative
total return on an investment in Class B shares assuming the assessment
of a 5% CDSC was 1.03%. The total return on Class B shares for that
period assuming the assessment of a 5% CDSC was 0.86%.
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 8.84%. For the fiscal
period November 30, 1992 to September 30, 1993, the total return at net
asset value on Class B shares was 5.86%.
From time to time the Fund may publish the ranking of its Class
A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent service, which monitors the performance of
regulated investment companies, including the Fund, and ranks their
performance for various periods based on categories relating to investment
objectives. The performance of the Fund's classes is ranked against (i)
all other funds and (ii) all other fixed-income funds, excluding 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 include in its advertisements and sales literature performance
information about the Fund cited in other newspapers and periodicals, such
as The New York Times, which may include performance quotations from other
sources, including Lipper.
From time to time the Fund may publish the ranking of the
performance of its Class A or Class B shares by Morningstar, Inc., an
independent mutual fund monitoring service, that ranks mutual funds,
including the Fund, 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 Class A and Class B shares of the Fund in relation
to other rated fixed income funds.
The total return on an investment made in Class A or Class B
shares of the Fund may be compared with the performance for the same
period of 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 Government/Corporate Bond
Index, the Lehman Aggregate Bond Index, the Standard & Poor's 500 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, and the Lehman Government/Corporate Bond Index generally
represents the performance of intermediate and long-term government and
investment grade corporate debt securities. The Lehman Aggregate Bond
Index generally represents the performance of the general fixed-rate
investment grade debt market. The Standard & Poor's 500 Index is widely
recognized as a general measure of stock performance. 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 shares. The yield and total return of the Class A and Class
B shares of the Fund is affected by portfolio quality, portfolio maturity,
type of investments held and operating expenses. When comparing yield,
total return and investment risk of an investment in Class A or Class B
shares of the Fund with those of other investment instruments, investors
should understand that certain other investment alternatives such as money
market instruments, certificates of deposit ("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, the Fund must distribute by
December 31 each year 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from November 1 of the prior year through October
31 of that 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.
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, it may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash
interest the Fund actually received. 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. The names of such
Funds can be obtained by calling the Distributor at 1-800-525-7048. 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.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities,
collecting income on the portfolio securities, and handling the delivery
of such securities to and from the Fund. The Manager has represented to
the Fund that 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 Plans 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 Fund's
fiscal year ended September 30, 1993 and the fiscal period ended September
30, 1992, the aggregate amount of sales charges on sales of the Fund's
shares was $841,033 and $1,699,780, respectively, of which the Distributor
and an affiliated broker retained $213,712 and $380,084 in those
respective periods.
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 CDSC 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 Income &
Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Strategic Income
& Growth 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 June 1,
1992 (commencement of operations) to September 30, 1992 and the financial
highlights for the period June 1, 1992 (commencement of operations) to
September 30, 1993. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at September 30, 1993 by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Strategic Income & Growth 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
<PAGE>
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <S> <C> <C>
International
Securities--13.7% United Mexican States Treasury Bills, 0%, 4/21/94 3,988,490+ $1,181,500
Short-Term
Foreign Government
Obligations--1.8%
Long-Term Argentina (Republic of) Bonds,
Foreign Government Bonos de Consolidacion de Deudas:
Obligations--10.9% Series I, 3.1875%, 4/1/01(2)(4) $ 3,000,000 2,486,250
Series I, 3.675%, 4/1/01(2)(4) 1,000,000+ 704,830
Brazil (Federal Republic of) Interest Due and Unpaid Bonds, 8.75%,
1/1/01(2) 2,000,000 1,553,750
South Australia Government Finance Authority Bonds, 10%, 1/15/03 1,680,000+ 1,274,202
United Kingdom Treasury Nts., 10%, 2/26/01 788,000+ 1,384,189
7,403,221
Long-Term Foreign Banco Nacional de Mexico SA, 7% Exch. Sub. Debs., 12/15/99(5) 400,000
449,000
Corporate Bonds Empresas La Moderna SA, 10.25% Gtd. Nts., 11/12/97(5) 200,000 213,000
and Notes--1.0% Telecom Corp. of Australia Ltd., 11.50% Bonds, 10/15/02 25,000+ 20,377
682,377
Total International Securities (Cost $8,880,567) 9,267,098
Treasury--11.7% U.S. Treasury Bonds:
7.125%, 2/15/23(6) 4,000,000 4,486,240
U.S. Treasury Nts:
4.625%, 8/15/95 1,130,000 1,146,588
5.125%, 11/15/95 1,700,000 1,742,483
5.75%, 10/31/97 500,000 521,405
Total Treasury (Cost $7,965,825) 7,896,716
Mortgage/Asset-Backed
Obligations--.7%
Agency-Government Federal Home Loan Mortgage Corp.
Sponsored--.7% Collateralized Mtg. Obligation, 9%, 3/15/21 (Cost $515,848) 493,192 498,799
U.S. Corporate Bonds
and Notes--17.1%
Automobiles, Trucks
and Parts--1.0% Auburn Hills Trust, 14.875% Gtd. Exch. Ctfs., 5/1/20(2) 300,000 450,750
Envirotest Systems Corp., 9.625% Sr. Sub. Nts., 4/1/03 200,000 197,000
647,750
Broadcast Media/
Cable TV--4.4% Adelphia Communications Corp., 12.50% Sr. Nts., 5/15/02 300,000 317,250
Cablevision Systems Corp., 9.875% Sr. Sub. Debs., 2/15/13 600,000 594,000
Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr. Sub. Disc. Nts.,
8/1/03(1) 750,000 455,625
SCI Television, Inc., 11% Sr. Nts., Series 1, 6/30/05 500,000 517,500
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Sr. Debs.,
3/15/23(5) 500,000 521,250
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 500,000 592,500
2,998,125
Building
Materials--.8% USG Corp., 10.25% Sr. Sec. Nts., 12/15/02 500,000 511,250
Chemicals/
Plastics--.3% Quantum Chemical Corp., 13% Sr. Sub. Debs., 3/15/04 200,000 220,000
Consumer Goods-
Manufacturing--1.0% Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 300,000 304,500
Revlon Consumer Products Corp., 10.50% Sr. Sub. Nts., 2/15/03 400,000 386,000
690,500
Containers-Metal
and Glass--.6% Owens-Illinois, Inc., 10% Sr. Sub. Nts., 8/1/02 400,000 422,000
Containers-Paper--1.2% Equitable Bag, Inc., 12.375% Sr. Nts., 8/15/02 300,000 232,500
Gaylord Container Corp., 11.50% Sr. Nts., 5/15/01 600,000 592,500
825,000
Financial/
Insurance--1.2% Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts., 5/1/99(2) 400,000 446,000
Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 300,000 353,250
799,250
<PAGE>
Face Market Value
Amount See Note 1
U.S. Corporate Bonds and Notes (continued)
Foods and
Restaurants--1.4% Flagstar Corp., 11.25% Sr. Sub. Debs., 11/1/04 $400,000 $ 402,000
Foodmaker, Inc., 14.25% Sr. Sub. Nts., 5/15/98 500,000 537,500
939,500
Healthcare/Medical
Products--.8% American Medical International, Inc., 13.50% Sr. Sub. Nts., 8/15/01 300,000 349,500
Charter Medical Corp., 11.05% Sr. Sec. Disc. Nts., 12/31/97(3) 192,000 193,440
542,940
Information
Technology--.4% Bell & Howell Holdings Co., 0%/11.50% Debs., Series B, 3/1/05(1) 600,000
300,000
Leisure/
Entertainment--.5% Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., Series A, 6/30/02 300,000 328,500
Manufacturing-
Diversified--.4% Collins & Aikman Group, Inc., 11.875% Sr. Sub. Debs., 6/1/01 250,000 241,250
Oil and Gas
Exploration and
Production--.7% Mesa Capital Corp.:
0%/12.75% Disc. Nts., 6/30/96(1) 121,000 93,019
0%/12.75% Cv. Disc. Nts., 6/30/98(1) 20,000 36,675
0%/12.75% Sec. Disc. Nts., 6/30/98(1) 386,000 313,625
443,319
Retail-Food and
Drug--.8% Grand Union Co., 11.25% Sr. Nts., 7/15/00 500,000 518,125
Retail-Specialty--1.0% Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 400,000 391,000
Payless Cashways, Inc., 14.50% Sr. Sub. Debs., 11/1/00 300,000 315,000
706,000
Transportation--.6% Sea Containers Ltd., 12.50% Sr. Sub. Debs., 12/1/04 400,000 445,000
Total U.S. Corporate Bonds and Notes (Cost $11,298,970) 11,578,509
<PAGE>
Face Market Value
Amount See Note 1
Common Stocks (continued)
Consumer Non-Cyclicals (continued)
Healthcare-
Diversified--4.1% Abbott Laboratories 53,000 $ 1,450,875
American Cyanamid Co. 17,000 937,125
American Home Products Corp. 6,000 365,250
2,753,250
Household
Products--2.0% Procter & Gamble Co. 28,000 1,330,000
Medical Products--5.1% Becton, Dickinson & Co. 28,000 1,053,500
Medtronic, Inc. 17,000 1,151,750
St. Jude Medical, Inc. 42,000 1,218,000
3,423,250
Tobacco--.6% UST, Inc. 16,300 438,062
Financial--15.6%
Financial Services-
Miscellaneous--6.1% American Express Co. 42,000 1,496,250
Federal National Mortgage Assn. 16,000 1,260,000
Merrill Lynch & Co., Inc. 14,000 1,372,000
4,128,250
Major Banks-
Regional--5.0% BANC ONE CORP. 32,750 1,359,125
First Interstate Bancorp 22,000 1,465,750
Wachovia Corp. 14,000 547,750
3,372,625
Money Center
Banks--4.5% Chase Manhattan Corp. 40,000 1,485,000
Citicorp* 42,000 1,596,000
3,081,000
Industrial--2.0%
Electrical
Equipment--2.0% General Electric Co. 14,000 1,340,500
Technology--6.1%
Computer Software and
Services--2.1% Microsoft Corp.* 17,000 1,402,500
Electronics-
Instrumentation--1.8% Avnet, Inc. 30,000 1,237,500
Electronics-
Semiconductors--2.2% Intel Corp. 21,000 1,485,750
Total Common Stocks (Cost $36,967,700) 38,255,812
Preferred Stocks--.5% Unisys Corp., $3.75 Cv., Series A (Cost $245,875) 7,000 336,000
Total Investments, at Value (Cost $65,874,785) 100.2% 67,832,934
Liabilities in Excess of Other Assets (.2) (155,685)
Net Assets 100.0% $67,677,249
<FN>
+Face amount is reported in foreign currency.
*Non-income producing security.
(1) Represents a zero coupon bond that converts to a fixed rate of
interest at a designated future date.
(2) Represents the current interest rate for a variable rate security.
(3) Represents the current interest rate for an increasing rate security.
(4) Interest is paid in kind.
(5) Restricted security--See Note 6 of notes to financial statements.
(6) Securities with an aggregate market value of $4,486,240 are held in
escrow to cover outstanding call options, as follows:
</TABLE>
<TABLE>
<CAPTION>
Face Amount Expiration Exercise Premium Market Value
Subject to Call Date Price Received See Note 1
<S> <C> <C> <C> <C> <C>
U. S. Treasury Bonds, 7.125%, 2/15/23 $4,000,000 11/93 $115.4375 $56,875 $11,875
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<CAPTION>
<S> <S> <C>
Assets Investments, at value (cost $65,874,785)--see accompanying statement $67,832,934
Receivables:
Dividends and interest 573,933
Shares of beneficial interest sold 421,073
Deferred organization costs 13,982
Other 7,636
Total assets 68,849,558
Liabilities Options written, at value (premiums received $56,875)--see accompanying
statement--Note 4 11,875
Bank overdraft 173,708
Payables and other liabilities:
Investments purchased 553,563
Dividends 168,309
Shares of beneficial interest redeemed 162,166
Distribution assistance--Note 5 44,705
Other 57,983
Total liabilities 1,172,309
Net Assets $67,677,249
Composition of
Net Assets Paid-in capital $64,696,989
Undistributed net investment income 403,577
Accumulated net realized gain from investment, written option
and foreign currency transactions 577,105
Net unrealized appreciation of investments and options written--
Note 3 2,297,127
Net unrealized depreciation on translation of assets and liabilities (297,549)
denominated in foreign currencies
Net Assets $67,677,249
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share (based on net assets
of $55,290,789 and 10,513,105 shares of beneficial interest outstanding) $ 5.26
Maximum offering price per share (net asset value plus sales charge of 4.75% of $ 5.52
offering price)
Class B Shares:
Net asset value, redemption price and offering price per share (based on net $ 5.26
assets of $12,386,460 and 2,356,701 shares of beneficial interest outstanding)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<CAPTION>
<S> <S> <C>
Investment Income Interest $2,985,954
Dividends 732,387
Total income 3,718,341
Expenses Management fees--Note 5 491,202
Distribution assistance:
Class A--Note 5 149,033
Class B--Note 5 62,456
Transfer and shareholder servicing agent fees--Note 5 122,492
Shareholder reports 66,431
Custodian fees and expenses 25,498
Legal and auditing fees 10,165
Registration and filing fees:
Class A 1,611
Class B 3,752
Trustees' fees and expenses 2,005
Other 9,011
Total expenses 943,656
Net Investment Income 2,774,685
Realized and
Unrealized Gain
on Investments and
Options Written Net realized gain on investments and options written (including premiums on 862,694
options exercised)
Net realized gain on expiration of option contracts written--Note 4 107,500
Net realized gain 970,194
Net change in unrealized appreciation of investments and options written:
Beginning of year 234,454
End of year--Note 3 2,297,127
Net change 2,062,673
Net Realized and Unrealized Gain on Investments and Options Written 3,032,867
Net Increase in Net Assets Resulting from Operations Before Foreign Exchange 5,807,552
Loss
Realized and
Unrealized Foreign
Exchange Loss Net realized loss on foreign currency transactions (243,545)
Net change in unrealized depreciation on translation of assets and liabilities
denominated in foreign currencies:
Beginning of year (225,512)
End of year (297,549)
Net change (72,037)
Net Realized and Unrealized Foreign Exchange Loss (315,582)
Net Increase in Net Assets Resulting From Operations $5,491,970
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, 1993 September 30, 1992+
<S> <C> <C> <C>
Operations Net investment income $ 2,774,685 $ 462,720
Net realized gain on investments and options written 970,194 64,211
Net realized loss from foreign currency transactions (243,545) (149,544)
Net change in unrealized appreciation or depreciation of 2,062,673 234,454
investments and options written
Net change in unrealized appreciation or depreciation on (72,037) (225,512)
translation of assets and liabilities denominated in
foreign currencies
Net increase in net assets resulting from operations 5,491,970 386,329
Dividends and
Distributions
to Shareholders Dividends from net investment income:
Class A ($.2016 and $.06 per share, respectively) (2,309,909) (330,313)
Class B ($.1298 per share) (193,606) --
Distributions from net realized gain on investments and
options written:
Class A ($.0054 per share) (62,907) --
Class B ($.0054 per share) (1,304) --
Beneficial
Interest
Transactions Net increase in net assets resulting from Class A 4,173,905 48,240,806
beneficial interest transactions--Note 2
Net increase in net assets resulting from Class B 12,182,278 --
beneficial interest transactions--Note 2
Net Assets Total increase 19,280,427 48,296,822
Beginning of period 48,396,822 100,000
End of period (including undistributed net investment $67,677,249 $48,396,822
income of $403,577 and $132,407, respectively)
<FN>
+For the period from June 1, 1992 (commencement of operations) to September 30, 1992.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992++ 1993+++
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.03 $ 5.00 $ 5.10
Income from investment operations:
Net investment income .22 .07+ .14
Net realized and unrealized gain on investments,
options written and foreign currencies .22 .02 .16
Total income from investment operations .44 .09 .30
Dividends and distributions to shareholders:
Dividends from net investment income (.20) (.06) (.13)
Distributions from net realized gain on investments (.01) -- (.01)
and options written
Total dividends and distributions to shareholders (.21) (.06) (.14)
Net asset value, end of period $ 5.26 $ 5.03 $ 5.26
Total Return, at Net Asset Value** 8.84% 1.74% 5.86%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $55,291 $48,397 $12,386
Average net assets (in thousands) $59,209 $30,264 $ 7,541
Number of shares outstanding at end of period
(in thousands) 10,513 9,628 2,357
Ratios to average net assets:
Net investment income 5.69% 4.59%* 5.53%*
Expenses 1.36% 1.46%*+ 2.21%*
Portfolio turnover rate*** 122.4% 25.8% 122.4%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before
distributions reinvested in additional shares on the reinvestment date,
and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total
returns.
***The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$96,138,345 and $76,691,071, respectively.
+Net investment income would have been $.07 absent the voluntary expense
reimbursement, resulting in an expense ratio of 1.74%.
++For the period from June 1, 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 Income & Growth Fund (the Fund) is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment adviser is
Oppenheimer Management Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B
shares will automatically
convert to Class A shares six years after the date of purchase. The
following is a summary of significant accounting policies consistently
followed by the Fund.
Investment Valuation--Portfolio securities are valued at 4:00 p.m. (New
York time) on each trading day. Listed and unlisted securities for which
such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid
or asked price or the last sale price on the prior trading day. Long-term
debt securities are valued by a portfolio pricing service approved by the
Board of Trustees. Long- term debt securities which cannot be valued by
the approved portfolio pricing service are valued by averaging the mean
between the bid and asked prices obtained from two active market makers
in such securities. Short-term debt securities having a remaining maturity
of 60 days or less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount.
Securities for which market quotes are not readily available are valued
under procedures established by the Board of Trustees to determine fair
value in good faith. A call option is valued based upon the last sales
price on the principal exchange on which the option is traded or, in the
absence of any transactions that day, the value is based upon the last
sale on the prior trading date if it is within the spread between the
closing bid and asked prices. If the last sale price is outside the
spread, the closing bid or asked price closest to the last reported sale
price is used.
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.
Call Options Written--The Fund may write covered call options. When an
option is written, the Fund receives a premium and becomes obligated to
sell the underlying security at a fixed price, upon exercise of the
option. In writing an option, the Fund bears the market risk of an
unfavorable change in the price of the security underlying the written
option. Exercise of an option written by the Fund could result in the Fund
selling a security at a price different from the current market value. All
securities covering call options written are held in escrow by the
custodian bank.
Allocation of Income, Expenses and Gains and Losses--Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
<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 $26,000 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) and dividend income is
recorded on the ex-dividend date. Discount on securities purchased is
amortized over the life of the respective securities, in accordance with
federal income tax requirements. Realized gains and losses on investments
and options written and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the same basis used for
federal income tax purposes.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1993+ Period Ended September 30, 1992++
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 5,776,034 $ 29,480,167 10,200,285 $51,224,702
Dividends and distributions reinvested 406,080 2,091,310 31,378 158,342
Redeemed (5,297,441) (27,397,572) (623,231) (3,142,238)
Net increase 884,673 $ 4,173,905 9,608,432 $48,240,806
Class B:
Sold 2,860,426 $ 14,798,939 -- $ --
Dividends and distributions reinvested 30,122 156,143 -- --
Redeemed (533,847) (2,772,804) -- --
Net increase 2,356,701 $ 12,182,278 -- $ --
<FN>
+For the year ended September 30, 1993 for Class A shares and for the
period from November 30, 1992 (inception of offering) to September 30,
1993 for Class B shares.
++For the period from June 1, 1992 (commencement of operations) to
September 30, 1992.
</TABLE>
3. Unrealized Gains and Losses on Investments and Options Written
At September 30, 1993, net unrealized appreciation of investments and
options written of $2,297,127 was composed of gross appreciation of
$3,906,672, and gross depreciation of $1,609,545.
4. Call Option Activity
Call option activity for the year ended September 30, 1993 was as follows:
<TABLE>
<CAPTION>
Number Amount
of Options of Premiums
<S> <C> <C>
Options outstanding at September 30, 1992 40 $ 51,250
Options written 2,760 298,125
Options exercised (1,600) (185,000)
Options expired prior to exercise (800) (107,500)
Options outstanding at September 30, 1993 400 $ 56,875
</TABLE>
Premiums received on expired options resulted in a short-term capital gain
of $107,500.
<PAGE>
5. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .75%
on the first $200 million of net assets, with a reduction of .03% on each
$200 million thereafter to $800 million, .60% on the next $200 million and
.50% on net assets in excess of $1 billion. The Manager has agreed to
reimburse the Fund if aggregate expenses (with specified exceptions)
exceed the most stringent applicable regulatory limit on Fund expenses.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $841,033, of which $213,712
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 $8,578 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 $4,338 to an affiliated
broker-dealer as reimbursement for Class A distribution-related expenses
and retained $62,456 as reimbursement for Class B distribution-related
expenses and sales commissions.
6. Restricted Securities
The Fund owns securities purchased in private placement transactions,
without registration under the Securities Act of 1933 (the Act). The
securities are valued under methods approved by the Board of Trustees as
reflecting fair value. The Fund intends to invest no more than 10% of its
net assets (determined at the time of purchase) in restricted and illiquid
securities, excluding securities eligible for resale pursuant to Rule 144A
of the Act that are determined to be liquid by the Board of Trustees or
by the Manager under Board-approved guidelines.
<TABLE>
<CAPTION>
Valuation Per
Unit as of
Security Acquisition Date Cost Per Unit September 30, 1993
<S> <C> <C> <C>
Banco Nacional de Mexico SA, 7% Exch. Sub. Debs., 12/15/99+ 5/24/93 $104.00 $112.25
Empresas La Moderna SA, 10.25% Gtd. Nts., 11/12/97+ 12/9/92 $ 97.35 $106.50
Time Warner, Inc./Time Warner Entertainment LP,8.375% Sr. Debs., 3/15/23+ 5/18/93 $ 95.82 $104.25
</TABLE>
+Transferable under Rule 144A of the Act.
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements:
(1) Financial Highlights (See Part A): Filed
herewith.
(2) Report of Independent Auditors (See Part B): Filed
herewith.
(3) Statement of Investments (See Part B): Filed herewith.
(4) Statement of Assets and Liabilities (See Part B): Filed
herewith.
(5) Statement of Operations (See Part B): Filed herewith.
(6) Statement of Changes in Net Assets (See Part B): Filed
herewith.
(7) Notes to Financial Statements (See Part B): Filed
herewith.
(b) Exhibits:
(1) Registrant's Amended and Restated Declaration of Trust
dated November 30, 1992: Filed with Post-Effective
Amendment No. 2, 11/22/93, and incorporated herein by
reference.
(2) By-Laws dated 5/28/92: Filed with Registrant's Initial
Registration Statement on April 22, 1992 and incorporated
herein by reference.
(3) Not applicable.
(4) (i) Specimen Class A Share Certificate: Filed with Post-
Effective Amendment No. 1, 11/30/92, and incorporated
herein by reference.
(ii) Specimen Class B Share Certificate: Filed with Post-
Effective Amendment No. 1, 11/30/92, and incorporated
herein by reference.
(5) Investment Advisory Agreement dated 5/28/92: Filed with
Post-Effective Amendment No. 1, 11/30/92, and incorporated
herein by reference.
(6) (i) General Distributor's Agreement dated 10/13/92:
Filed with Post-Effective Amendment No. 1,
11/30/92, and incorporated herein by reference.
(ii) Form of Dealer Agreement of Oppenheimer Fund
Management, Inc.: Filed with Post-Effective Amendment
No. 12 of Oppenheimer Government Securities Fund
(Reg. No. 33-02769), 12/2/92, and incorporated herein
by reference.
(iii) Form of Oppenheimer Fund Management, Inc. Broker
Agreement: Filed with Post-Effective Amendment No.
12 of Oppenheimer Government Securities Fund (Reg.
No. 33-02769), 12/2/92, and incorporated herein by
reference.
(iv) Form of Oppenheimer Fund Management, Inc. Agency
Agreement: Filed with Post-Effective Amendment No.
12 of Oppenheimer Government Securities Fund (Reg.
No. 33-02769), 12/2/92, and incorporated herein by
reference.
(v) Broker Agreement between Oppenheimer Fund Management,
Inc. and Newbridge Securities, Inc. dated October 1,
1986: Previously filed with Post-Effective Amendment
No. 25 to the Registration Statement of Oppenheimer
Special Fund (Reg. No. 2-45272), 11/1/86, and
incorporated herein by reference.
(7) Not applicable.
(8) Custodian Agreement dated 5/28/92: Filed with Post-
Effective Amendment No. 1, 11/30/92, and incorporated
herein by reference.
(9) Not applicable.
(10) Opinion and Consent of Counsel dated 5/11/92: Filed with
Registrant's Pre-Effective Amendment No. 1, 5/13/92, and
incorporated herein by reference.
(11) Independent Auditors' Consent.
(12) Not applicable.
(13) Investment Letter from Oppenheimer Management Corporation
to Registrant dated 4/30/92: Filed with Registrant's Pre-
Effective Amendment No. 1, 5/13/92, and incorporated herein
by reference.
(14) (i) Form of prototype Standardized and Non-Standardized
Profit-Sharing Plans and Money Purchase Plans for
self-employed persons and corporations: Filed with
Post-Effective Amendment No. 3 to the Registration
Statement of Oppenheimer Global Growth & Income Fund
(Reg. No. 33-23799), 1/31/92, and incorporated herein
by reference.
(ii) Form of Individual Retirement Account Trust Agreement:
Filed with Post-Effective Amendment No. 21 of
Oppenheimer U.S. Government Trust (Reg. No. 2-76645),
8/25/93 and incorporated herein by reference.
(iii) Form of Tax Sheltered Retirement Plan and Custody
Agreement for employees of public schools and tax-
exempt organizations: Previously filed with Post-
Effective Amendment No. 22 to the Registration
Statement of Oppenheimer Directors Fund (File No. 2-
62240), 2/1/90, and incorporated herein by reference.
(iv) Form of Simplified Employee Pension IRA: Previously
filed with Post-Effective Amendment No. 36 to the
Registration Statement of Oppenheimer Equity Income
Fund (Reg. No. 2-33043), 10/23/91, and incorporated
herein by reference.
(15) (i) Service Plan and Agreement for Class A shares under
Rule 12b-1 dated 6/22/93: Filed herewith.
(ii) Distribution and Service Plan and Agreement for
Class B shares under Rule 12b-1 dated 6/22/93:
Filed herewith.
(16) Performance Data Computation Schedule: Filed herewith.
-- Powers of Attorney: Filed with Post-Effective Amendment
No. 2, 11/22/93, and incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
- ------- -------------------------------------------------------------
None
Item 26. Number of Holders of Securities
- ------- -------------------------------
Number of Record Holders
as of December 31, 1993
------------------------
Title of Class
--------------
Class A Shares of Beneficial Interest 4,039
Class B Shares of Beneficial Interest 1,250
Item 27. Indemnification
- ------- ---------------
Reference is made to the provisions of Article Seventh of Registrant's
Declaration of Trust filed as Exhibit 24(b)(1) to this Registration
Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
- ------- ----------------------------------------------------
Oppenheimer Management Corporation is the investment adviser of
the Registrant; it and certain subsidiaries act in the same
capacity to other registered investment companies as described
in Parts A and B of this Registration Statement.
(b) Business and Other Connections of Officers and Directors of
Investment Adviser
------------------
For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of Oppenheimer Management Corporation, reference is
made to Part B of this Registration Statement and to the
registration on Form ADV of Oppenheimer Management Corporation
filed under the Investment Advisers Act of 1940, which is
incorporated herein by reference.
Item 29. Principal Underwriters
- ------- ----------------------
(a) Oppenheimer Funds Distributor, Inc. is the general
distributor of Registrant's shares. It is also the
general distributor of certain of the other registered
open-end investment companies for which Oppenheimer
Management Corporation is the investment adviser, as
described in Parts A and B of this Registration Statement.
(b) The information contained in the registration on Form BD
of Oppenheimer Funds Distributor, Inc., filed under the
Securities Exchange Act of 1934, is incorporated herein
by reference.
(c) Not applicable.
Item 30. Location of Accounts and Records
- ------- --------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and rules promulgated thereunder are in the possession of Oppenheimer
Management Corporation at its offices at 3410 South Galena Street, Denver,
Colorado 80231.
Item 31. Management Services
- ------- -------------------
Not applicable.
Item 32. Undertakings
- ------- ------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to present its Investment Advisory
Agreement and its Rule 12b-1 Distribution Plan to its
shareholders for approval at the first shareholder meeting
to be held within sixteen months following the effective
date of this Registration Statement.
(d) Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of the removal
of a Trustee or Trustees when requested in writing to do
so by the holders of at least 10% of the Registrant's
outstanding shares and in connection with such meeting to
comply with the provisions of section 16(c) of the
Investment Company Act of 1940 relating to shareholder
communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver and State
of Colorado on the 24th day of January, 1994.
OPPENHEIMER STRATEGIC INCOME
& GROWTH FUND
/s/ James C. Swain
by: --------------------------
Attest: James C. Swain, Chairman
/s/ George C. Bowen
- --------------------
George C. Bowen, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities on the dates indicated:
Signatures: Title Date
- ----------- ----------------- --------------
/s/ James C. Swain* Chairman of the Board January 24, 1994
- ---------------------- of Trustees
James C. Swain
/s/ Jon S. Fossel* Trustee January 24, 1994
- ----------------------
Jon S. Fossel
/s/ George Bowen* Treasurer and January 24, 1994
- ---------------------- Principal Financial
George Bowen and Accounting Officer
/s/ Robert G. Avis* Trustee January 24, 1994
- ----------------------
Robert G. Avis
/s/ William A. Baker* Trustee January 24, 1994
- ----------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee January 24, 1994
- ----------------------
Charles Conrad, Jr.
/s/ Raymond J. Kalinowski* Trustee January 24, 1994
- ----------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee January 24, 1994
- ----------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee January 24, 1994
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee January 24, 1994
- ---------------------------
Ned M. Steel
*By: /s/ Robert G. Zack
-------------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Form N-1A Sequentially
Item No. Description Numbered Page
- --------- ----------- -------------
24(b)11 Independent Auditors' Consent
24(b)(15)(i) Service Plan and Agreement
for Class A shares under
Rule 12b-1
24(b)(15)(ii) Distribution and Service
Plan and Agreement for
Class B shares under Rule 12b-1
24(b)(16) Performance Data Computation
Schedule
INDEPENDENT AUDITORS' CONSENT
Oppenheimer Strategic Income & Growth Fund:
We hereby consent to the use in Post-Effective Amendment No. 3 to
Registration Statement No. 33-47378 of our report dated October 21, 1993
appearing in the Statement of Additional Information, which is a part of
such Registration Statement, and to the reference to us under the caption
"Financial Highlights" appearing in the Prospectus, which is also a part
of such Registration Statement.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Denver, Colorado
January 21, 1994
SERVICE PLAN AND AGREEMENT
BETWEEN
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
AND
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
FOR CLASS A SHARES
SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd day of June, 1993,
by and between OPPENHEIMER STRATEGIC INCOME & GROWTH FUND (the "Fund") and
OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written service plan for its Class
A Shares described in the Fund's registration statement as of the date
this Plan takes effect, contemplated by and to comply with Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, pursuant to which the Fund will reimburse the
Distributor for a portion of its costs incurred in connection with the
personal service and the maintenance of shareholder accounts ("Accounts")
that hold Class A Shares (the "Shares") of such series and class of the
Fund. The Fund may be deemed to be acting as distributor of securities
of which it is the issuer, pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"), according to the terms of this Plan.
The Distributor is authorized under the Plan to pay "Recipients," as
hereinafter defined, for rendering services and for the maintenance of
Accounts. Such Recipients are intended to have certain rights as third-
party beneficiaries under this Plan.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered services in connection with the
personal service and maintenance of Accounts; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning such service; and (iii) has been selected by the
Distributor to receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Fund's Board of Trustees (the "Board")
who are not "interested persons" (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of
this Plan or in any agreements relating to this Plan (the
"Independent Trustees") may remove any broker, dealer, bank or other
institution as a Recipient, whereupon such entity's rights as a
third-party beneficiary hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed
owned by more than one Recipient for purposes of this Plan. In the
event that two entities would otherwise qualify as Recipients as to
the same Shares, the Recipient which is the dealer of record on the
Fund's books shall be deemed the Recipient as to such Shares for
purposes of this Plan.
3. Payments.
(a) Under the Plan, the Fund will make payments to the Distributor,
within forty-five (45) days of the end of each calendar quarter, in
the amount of the lesser of: (i) .0625% (.25% on an annual basis) of
the average during the calendar quarter of the aggregate net asset
value of the Shares, computed as of the close of each business day,
or (ii) the Distributor's actual expenses under the Plan for that
quarter of the type approved by the Board. The Distributor will use
such fee received from the Fund in its entirety to reimburse itself
for payments to Recipients and for its other expenditures and costs
of the type approved by the Board incurred in connection with the
personal service and maintenance of Accounts including, but not
limited to, the services described in the following paragraph. The
Distributor may make Plan payments to any "affiliated person" (as
defined in the 1940 Act) of the Distributor if such affiliated person
qualifies as a Recipient.
The services to be rendered by the Distributor and Recipients
in connection with the personal service and the maintenance of
Accounts may include, but shall not be limited to, the following:
answering routine inquiries from the Recipient's customers concerning
the Fund, providing such customers with information on their
investment in shares, assisting in the establishment and maintenance
of accounts or sub-accounts in the Fund, making the Fund's investment
plans and dividend payment options available, and providing such
other information and customer liaison services and the maintenance
of Accounts as the Distributor or the Fund may reasonably request.
It may be presumed that a Recipient has provided services qualifying
for compensation under the Plan if it has Qualified Holdings of
Shares to entitle it to payments under the Plan. In the event that
either the Distributor or the Board should have reason to believe
that, notwithstanding the level of Qualified Holdings, a Recipient
may not be rendering appropriate services, then the Distributor, at
the request of the Board, shall require the Recipient to provide a
written report or other information to verify that said Recipient is
providing appropriate services in this regard. If the Distributor
still is not satisfied, it may take appropriate steps to terminate
the Recipient's status as such under the Plan, whereupon such
entity's rights as a third-party beneficiary hereunder shall
terminate.
Payments received by the Distributor from the Fund under the
Plan will not be used to pay any interest expense, carrying charges
or other financial costs, or allocation of overhead by the
Distributor, or for any other purpose other than for the payments
described in this Section 3. The amount payable to the Distributor
each quarter will be reduced to the extent that reimbursement
payments otherwise permissible under the Plan have not been
authorized by the Board of Trustees for that quarter. Any
unreimbursed expenses incurred for any quarter by the Distributor may
not be recovered in later periods.
(b) The Distributor shall make payments to any Recipient quarterly,
within forty-five (45) days of the end of each calendar quarter, at
a rate not to exceed .0625% (.25% on an annual basis) of the average
during the calendar quarter of the aggregate net asset value of the
Shares computed as of the close of each business day, of Qualified
Holdings owned beneficially or of record by the Recipient or by its
Customers. However, no such payments shall be made to any Recipient
for any such quarter in which its Qualified Holdings do not equal or
exceed, at the end of such quarter, the minimum amount ("Minimum
Qualified Holdings"), if any, to be set from time to time by a
majority of the Independent Trustees. A majority of the Independent
Trustees may at any time or from time to time increase or decrease
and thereafter adjust the rate of fees to be paid to the Distributor
or to any Recipient, but not to exceed the rate set forth above,
and/or increase or decrease the number of shares constituting Minimum
Qualified Holdings. The Distributor shall notify all Recipients of
the Minimum Qualified Holdings and the rate of payments hereunder
applicable to Recipients, and shall provide each Recipient with
written notice within thirty (30) days after any change in these
provisions. Inclusion of such provisions or a change in such
provisions in a revised current prospectus shall constitute
sufficient notice.
(c) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC),
from its own resources.
4. Selection and Nomination of Trustees. While this Plan is in effect,
the selection or replacement of Independent Trustees and the nomination
of those persons to be Trustees of the Fund who are not "interested
persons" of the Fund shall be committed to the discretion of the
Independent Trustees. Nothing herein shall prevent the Independent
Trustees from soliciting the views or the involvement of others in such
selection or nomination if the final decision on any such selection and
nomination is approved by a majority of the incumbent Independent
Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, and the purposes
for which the payments were made. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year with respect to the personal service and
maintenance of Accounts in conjunction with the Board's annual review of
the continuation of the Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its "assignment" (as defined in the 1940 Act); (iii) it shall
go into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Independent Trustees cast in person at
a meeting called on June 22, 1993 for the purpose of voting on this Plan,
and takes effect as of July 1, 1993. Unless terminated as hereinafter
provided, it shall continue in effect until October 31, 1993 and from year
to year thereafter or as the Board may otherwise determine only so long
as such continuance is specifically approved at least annually by the
Board and its Independent Trustees cast in person at a meeting called for
the purpose of voting on such continuance. This Plan may be terminated
at any time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities of the Class. This Plan may not be
amended to increase materially the amount of payments to be made without
approval of the Class A Shareholders, in the manner described above, and
all material amendments must be approved by a vote of the Board and of the
Independent Trustees.
8. Disclaimer of Shareholder and Trustee Liability. The Distributor
understands that the obligations of the Fund under this Plan are not
binding upon any Trustee or shareholder of the Fund personally, but bind
only the Fund and the Fund's property. The Distributor represents that
it has notice of the provisions of the Declaration of Trust of the Fund
disclaiming shareholder and Trustee liability for acts or obligations of
the Fund.
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
/s/ Robert G. Zack
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: /s/ Katherine P. Feld
Katherine P. Feld
Vice President & Secretary
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT
WITH
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
FOR CLASS B SHARES OF
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd
day of June, 1993, by and between OPPENHEIMER STRATEGIC INCOME & GROWTH
FUND (the "Fund") and OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the
"Distributor").
1. The Plan. This Plan is the Fund's written distribution and service
plan for Class B shares of the Fund (the "Shares"), contemplated by Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act"), pursuant to which the Fund will compensate the Distributor for a
portion of its costs incurred in connection with the distribution of
Shares, and the personal service and maintenance of shareholder accounts
that hold Shares ("Accounts"). The Fund may act as distributor of
securities of which it is the issuer, pursuant to the Rule, according to
the terms of this Plan. The Distributor is authorized under the Plan to
pay "Recipients," as hereinafter defined, for rendering (1) distribution
assistance in connection with the sale of Shares and/or (2) administrative
support services with respect to Accounts. Such Recipients are intended
to have certain rights as third-party beneficiaries under this Plan. The
terms and provisions of this Plan shall be interpreted and defined in a
manner consistent with the provisions and definitions contained in (i) the
1940 Act, (ii) the Rule, (iii) Article III, Section 26, of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., or
its successor (the "NASD Rules of Fair Practice") and (iv) any conditions
pertaining either to distribution related expenses or to a plan of
distribution, to which the Fund is subject under any order on which the
Fund relies, issued at any time by the Securities and Exchange Commission.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered assistance (whether direct,
administrative or both) in the distribution of Shares or has provided
administrative support services with respect to Shares held by
Customers (defined below) of the Recipient; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning the sale of Shares; and (iii) has been selected by
the Distributor to receive payments under the Plan. Notwithstanding
the foregoing, a majority of the Fund's Board of Trustees (the
"Board") who are not "interested persons" (as defined in the 1940
Act) and who have no direct or indirect financial interest in the
operation of this Plan or in any agreements relating to this Plan
(the "Independent Trustees") may remove any broker, dealer, bank or
other institution as a Recipient, whereupon such entity's rights as
a third-party beneficiary hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed
owned by more than one Recipient for purposes of this Plan. In the
event that two entities would otherwise qualify as Recipients as to
the same Shares, the Recipient which is the dealer of record on the
Fund's books shall be deemed the Recipient as to such Shares for
purposes of this Plan.
3. Payments for Distribution Assistance and Administrative Support
Services.
(a) The Fund will make payments to the Distributor, (i) within
forty-five (45) days of the end of each calendar quarter, in the
aggregate amount of 0.0625% (0.25% on an annual basis) of the average
during the calendar quarter of the aggregate net asset value of the
Shares computed as of the close of each business day (the "Service
Fee"), plus (ii) within ten (10) days of the end of each month, in
the aggregate amount of 0.0625% (0.75% on an annual basis) of the
average during the month of the aggregate net asset value of Shares
computed as of the close of each business day (the "Asset Based Sales
Charge") outstanding for six years or less (the "Maximum Holding
Period"). Such Service Fee payments received from the Fund will
compensate the Distributor and Recipients for providing
administrative support services of the type approved by the Board
with respect to Accounts. Such Asset Based Sales Charge payments
received from the Fund will compensate the Distributor and Recipients
for providing distribution assistance in connection with the sales
of Shares.
The administrative support services in connection with the
Accounts to be rendered by Recipients may include, but shall not be
limited to, the following: answering routine inquiries concerning
the Fund, assisting in the establishment and maintenance of accounts
or sub-accounts in the Fund and processing Share redemption
transactions, making the Fund's investment plans and dividend payment
options available, and providing such other information and services
in connection with the rendering of personal services and/or the
maintenance of Accounts, as the Distributor or the Fund may
reasonably request.
The distribution assistance in connection with the sale of
Shares to be rendered by the Distributor and Recipients may include,
but shall not be limited to, the following: distributing sales
literature and prospectuses other than those furnished to current
holders of the Fund's Shares ("Shareholders"), and providing such
other information and services in connection with the distribution
of Shares as the Distributor or the Fund may reasonably request.
It may be presumed that a Recipient has provided distribution
assistance or administrative support services qualifying for payment
under the Plan if it has Qualified Holdings of Shares to entitle it
to payments under the Plan. In the event that either the Distributor
or the Board should have reason to believe that, notwithstanding the
level of Qualified Holdings, a Recipient may not be rendering
appropriate distribution assistance in connection with the sale of
Shares or administrative support services for Accounts, then the
Distributor, at the request of the Board, shall require the Recipient
to provide a written report or other information to verify that said
Recipient is providing appropriate distribution assistance and/or
services in this regard. If the Distributor still is not satisfied,
it may take appropriate steps to terminate the Recipient's status as
such under the Plan, whereupon such entity's rights as a third-party
beneficiary hereunder shall terminate.
(b) The Distributor shall make service fee payments to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed 0.0625% (0.25% on an annual basis)
of the average during the calendar quarter of the aggregate net asset
value of Shares computed as of the close of each business day,
constituting Qualified Holdings owned beneficially or of record by
the Recipient or by its Customers for a period of more than the
minimum period (the "Minimum Holding Period"), if any, to be set from
time to time by a majority of the Independent Trustees.
Alternatively, the Distributor may, at its sole option, make service
fee payments ("Advance Service Fee Payments") to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed (i) 0.25% of the average during the
calendar quarter of the aggregate net asset value of Shares, computed
as of the close of business on the day such Shares are sold,
constituting Qualified Holdings sold by the Recipient during that
quarter and owned beneficially or of record by the Recipient or by
its Customers, plus (ii) 0.0625% (0.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of Shares computed as of the close of each business day, constituting
Qualified Holdings owned beneficially or of record by the Recipient
or by its Customers for a period of more than one (1) year, subject
to reduction or chargeback so that the Advance Service Fee Payments
do not exceed the limits on payments to Recipients that are, or may
be, imposed by Article III, Section 26, of the NASD Rules of Fair
Practice. In the event Shares are redeemed less than one year after
the date such Shares were sold, the Recipient is obligated and will
repay to the Distributor on demand a pro rata portion of such Advance
Service Fee Payments, based on the ratio of the time such shares were
held to one (1) year. The Advance Service Fee Payments described in
part (i) of the preceding sentence may, at the Distributor's sole
option, be made more often than quarterly, and sooner than the end
of the calendar quarter. However, no such payments shall be made to
any Recipient for any such quarter in which its Qualified Holdings
do not equal or exceed, at the end of such quarter, the minimum
amount ("Minimum Qualified Holdings"), if any, to be set from time
to time by a majority of the Independent Trustees. A majority of the
Independent Trustees may at any time or from time to time decrease
and thereafter adjust the rate of fees to be paid to the Distributor
or to any Recipient, but not to exceed the rate set forth above,
and/or direct the Distributor to increase or decrease the Maximum
Holding Period, the Minimum Holding Period or the Minimum Qualified
Holdings. The Distributor shall notify all Recipients of the Minimum
Qualified Holdings, Maximum Holding Period or Minimum Holding Period,
if any, and the rate of payments hereunder applicable to Recipients,
and shall provide each Recipient with written notice within thirty
(30) days after any change in these provisions. Inclusion of such
provisions or a change in such provisions in a revised current
prospectus shall constitute sufficient notice. The Distributor may
make Plan payments to any "affiliated person" (as defined in the 1940
Act) of the Distributor if such affiliated person qualifies as a
Recipient.
(c) The Distributor is entitled to retain from the payments
described in Section 3(a) the aggregate amount of (i) the Service Fee
on Shares outstanding for less than the Minimum Holding Period plus
(ii) the Asset-Based Sales Charge on Shares outstanding for not more
than the Maximum Holding Period, in each case computed as of the
close of each business day during that period and subject to
reduction or elimination of such amounts under the limits to which
the Distributor is, or may become, subject under Article III, Section
26, of the NASD Rules of Fair Practice. Such amount is collectively
referred to as the "Quarterly Limitation." The distribution
assistance and administrative support services in connection with the
sale of Shares to be rendered by the Distributor may include, but
shall not be limited to, the following: (i) paying sales commissions
to any broker, dealer, bank or other institution that sell Shares,
and\or paying such persons Advance Service Fee Payments in advance
of, and\or greater than, the amount provided for in Section 3(a) of
this Agreement; (ii) paying compensation to and expenses of personnel
of the Distributor who support distribution of Shares by Recipients;
(iii) paying of or reimbursing the Distributor for interest and
other borrowing costs on unreimbursed Carry Forward Expenses (as
hereafter defined) at the rate paid by the Distributor or, if such
amounts are financed by the Distributor from its own resources or by
an affiliate, at the rate of 1% per annum above the prime rate (which
shall mean the most preferential interest rate on corporate loans at
large U.S. money center commercial banks) then being reported in the
Eastern edition of the Wall Street Journal (or if such prime rate is
no longer so reported, such other rate as may be designated from time
to time by the Distributor with the approval of the Independent
Trustees); (iv) other direct distribution costs of the type approved
by the Board, including without limitation the costs of sales
literature, advertising and prospectuses (other than those furnished
to current Shareholders) and state "blue sky" registration expenses;
and (v) any service rendered by the Distributor that a Recipient may
render pursuant to part (a) of this Section 3. The Distributor's
costs of providing the above-mentioned services are hereinafter
collectively referred to as "Distribution and Service Costs." "Carry
Forward Expenses" are Distribution and Service Costs that are not
paid in the fiscal quarter in which they arise because they exceed
the Quarterly Limitation. In the event that the Board should have
reason to believe that the Distributor may not be rendering
appropriate distribution assistance or administrative support
services in connection with the sale of Shares, then the Distributor,
at the request of the Board, shall provide the Board with a written
report or other information to verify that the Distributor is
providing appropriate services in this regard.
(d) The excess in any fiscal quarter of (i) the Quarterly Limitation
plus any contingent deferred sales charge ("CDSC") payments recovered
by the Distributor on the proceeds of redemption of Shares over (ii)
Distribution and Service Costs during that quarter, shall be applied
in the following order of priority: first to interest on unreimbursed
Carry Forward Expenses, second to reduce any unreimbursed Carry
Forward Expenses, third to reduce Distribution and Service Costs
during that quarter, and fourth, to reduce the Asset Based Sales
Charge payments by the Fund to the Distributor in that quarter.
Carry Forward Expenses shall be carried forward by the Fund until
payment can be made under the Quarterly Limitation.
(e) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC),
from its own resources, from Asset Based Sales Charge payments or
from its borrowings.
4. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of those persons to be Trustees of the Fund
who are not "interested persons" of the Fund ("Disinterested Trustees")
shall be committed to the discretion of such Disinterested Trustees.
Nothing herein shall prevent the Disinterested Trustees from soliciting
the views or the involvement of others in such selection or nomination if
the final decision on any such selection and nomination is approved by a
majority of the incumbent Disinterested Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing distribution expenditures properly attributable to
the Shares, including the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, the amount paid
to the Distributor and the Distribution and Service Costs and Carry
Forward Expenses for that period. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year and its total expenses incurred in prior years
and not previously recovered with respect to the distribution of Shares
in conjunction with the Board's annual review of the continuation of the
Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act); (iii) it shall go
into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose
of voting on such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on June 22, 1993, for the purpose of voting
on this Plan, and takes effect as of July 1, 1993. Unless terminated as
hereinafter provided, it shall continue in effect until October 31, 1993
and from year to year thereafter or as the Board may otherwise determine
only so long as such continuance is specifically approved at least
annually by a vote of the Board and its Independent Trustees cast in
person at a meeting called for the purpose of voting on such continuance.
This Plan may not be amended to increase materially the amount of payments
to be made without approval of the Class B Shareholders, in the manner
described above, and all material amendments must be approved by a vote
of the Board and of the Independent Trustees. This Plan may be terminated
at any time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities of the Class. Notwithstanding any
such termination, the Distributor shall be entitled to payment from the
Fund of all Carry Forward Expenses properly incurred in respect of Shares
sold prior to the effective date of such termination, and the Fund shall
continue to make payment to the Distributor in the amount the Distributor
is entitled to retain under part (c) of Section 3 hereof, until such time
as the Distributor has been reimbursed for all such amounts by the Fund
and by retaining CDSC payments.
8. Disclaimer of Shareholder Liability. The Distributor understands
that the obligations of the Fund under this Plan are not binding upon any
Trustee or shareholder of the Fund personally, but bind only the Fund and
the Fund's property. The Distributor represents that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
and Trustee liability for acts or obligations of the Fund.
OPPENHEIMER STRATEGIC INCOME &
GROWTH FUND
By: /s/ Robert G. Zack
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: /s/ Katherine P. Feld
Katherine P. Feld, Vice President
& Secretary
Oppenheimer Strategic Income & Growth Fund
Exhibit 24(b)(16) to Form N-1A
Performance Data Computation Schedule
The Fund's average annual total returns and total returns are calculated
as described below, on the basis of the Fund's distributions, which are
as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class A Shares
07/17/92 0.0243079 0.0000 5.000
09/01/92 0.0162176 0.0000 5.070
10/06/92 0.0201845 0.0000 4.970
11/03/92 0.0136808 0.0000 5.010
12/08/92 0.0190534 0.0000 5.190
12/31/92 0.0087499 0.0053675 5.150
01/05/93 0.0030690 0.0000 5.120
02/02/93 0.0163632 0.0000 5.160
03/02/93 0.0155474 0.0000 5.180
04/06/93 0.0195685 0.0000 5.110
05/04/93 0.0155848 0.0000 5.180
06/08/93 0.0191975 0.0000 5.160
07/06/93 0.0164500 0.0000 5.220
08/03/93 0.0165928 0.0000 5.200
09/07/93 0.0207515 0.0000 5.230
Class B Shares
12/08/92 0.0027823 0.0000 5.190
12/31/92 0.0053741 0.0053675 5.150
01/05/93 0.0022214 0.0000 5.120
02/02/93 0.0116379 0.0000 5.160
03/02/93 0.0117359 0.0000 5.180
04/06/93 0.0153523 0.0000 5.100
05/04/93 0.0123223 0.0000 5.170
06/08/93 0.0152146 0.0000 5.160
07/06/93 0.0132208 0.0000 5.210
08/03/93 0.0132613 0.0000 5.200
09/07/93 0.0161239 0.0000 5.230
Oppenheimer Strategic Income & Growth Fund
November 17, 1993
Page 2
1. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating average annual total return is as
follows:
1 ERV n
--------------- = n (---) - 1 = average annual total return
number of years P
Where: ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical initial investment of $1,000
Class A Shares
Examples, assuming a maximum sales charge of 4.75%:
One Year Inception
$1,036.68 1 $1,054.74 .7513
(---------) - 1 = 3.67% (---------) - 1 = 4.09%
$1,000 $1,000
Class B Shares
Example, assuming a maximum contingent deferred sales charge of 5.00% for
the first year:
Inception (11/30/92)
$1,008.60 1.1967
(---------) - 1 = 1.03%
$1,000
Oppenheimer Strategic Income & Growth Fund
November 17, 1993
Page 3
2. TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating total return is as follows:
ERV - P
------- = Total Return
P
Examples:
Class A Shares
Inception (at Maximum Sales Charge) Inception (at NAV)
054.74 - $1,000 $1,107.34 - $1,000
- ------------ = 5.47 -------------------- = 10.73%
$1,000 $1,000
One Year (at NAV)
$1,088.38 - $1,000
-------------------- = 8.84%
$1,000
Class B Shares
Inception (11/30/92)(at Maximum Contingent Deferred Sales Charge)
$1,008.60 - $1,000
------------------ = 0.86%
$1,000
Inception (11/30/92)(at NAV)
$1,058.60 - $1,000
------------------ = 5.86%
$1,000
Oppenheimer Strategic Income & Growth Fund
November 17, 1993
Page 4
3. YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's yields are calculated using the following formula set
forth in the SEC rules:
a - b 6
Yield = 2((----- + 1) - 1)
cd
The symbols above represent the following factors:
a = Dividends and interest earned during the 30-day period.
b = Expenses accrued for the period (net of any expense
reimbursements).
c = The average daily number of Fund shares outstanding during
the 30-day period that were entitled to receive dividends.
d = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
Examples:
Class A Shares
$208,615.05 - $65,609.33 6
2((------------------------ + 1) - 1) = 2.95%
10,616,203 x $5.52
Class B Shares
$44,866.18 - $22,856.37 6
2((----------------------- + 1) - 1) = 2.21%
2,283,622 x $5.26
Oppenheimer Strategic Income & Growth Fund
November 17, 1993
Page 5
4. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's dividend yields are calculated using the following formula:
a/30 x 365
Dividend Yield = ----------
b or c
The symbols above represent the following factors:
a = The accrual dividend earned during the period.
b = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
c = The Fund's net asset value (excluding sales charge) per share
on the last day of the period.
Examples:
Class A Shares
Dividend Yield
at Maximum Offering $.0176214/30 x 365
----------------- = 3.88%
$5.52
Dividend Yield
at Net Asset Value $.0176214/30 x 365
------------------ = 4.08%
$5.26
Class B Shares
Dividend Yield
at Net Asset Value $.0137954/30 x 365
------------------ = 3.19%
$5.26
5. VALUES OF INVESTMENTS FOR A 10-YEAR PERIOD AT VARIOUS ASSUMED AVERAGE
ANNUAL RATES OF RETURN:
Amount of Value at
Investment Assumed Average Annual Return
5% 10% 15% 20%
Single $1,000 $ 1,629 $ 2,594 $ 4,046 $ 6,192
Annual $1,000 13,208 17,533 23,350 31,151
Values are calculated assuming investment at the beginning of the
period (each year in the case of annual $1,000 investments) and
reinvestment of earnings at the end of each year.
