OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
Prospectus dated January 25, 1996
Oppenheimer Strategic Income & Growth Fund (the "Fund") is a mutual
fund with a primary investment objective of current income and a secondary
investment objective of capital appreciation. The Fund intends to seek
its primary objective principally by investing in (1) U.S. Government
Securities, (2) foreign debt securities, and (3) domestic debt securities,
including lower-rated, high risk, high yield securities commonly called
"junk bonds." The Fund can invest some or all of its assets in each of
these three types of securities, although it will normally invest some
assets in each sector. The Fund intends to seek its secondary investment
objective of capital appreciation principally by investing in domestic
equity securities.
The Fund may invest up to 100% of its assets in "junk bonds" or
foreign debt securities rated below investment grade. These securities
may be considered to be speculative and involve greater risks, including
risk of default, than higher-rated securities. 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.
Investors should carefully consider these risks before investing. Please
refer to "Special Risks of Lower-Rated Securities" on pages 12 and 13.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the January 25, 1996 Statement of Additional Information. For a
free copy, call OppenheimerFunds Services, the Fund's Transfer Agent, at
1-800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(Oppenheimer funds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objectives and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Description of Securities Ratings
Appendix B: Special Sales Charge Arrangements for Certain Persons
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1995.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account," from
pages ____ through ____, for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
Sales Charge on
Reinvested Dividends None None None
Deferred Sales Charge
(as a % of the lower
of the original
purchase price or
redemption proceeds) None(1) 5% in the first 1% if shares
year, declining are redeemed
to 1% in the within 12 months
six year and of purchase(2)
eliminated
thereafter(2)
Exchange Fee None None None
</TABLE>
(1) If you invest $1 million or more ($500,000 or more for purchases by
OppenheimerFunds prototype 401(k) plans) in Class A shares, you may have
to pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares - Class A Shares," below.
(2) See "How to Buy Shares - Class B Shares" and "How to Buy Shares -
Class C Shares" below.
- Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the
Fund pays management fees to its investment adviser, OppenheimerFunds,
Inc. (which is referred to in this Prospectus as the "Manager"). The
rates of the Manager's fees are set forth in "How the Fund is Managed,"
below. The Fund has other regular expenses for services, such as transfer
agent fees, custodial fees paid to the bank that holds its portfolio
securities, audit fees and legal expenses. Those expenses are detailed
in the Fund's Financial Statements in the Statement of Additional
Information.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 Distribution Plan
Fees for Class A shares are service plan fees. For Class B and Class C
shares the 12b-1 Distribution Plan Fees are service plan fees and asset
based sales charges. The service plan fee for each class is a maximum of
0.25% of average annual net assets of the class and the asset-based sales
charge for Class B and Class C shares is 0.75%. These plans are described
in greater detail in "How to Buy Shares" below.
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares. Class C shares were not publicly offered during the
fiscal year ended September 30, 1995. Therefore, the Annual Fund
Operating Expenses for Class C Shares are estimates based on amounts that
would have been payable in that period assuming Class C shares were
outstanding during such fiscal year.
Class Class B Class C
Shares Shares Shares
Management Fees 0.75% 0.75% 0.75%
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00%
Other Expenses 0.35% 0.35% 0.35%
Total Fund Operating Expenses 1.35% 2.10% 2.10%
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the Annual Fund
Operating Expenses table above. If you were to redeem your shares at the
end of each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $61 $88 $118 $202
Class B Shares $71 $96 $133 $206
Class C Shares $31 $66 $113 $243
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $61 $88 $118 $202
Class B Shares $21 $66 $113 $206
Class C Shares $21 $66 $113 $243
*The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts Class B
shares into Class A shares after 6 years. Because of the effect of the
asset-based sales charge and the contingent deferred sales charge on Class
B and Class C shares, long-term Class B and Class C shareholders could pay
the economic equivalent of an amount greater than the maximum front-end
sales charge allowed under applicable regulatory requirements. For Class
B shareholders, the automatic conversion of Class B shares to Class A
shares is designed to minimize the likelihood that this will occur.
Please refer to "How to Buy Shares - Buying Class B Shares" for more
information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Are The Fund's Investment Objectives? The Fund's primary
investment objective is to seek current income. The Fund's secondary
investment objective is to seek capital appreciation.
- What Does the Fund Invest In? To seek current income, the Fund
primarily invests in three types of securities, or "sectors" of the
market: (i) U.S. Government securities, (ii) foreign debt securities, and
(iii) domestic debt securities, including lower-rated, high yield
securities commonly called "junk bonds." While all securities investments
entail risks, foreign securities and junk bonds have special risks,
described in more detail in "Investment Objectives and Policies." To seek
its secondary objective, the Fund normally will invest in common stocks
that the Manager believes have growth potential. The Fund may also write
covered calls and use certain types of securities called "derivative
investments" and hedging instruments to try to manage investment risks.
These investments are more fully explained in "Investment Objectives and
Policies" starting on page __.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer funds, Inc. The Manager (including a subsidiary)
manages investment company portfolios currently having over $38 billion
in assets at September 30, 1995. The Manager is paid an advisory fee by
the Fund, based on its net assets. The Fund has three portfolio managers,
employed by the Manager, who are primarily responsible for the selection
of the Fund's securities: Robert C. Doll, Jr., Arthur P. Steinmetz and
David P. Negri. The Fund's Board of Trustees, elected by shareholders,
oversees the investment adviser and the portfolio managers. Please refer
to "How the Fund is Managed," starting on page ___ for more information
about the Manager and its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in stocks and bonds are subject to changes
in their value from a number of factors such as changes in general bond
and stock market movements. The change in value of particular stocks or
bonds may result from an event affecting the issuer, or changes in
interest rates that can affect bond prices. These changes affect the
value of the Fund's investments and its share prices for each class of its
shares. In the OppenheimerFunds spectrum, the Fund is generally
considered moderately aggressive, more aggressive than investment grade
bond funds, because it may hold high yield securities and may invest for
capital appreciation in common stocks. While the Manager tries to reduce
risks by diversifying investments, by carefully researching securities
before they are purchased for the portfolio, and in some cases by using
hedging techniques, there is no guarantee of success in achieving the
Fund's objectives and your shares may be worth more or less than their
original cost when you redeem them. Please refer to "Investment
Objectives and Policies" starting on page ___ for a more complete
discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page ___ for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund offers the
individual investor three classes of shares. All classes have the same
investment portfolio but different expenses. Class A shares are offered
with a front-end sales charge, starting at 4.75%, and reduced for larger
purchases. Class B and Class C shares are offered without a front-end
sales charge, but may be subject to a contingent deferred sales charge if
redeemed within 6 years or 12 months, respectively, of buying them. There
is also an annual asset-based sales charge on Class B and Class C shares.
Please review "How To Buy Shares" starting on page ___ for more details,
including a discussion about which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How To Sell Shares" on page ___. The Fund also
offers exchange privileges to other Oppenheimer funds, described in "How
to Exchange Shares" on page ___.
- How Has the Fund Performed? The Fund measures its performance
by quoting its yield, average annual total return and cumulative total
return, which measure historical performance. Those yields and returns
can be compared to the yield and returns (over similar periods) of other
funds. Of course, other funds may have different objectives, investments,
and levels of risk. The Fund's performance can also be compared to broad
market indices, which we have done on page ___. Please remember that past
performance does not guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial information
about the Fund, including per share data, expense ratios and other data
based on the Fund's average net assets. This information has been audited
by Deloitte & Touche LLP, the Fund's independent auditors, whose report
on the Fund's financial statements for the fiscal year ended September 30,
1995, is included in the Statement of Additional Information. Class C
shares were not publicly offered during the periods shown. Accordingly,
no information on Class C shares is reflected in the table below or in the
Fund's other financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992(2) 1995 1994 1993(1)
<S> <C> <C> <C> <C> <C> <C> <C>
==========================================================
==========================================================
=============
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $4.92 $5.26 $5.03 $5.00 $4.91 $5.26 $5.10
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .21 .22 .07(3) .28 .19 .14
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions .44 (.23) .22 .02 .44 (.25) .16
------- ------ ------- ------- ------- ------- -------
Total income (loss) from
investment operations .76 (.02) .44 .09 .72 (.06) .30
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment
income (.32) (.21) (.20) (.06) (.28) (.18) (.13)
Dividends in excess of
net investment income -- (.01) -- -- -- (.01) --
Distributions from net realized
gain on investments, options written
and foreign currency transactions -- -- (.01) -- -- -- (.01)
Distributions in excess of net
realized gain on investments,
options written, and foreign
currency transactions -- (.10) -- -- -- (.10) --
------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions to shareholders (.32) (.32) (.21) (.06) (.28) (.29) (.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.36 $4.92 $5.26 $5.03 $5.35 $4.91 $5.26
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
==========================================================
==========================================================
=============
TOTAL RETURN, AT NET ASSET VALUE(4) 16.09% (.23)% 8.84% 1.74% 15.26% (1.17)%
5.86%
==========================================================
==========================================================
=============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $40,977 $42,733 $55,291 $48,397 $19,885 $16,053 $12,386
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $40,799 $48,360 $59,209 $30,264 $17,316 $14,986 $ 7,541
- ---------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 7,643 8,683 10,513 9,628 3,715 3,267 2,357
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.37% 4.56% 4.33% 4.59%(5) 5.61% 3.86% 3.32%(5)
Expenses 1.35% 1.43% 1.36% 1.46%(3)(5) 2.10% 2.17% 2.21%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 114.0% 80.0% 122.4% 25.8% 114.0% 80.0% 122.4%
</TABLE>
1. For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
2. For the period from June 1, 1992 (commencement of operations) to
September 30, 1992.
3. Net investment income would have been $.07 per share absent the
voluntary expense reimbursement, resulting in an expense ratio of 1.74%.
4. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended September 30, 1995 were
$63,565,976 and $66,250,712, respectively.
<PAGE>
Investment Objectives and Policies
Objectives. The Fund has primary and secondary investment objectives.
First, the Fund invests its assets to try to provide current income. As
a secondary objective, the Fund seeks capital appreciation.
Investment Policies and Strategies. The Fund intends to seek its
primary investment objective of current income principally by investing
in securities in three sectors of the investment market: (1) U.S.
Government Securities, (2) foreign debt securities, including lower-rated,
high yield foreign securities that have special risks, and (3) domestic
debt 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.
The term "equity security" generally refers to a security, such as a
common stock, which represents an ownership interest in the company
issuing the security. The term "debt security" refers to a wide variety
of different types of securities that, in general terms, represent a loan
of money to the issuer, which promises to pay back the amount loaned (the
"principal") plus interest, which may be at a fixed-rate or a variable
rate. Debt securities are sometimes generally referred to as "fixed-
income" securities.
Under normal circumstances, the Fund will invest at least some of its
assets in each of the four sectors described above. There is no specific
percentage of its assets that must be invested in any one or more of these
sectors at any time. However, from time to time the Fund may invest up
to 100% of its total assets in any one sector (other than in domestic
equity securities) 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. Because that means the Fund could invest all of its assets
in lower-rated securities, an investment in the Fund may be considered to
be speculative. There can be no assurance that the Fund will achieve its
objectives.
The amount of income the Fund earns and distributes to shareholders
will fluctuate over time as the Fund shifts its assets among these
sectors. Also, from time to time the Fund may shift its emphasis on debt
securities having a particular maturity, whether long, short or
intermediate.
When investing the Fund's assets, the Manager considers many factors,
including the financial condition of particular companies it is
considering investing in as well as general economic conditions in the
U.S. relative to foreign economies, and the trends in domestic and foreign
debt securities and stock markets. In evaluating the potential for income
from particular securities, the Manager examines many factors, such as the
consistency of the company's earnings, the industry group the company is
in (and the prospects for that industry in the overall economy), how well
the company is managed, and the size of the company's capitalization.
The Manager may use different approaches at different times to
determine how to allocate the Fund's assets between the three debt
securities sectors to seek income and the domestic equity sector to seek
capital growth. The Manager determines that allocation periodically, in
the following manner. First, the Manager establishes a target level of
current income to seek from the Fund's portfolio investments. That target
may use, as a point of reference, a measure of current interest rates,
such as the interest rate then being paid on 3-month U.S. Treasury bills.
Second, the Manager estimates what proportion of the Fund's assets are to
be allocated to the debt securities sectors to seek that level of current
income. Third, the remainder of the Fund's assets that are not allocated
to debt securities are allocated to the domestic equity sector to attempt
to achieve capital appreciation.
The Manager intends to determine this allocation monthly (although the
frequency of the determination may vary) and to utilize the 3-month
Treasury bill rate as the benchmark measure of current interest rates 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.
Under this asset allocation approach, the proportion of the Fund's
assets allocated to the different debt securities sectors and to the
domestic equity sector will vary from time to time. The allocation will
depend 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, if the Manager's estimate of
projected earnings available from the fixed income sectors exceeds the
targeted level of current portfolio income, a greater percentage of the
Fund's assets will be available to allocate to the domestic equity sector.
The Manager may vary, revise or discontinue this asset allocation
approach or adopt a different approach. The use of this approach is not
an objective or fundamental investment policy of the Fund, but merely
illustrates the investment selection and allocation techniques the Manager
currently 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 its shareholders a particular amount of current income or
achieving particular investment results. The Fund's expenses will reduce
the amount of any income the Fund earns that is available for distribution
to shareholders, whether or not the targeted income 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.
The Fund may try to hedge against losses in the value of its portfolio
of securities by using hedging strategies and derivative investments
described below. The Fund's portfolio managers may employ special
investment techniques in selecting securities for the Fund. These are
also described below. Additional information may be found about them
under the same headings in the Statement of Additional Information.
- Can the Fund's Investment Objectives and Policies Change? The Fund
has investment objectives, described above, as well as investment policies
it follows to try to achieve its objectives. Additionally, the Fund uses
certain investment techniques and strategies in carrying out those
investment policies. The Fund's investment policies and techniques are not
"fundamental" unless this Prospectus or the Statement of Additional
Information says that a particular policy is "fundamental." The Fund's
investment objectives are fundamental policies.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information).
The Fund's Board of Trustees may change non-fundamental policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus.
- Interest Rate Risks. In addition to credit risks, described below,
debt securities are subject to changes in their value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of already-issued debt securities generally rise. When interest
rates rise, the values of already-issued debt securities generally
decline. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term debt securities. Changes
in the value of securities held by the Fund mean that the Fund's share
prices can go up or down when interest rates change, because of the effect
of the change on the value of the Fund's portfolio of debt securities.
- Stock Investment Risks. Because the Fund can invest a portion of
its assets in stocks, the value of the Fund's portfolio will be affected
by changes in the stock markets. At times, the stock markets can be
volatile and stock prices can change substantially. This market risk will
affect the Fund's net asset value per share, which will fluctuate as the
values of the Fund's portfolio securities change. Not all stock prices
change uniformly or at the same time, and other factors can affect a
particular stock's prices (for example, poor earnings reports by an
issuer, loss of major customers, major litigation against an issuer, or
changes in government regulations affecting an industry). Not all of
these factors can be predicted.
- Special Risks of Lower-Rated Securities. The domestic and foreign
debt securities the Fund can invest in may include high risk, higher
yielding "lower-grade" debt securities, commonly known as "junk bonds".
There is no restriction on the amount of the Fund's assets that could be
invested in these types of securities. "Lower-grade" securities are those
rated below "investment grade," which means they have a rating of "BBB"
or lower by Standard & Poor's Corporation ("Standard & Poor's") or "Baa"
or lower by Moody's Investors Service, Inc. ("Moody's") or similar ratings
by other rating organizations. "Lower-grade" debt securities the Fund may
invest in also include securities that are not rated by a nationally-
recognized rating organization like Standard & Poor's or Moody's, but
which the Manager judges to be comparable to lower-rated securities. The
Fund may invest in securities rated as low as "C" or "D" or may be in
default at time of purchase.
As of September 30, 1995, the Fund's portfolio included corporate bonds
in the following S&P rating categories, or if unrated, determined by the
Manager to be comparable to the category indicated (the percentages shown
are the dollar-weighted average value of the bonds in each rating category
measured as a percentage of the Fund's total assets: A, 0.07%; BBB, 2.18%;
BB, 6.69%; B, 14.45%; CCC, 1.19%; D, 0.40%. If a bond was not rated by
Standard & Poor's but was rated by Moody's, it is included in Standard &
Poor's comparable category. Unrated bonds were not rated by either
Moody's or Standard & Poor's. For a description of these securities
ratings, please refer to the Appendix A to this Prospectus.
The Manager does not rely solely on ratings of securities by rating
agencies when selecting investments for the Fund, but evaluates other
economic and business factors as well. The Fund may invest in unrated
securities that the Manager believes offer yields and risks comparable to
rated securities. High yield, lower-grade securities, whether rated or
unrated, often have speculative characteristics. Lower-grade securities
have special risks that make them riskier investments than investment
grade securities. They may be subject to greater market fluctuations and
risk of loss of income and principal than lower yielding, investment grade
securities. There may be less of a market for them and therefore they may
be harder to sell at an acceptable price. There is a relatively greater
possibility that the issuer's earnings may be insufficient to make the
payments of interest due on the bonds. The issuer's low creditworthiness
may increase the potential for its insolvency ("credit risk"). For
foreign lower-grade debt securities, these risks are in addition to the
risks of investing in foreign securities, described in "Foreign Debt
Securities," below.
These risks mean that the Fund may not achieve the expected income from
lower-grade securities, and that the Fund's net asset value per share may
be affected by declines in value of these securities. The Fund is not
obligated to dispose of securities when issuers are in default or if the
rating of the security is reduced. However, the Fund's use of three
different debt securities sectors under normal conditions may reduce some
of the effect that the risk of investing in these securities can have, as
will the Fund's policy of diversifying its investments. Also, convertible
securities may be less subject to some of these risks than other debt
securities, to the extent they can be converted into stock, which may be
more liquid and less affected by these other risk factors.
- Investments in Bonds and Convertible Securities. The Fund may
invest in a variety of different types of income-producing securities to
help seek its primary objective of current income.
When investing in convertible securities, the Manager looks to the
conversion feature and treats the securities as "equity securities." The
Fund can buy unrated securities, and when doing so, the Manager will
determine in its judgement whether unrated securities are of comparable
quality to securities rated by rating organizations.
- Board-Approved Instruments. The Fund may invest in other investments
in any of the three debt securities sectors (including new investments
that may be developed in the future) that the Fund's Board of Trustees (or
the Manager, under guidelines established by the Board) determines are
consistent with the Fund's investment objectives and investment policies.
- Certain Types of Securities Are in More Than One Sector. The types
of securities described below may be included in two or more of the three
debt securities sectors the Fund invests in.
- Bank Obligations. The Fund may invest in certain kinds of bank
obligations, which may fall within the domestic or foreign debt securities
sectors. Generally, these are debt obligations that have a maturity of
one year or less, and include: certificates of deposit, bankers'
acceptances, time deposits, and letters of credit if they are payable in
the United States or London, England. Those letters of credit must be
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, any ratings assigned to
the securities by one or more "nationally-recognized statistical rating
organizations" as that term is defined in Rule 2a-7 under the Investment
Company Act.
- Commercial Paper. The Fund may invest in foreign or domestic
commercial paper, which in general terms is short-term corporate debt.
If rated, it must be rated at least "A-3" by Standard & Poor's or at least
"Prime-3" by Moody's. If not rated, it must be issued by a corporation
having an already-issued debt security rated at least "BBB" by Standard
& Poor's or "Baa" by Moody's. The Fund's commercial paper investments may
include variable amount master demand notes and floating rate or variable
rate notes, described in the Statement of Additional Information.
- Mortgage-Backed Securities and CMOs. The Fund may invest in
securities that represent an interest in a pool of residential mortgage
loans. These include collateralized mortgage-backed obligations (referred
to as "CMOs"). CMOs are considered U.S. Government Securities if they are
issued or guaranteed by agencies or instrumentalities of the U.S.
Government (for example, Ginnie Maes, Freddie Macs and Fannie Maes).
However, other mortgage-backed securities represent pools of mortgages
"packaged" and offered by private issuers, and these are part of the
Fund's domestic debt securities investments.
CMOs and mortgage-backed securities differ from conventional debt
securities that provide periodic payments of interest in fixed amounts and
repay the principal at maturity or specified call dates. Mortgage-backed
securities provide monthly payments that are, in effect, a "pass-through"
of the monthly interest and principal payments made by the individual
borrowers on the pooled mortgage loans. Those payments may include
prepayments of mortgages, which have the effect of paying the debt on the
CMO early. When the Fund receives scheduled principal payments and
unscheduled prepayments it will have cash to reinvest but may have to
invest that cash in investments having lower interest rates than the
original investment. That could reduce the yield of the Fund.
The issuer's obligation to make interest and principal payments on a
mortgage-backed security 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, and private mortgage insurance companies) may be supported
by insurance or guarantees, such as letters of credit issued by
governmental entities, private insurers or the private issuer of the
mortgage pool. There can be no assurance that private insurers will be
able to meet their obligations.
The Fund may also invest in CMOs that are "stripped." That means that
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 only interest are subject to
increased price volatility when interest rates change. They have an
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. Stripped securities that receive principal payments are also
subject to increased volatility in price due to interest rate changes and
have the additional risk that the securities will be less liquid during
demand or supply imbalances.
The Fund may also enter into "forward roll" transactions with mortgage-
backed securities. In this investment strategy, the Fund sells mortgage-
backed securities it holds to banks or other buyers 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 (which is a technique explained in "Special Investment Methods
- - Borrowing," below). The Fund would be required to identify liquid
assets (such as cash, U.S. Government securities or other high-grade debt
securities) to its custodian bank in an amount equal to its obligation
under the roll; that amount is subject to the limitation on borrowing
described in "Borrowing" below. The main investment risk of this strategy
is the risk of default by the counterparty.
- Participation Interests. This type of security may include
securities in the domestic and foreign debt securities sectors. The Fund
may acquire participation interests in loans that are made to U.S. or
foreign companies. These interests are acquired from banks or brokers
that have made the loan or are members of the lending syndicate. No more
than 5% of the Fund's net assets can be invested in participation
interests of the same borrower. The value of loan participation interests
depends primarily upon the creditworthiness of the borrower, and its
ability to pay interest and repay the principal. The Manager has set
creditworthiness standards for issuers of loan participations, and
monitors their creditworthiness. Borrowers may have difficulty making
payments. Under the Fund's standard for creditworthiness, some borrowers
may have senior securities rated as low as "C" by Moody's or "D" by
Standard & Poor's, but may be considered to be acceptable credit risks.
If a borrower fails to make scheduled interest or principal payments, the
value of the Fund's participation in that loan could decline, and the Fund
could experience a decline in the net asset value of its shares.
Participation interests are subject to the Fund's limitations on
investments in illiquid securities, described in "Illiquid and Restricted
Securities", below.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued either by private issuers or by the U.S. Treasury, and
which therefore may be in those two debt sectors. Some zero coupon
securities of private issuers are notes or debentures that do not pay
current interest and are issued at substantial discounts from par value.
Other private issuer zero coupon securities are 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 that interest rate is higher than if interest were
payable from the date the security is issued. Private issuer zero coupon
securities are subject to the risk of the issuer's failure to pay interest
and repay the principal value of the security.
Zero coupon Treasury securities are U.S. Treasury notes and bonds that
have been stripped of their 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, and does not pay current cash income. It will be subject
to greater fluctuations in market value in response to changing interest
rates than other debt obligations that have comparable maturities and
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 these securities.
- Domestic Debt Securities. The Fund may invest in debt securities
issued by U.S. companies in any type of industry. Domestic debt
securities may be denominated in U.S. dollars or in non-U.S. currencies.
The Fund is not required to limit those investments to issuers having a
particular size capitalization, although it is expected that most will
have total assets in excess of $100 million. These investments may
include debt obligations such as bonds, debentures (unsecured bonds) and
notes (including variable and floating rate instruments described in
"Investment Objectives and Policies" in the Statement of Additional
Information), as well as the other investments discussed below. These
investments may also include sinking fund and callable bonds.
- Municipal Securities. The Fund may invest in municipal securities.
These are debt obligations issued by or on behalf of states, the District
of Columbia, or any commonwealths, territories or possessions of the
United States. They also include securities issued by their political
subdivisions, agencies, instrumentalities or authorities. The Fund will
invest in these securities if the Manager believes the interest income
opportunities are favorable compared to other debt securities, but not to
seek income exempt from income taxes.
- Asset-Backed Securities. The Fund may invest in "asset-backed"
securities. These represent interests in pools of consumer loans and
other trade receivables similar to mortgage-backed securities. They are
issued by trusts and "special purpose corporations." They are backed by
a pool of assets, such as credit card or auto loan receivables, which are
the obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund. These
securities may be supported by a credit enhancement, such as a letter of
credit, a guarantee or a preference right. However, the extent of the
credit enhancement may be different for different securities and generally
applies to only a fraction of the security's value. These securities
present special risks. For example, in the case of credit card
receivables, the issuer of the security may have no security interest in
the related collateral.
- U.S. Government Securities. The Fund's investment in debt
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities are referred to as "U.S. Government Securities."
Although U.S. Government Securities are considered among the most
creditworthy investments, their yields are generally lower than the yields
available from corporate debt securities. Additionally, the values of
U.S. Government Securities are subject to changes in prevailing domestic
interest rates, as described above in "Interest Rate Risks."
U.S. Government Securities are debt obligations issued by or guaranteed
by the United States government or any of its agencies or
instrumentalities. Some of these obligations, including U.S. Treasury
notes and bonds, and mortgage-backed securities (referred to as "Ginnie
Maes") guaranteed by the Government National Mortgage Association, are
supported by the full faith and credit of the United States, which means
that the government pledges to use its taxing power to repay the debt.
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. They may include obligations supported
by the ability of the issuer to borrow from the U.S. Treasury. However,
the Treasury is not under a legal obligation to make a loan. Examples of
these are obligations of Federal Home Loan Mortgage Corporation (these
securities are often called "Freddie Macs"). Other obligations are
supported by the credit of the instrumentality, such as Federal National
Mortgage Association bonds (these securities are often called "Fannie
Maes"). Some of the 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.
- Foreign Debt Securities. When investing in the foreign sector for
the portfolio, the Fund may include debt obligations of the types
identified in "Domestic Debt Securities," above. These foreign securities
may be denominated in U.S. dollars or in non-U.S. currencies. They may
be issued or guaranteed by foreign corporations, supranational entities
(such as the World Bank) and foreign governments. Foreign government
securities also include debt securities issued by political subdivisions
of foreign governments that have taxing authority or by their agencies or
instrumentalities.
No more than 25% of the Fund's total assets 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 foreign securities sector also may include debt obligations issued by
U.S. corporations denominated in non-U.S. currencies. This sector also
includes debt obligations known as "Brady Bonds." Brady Bonds are issued
to exchange existing commercial bank loans to foreign governments for new
obligations that are usually collateralized by zero coupon U.S. Treasury
securities that have the same maturity as the debt obligation.
- Foreign Securities Have Special Risks. There are certain risks of
holding foreign securities. The first is the risk of changes in foreign
currency values. Because the Fund may purchase securities denominated in
foreign currencies, a change in the value of a foreign currency against
the U.S. dollar will result in a change in the U.S. dollar value of the
Fund's securities denominated in that currency. The currency rate change
will also affect its income available for distribution. Although the
Fund's investment income from foreign securities may be received in
foreign currencies, the Fund will be required to distribute its income in
U.S. dollars. Therefore, the Fund will absorb the cost of currency
fluctuations. If the Fund suffers losses on foreign currencies after it
has distributed its income during the year, the Fund may find that it has
distributed more income than was available from actual investment income.
That could result in a return of capital to shareholders.
The Fund may invest in foreign securities issued in any country,
developed or underdeveloped. Securities of issuers in non-industrialized
countries generally involve more risk and may be considered highly
speculative. There are other risks of foreign investing. For example,
foreign issuers are not required to use generally-accepted accounting
principles. If foreign securities are not registered for sale in the U.S.
under U.S. securities laws, the issuer does not have to comply with the
disclosure requirements of our laws, which are generally more stringent
than foreign laws. The values of foreign securities investments will be
affected by other factors, including exchange control regulations or
currency blockage and possible expropriation or nationalization of assets.
There may also be changes in governmental administration or economic or
monetary policy in the U.S. or abroad that can affect foreign investing.
In addition, it is generally more difficult to obtain court judgments
outside the United States if the Fund has to sue a foreign broker or
issuer. Additional costs may be incurred because foreign broker
commissions are generally higher than U.S. rates, and there are additional
custodial costs associated with holding securities abroad.
- Domestic Equity Securities. When investing for the Fund's secondary
objective of capital appreciation, it may buy equity securities of
domestic corporations in any industry. The Fund's equity investments are
not limited to companies of a particular size, although it is currently
expected that most will have assets in excess of $100 million.
These investments may include common stocks, preferred stocks,
convertible securities and warrants. In selecting stocks, the Fund will
emphasize issues listed on a U.S. securities exchange or quoted on the
automatic quotation system of the National Association of Securities
Dealers, Inc. ("NASDAQ").
- Investments in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies, but as a matter of fundamental
policy, purchases of investments in companies that have operated less than
three years (counting the operations of any predecessors) may not exceed
5% of the Fund's total assets. Securities of these companies may have
limited liquidity (which means that the Fund may have difficulty selling
them at an acceptable price when it wants to), and the prices of these
securities may be volatile.
- Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." The Fund will actively use portfolio
trading to try to benefit from differences in short-term yields among
different issues of debt securities, to try to increase its income, in
addition to its portfolio trading of equity securities when the Manager
determines that these securities should be purchased or sold. The Fund
therefore may have a greater rate of portfolio turnover than investment
companies that invest on a long-term basis. As a result, the Fund's
portfolio turnover rate is likely to be more than 100% per year. The
"Financial Highlights," above, show the Fund's portfolio turnover rate
during past fiscal years.
High portfolio turnover may affect the ability of the Fund to qualify
as a "regulated investment company" under the Internal Revenue Code for
tax deductions for dividends and capital gains distributions the Fund pays
to shareholders. Portfolio turnover affects brokerage costs, dealer
markups and other transaction costs, and results in the Fund's realization
of capital gains or losses for tax purposes.
Other Investment Techniques and Strategies
The Fund may also use the investment techniques and strategies
described below. These techniques involve certain risks. The Statement
of Additional Information contains more information about these practices,
including limitations on their use that are designed to reduce some of the
risks.
- Special Risks - Borrowing for Leverage. The Fund may borrow money
from banks to buy securities. The Fund will borrow only if it can do so
without putting up assets as security for a loan. This is a speculative
investment method known as "leverage." Leveraging may subject the Fund
to greater risks and costs than funds that do not borrow. These risks may
include the possible reduction of income and increased fluctuation in the
Fund's net asset value per share, since the Fund pays interest on
borrowings. Borrowing is subject to regulatory limits described in more
detail in the Statement of Additional Information.
- Derivative Investments. In general, a "derivative investment" is
a specially designed investment. Its performance is linked to the
performance of another investment or security, such as an option, future,
index, currency or commodity. The Fund may not purchase or sell physical
commodities or commodity contracts, however, this shall not prevent the
Fund from buying or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities. The Fund may purchase and sell foreign currency in hedging
transactions.
Derivative investments used by the Fund are used in some cases for
hedging purposes and in other cases for "non-hedging" investment purposes
to seek income or total return. In the broadest sense, exchange-traded
options and futures contracts (discussed in "Hedging," below) may be
considered "derivative investments."
The Fund may invest in different types of derivatives. "Index-linked"
or "commodity-linked" notes are debt securities of companies that call for
interest payments and/or payment on the maturity of the note in different
terms than the typical note where the borrower agrees to make fixed
interest payments and to pay a fixed sum on the maturity of the note.
Principal and/or interest payments on an index-linked note depend on the
performance of one or more market indices, such as the S&P 500 Index or
a weighted index of commodity futures, such as crude oil, gasoline and
natural gas. The Fund may invest in "debt exchangeable for common stock"
of an issuer or "equity-linked" debt securities of an issuer. At
maturity, the principal amount of the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the
issuer's common stock price at the time of maturity. In either case there
is a risk that the amount payable at maturity will be less than the
expected principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity, and/or an interest rate, determined by reference to one or
more foreign currencies. The currency-indexed securities purchased by the
Fund may make payments based on a formula. The payment of principal or
periodic interest may be calculated as a multiple of the movement of one
currency against another currency, or against an index. These investments
may entail increased risk to principal and increased price volatility.
- Derivatives may entail special risks. The company issuing the
instrument may fail to pay the amount due on the maturity of the
instrument. Also, the underlying investment or security might not perform
the way the Manager expected it to perform. Markets, underlying
securities and indices may move in a direction not anticipated by the
Manager. Performance of derivative investments may also be influenced by
interest rate and stock market changes in the U.S. and abroad. All of
this can mean that the Fund will realize less principal or income from the
investment than expected. Certain derivative investments held by the Fund
may be illiquid. Please refer to "Illiquid and Restricted Securities,"
below.
- Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts, and
options on futures, broadly-based stock or bond indices and foreign
currency, or enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them,
described below. The hedging instruments the Fund may use are described
below and in greater detail in the Statement of Additional Information.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest
rates. Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge the Fund's portfolio against price
fluctuations.
Other hedging strategies, such as buying futures and call options, tend
to increase the Fund's exposure to the securities market. Forward
contacts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes, defensive reasons, or to raise cash to
distribute to shareholders. At present, the Fund does not intend to enter
into Futures contracts, forward contracts or options on Futures if, after
any purchase or sale, the value of all put and call options held by the
Fund would exceed 5% of its total assets.
- Futures. The Fund may buy and sell futures contracts that relate
to (1) foreign currencies (these are Forward Contracts), (2) financial
indices such as U.S. or foreign government securities or corporate debt
securities indices (these are referred to as Financial Futures), and (3)
interest rates (these are referred to as Interest Rate Futures). These
types of Futures are described in "Hedging" in the Statement of Additional
Information.
- Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls only on debt securities, foreign currencies, or
Futures, or to terminate its obligation on a call the Fund previously
wrote. The value of debt securities underlying calls bought by the Fund
will not exceed the value of the Fund's cash or cash-equivalent portfolio
holdings (that is, securities with maturity of less than one year). The
Fund may write (that is, sell) call options on debt or equity securities,
foreign currency or Futures, but only if they are "covered." That means
the Fund must own the security subject to the call while the call is
outstanding (or own other securities acceptable for applicable escrow
requirements). Calls on Futures must be covered by securities or other
liquid assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised. When the Fund writes a call, it
receives cash (called a premium). The call gives the buyer the ability
to buy the investment on which the call was written from the Fund at the
call price during the period in which the call may be exercised. If the
value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised, while the Fund keeps the
cash premium (and the investment). Up to 100% of the Fund's total assets
may be subject to calls.
The Fund may purchase put options. Buying a put on an investment gives
the Fund the right to sell the investment at a set price to a seller of
a put on that investment. The Fund can buy only those puts that relate
to (1) debt securities, (2) Futures, or (3) foreign currencies. The Fund
can buy a put on a debt security whether or not the Fund owns the
particular debt security in its portfolio. The Fund may sell a put on
debt securities or Futures, but only if the puts are covered by segregated
liquid assets. The Fund will not write puts if more than 50% of the
Fund's net assets would have to be segregated to cover put obligations.
A call or put may be purchased only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the
Fund's total assets. The Fund may buy and sell put and call options that
are traded on U.S. or foreign securities or commodity exchanges or are
traded in the over-the-counter markets. In the case of foreign currency
options, they may be quoted by major recognized dealers in those options.
Options traded in the over-the-counter market may be "illiquid," and
therefore may be subject to the Fund's restrictions on illiquid
investments, described in "Illiquid and Restricted Securities," below.
- Forward Contracts. Forward Contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has purchased or sold, or to protect against possible losses from
changes in the relative value of the U.S. dollar and a foreign currency.
The Fund may also use "cross hedging," where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated.
- Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive
floating rate interest payments for fixed rate payments. The Fund enters
into swaps only on securities it owns. The Fund may not enter into swaps
with respect to more than 50% of its total assets. The Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, in writing puts, there is a risk that the Fund
may be required to buy the underlying security at a disadvantageous price.
The use of Forward Contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a
foreign currency. The Fund limits its exposure in foreign currency
exchange contracts to the amount of its assets denominated in the foreign
currency, to avoid having to buy or sell foreign currency at
disadvantageous prices. Interest rate swaps are subject to the risk that
the other party will fail to meet its obligations (or that the underlying
issuer will fail to pay on time), as well as interest rate risks. The
Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. If a covered
call written by the Fund is exercised on an investment that has increased
in value, the Fund will be required to sell the investment at the call
price and will not be able to realize any profit if the investment has
increased in value above the call price. These risks are described in
greater detail in the Statement of Additional Information.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. The Fund will not enter into
a repurchase agreement that will cause more than 10% of its 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 of seven days or less. See the Statement
of Additional Information for more details.
- Loans of Portfolio Securities. To attempt to increase its income,
the Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. The Fund must receive collateral for a loan.
These loans are limited to not more than 25% of the value of the Fund's
total assets and are subject to other conditions described in the
Statement of Additional Information. The Fund presently does not intend
to lend its portfolio securities, but if it does, the value of securities
loaned is not expected to exceed 5% of the value of the Fund's total
assets in the coming year.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active trading
market, making it difficult to value them or dispose of them promptly at
an acceptable price. A restricted security is one that has a contractual
restriction on its resale or which cannot be sold publicly until it is
registered under the Securities Act of 1933. The Fund will not invest
more than 10% of its net assets in illiquid or restricted securities (that
limit may increase to 15% if certain state laws are changed or the Fund's
shares are no longer sold in those states). The Fund's percentage
limitation on these investments does not apply to certain restricted
securities that are eligible for resale to qualified institutional
purchasers.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. These terms refer to
securities that have been created and for which a market exists, but which
are not available for immediate delivery. There may be a risk of loss to
the Fund if the value of the security declines prior to the settlement
date.
- Short Sales "Against-the-Box". As a matter of fundamental policy,
the Fund may not sell securities short except in collateralized
transactions referred to as short sales "against-the-box. No more than
15% of the Fund's net assets will be held as collateral for such short
sales at any one time.
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the
Fund cannot do any of the following:
- purchase securities issued or guaranteed by any one issuer (except
the U.S. Government or any of 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;
- concentrate 25% or more of its total assets in investments 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 utilities are each considered a separate industry);
- make loans, except that it may purchase debt obligations in
accordance with its investment objectives and policies, or enter into
repurchase agreements, or lend portfolio securities in accordance with
applicable regulations;
- 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 these investments would exceed 5% of the value of the Fund's total
assets; or
- make short sales of securities or maintain a short position, unless
as short sales against-the-box.
All of the percentage restrictions described above, elsewhere in this
Prospectus and in the Statement of Additional Information (except those
restricting borrowing money), apply only at the time the Fund purchases
a security, and the Fund need not dispose of a security merely because the
size of the Fund's assets has changed or the security has increased in
value relative to the size of the Fund. There are other fundamental
policies discussed in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1992 as a
Massachusetts business trust. The Fund is a diversified, open-end,
management investment company, with an unlimited number of authorized
shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible under
Massachusetts law for protecting the interests of shareholders. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and officers of the Fund and provides more
information about them. Although the Fund is not required by law to hold
annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of this Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. All classes invest in the same investment portfolio.
Each class has its own dividends and distributions and pays certain
expenses which may be different for the different classes. Each class may
have a different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Only shares of a particular class
vote as a class on matters that affect that class alone. Shares are
freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees,
under an Investment Advisory Agreement which states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund to
the Manager and describes the expenses that the Fund is responsible to pay
to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995, and with more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Managers. The Fund has three portfolio managers: Robert
C. Doll, Jr. is an Executive Vice President of the Manager and a Senior
Vice President of the Fund; Arthur P. Steinmetz is a Senior Vice President
of the Manager and David P. Negri is a Vice President of the Manager and
each is also a Vice President of the Fund. Since the Fund's inception in
1992, they have been principally responsible for the day-to-day management
of the Fund's portfolio, with Mr. Doll selecting equity investments and
Messrs. Steinmetz and Negri selecting debt securities. During the past
five years, Messrs. Doll, Steinmetz and Negri have also served as officers
of the Manager and as officers and portfolio managers for other
Oppenheimer funds. For more information about the Fund's other officers
and Trustees, see "Trustees and Officers of the Fund" in the Statement of
Additional Information.
- Fees and Expenses. Under the investment advisory agreement, the Fund
pays the Manager the following annual fees, which decline on additional
assets as the Fund grows: 0.75% of the first $200 million of average net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $200 million, and 0.50%
of net assets in excess of $1 billion. The Fund's management fee for its
last fiscal year was 0.75% of average annual net assets for both its Class
A and Class B shares, which may be higher than the rate paid by some other
mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and are
not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers,
brokers and other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts
as the Fund's Distributor. The Distributor distributes the shares of
other Oppenheimer funds and is sub-distributor for funds managed by a
subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder
servicing agent for the Fund on an "at-cost" basis. It also acts as the
shareholder servicing agent for the other Oppenheimer funds. Shareholders
should direct inquiries about their accounts to the Transfer Agent at the
address and toll-free number shown below in this Prospectus and on the
back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return" and "yield" to illustrate its
performance. The performance of each class of shares is shown separately,
because the performance of each class of shares will usually be different
as a result of the different kinds of expenses each class bears. These
returns measure the performance of a hypothetical account in the Fund over
various periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash or shares are
sold or purchased). The Fund's performance information may be useful to
help you see how well your investment has done over time and to compare
it to other funds or market indices, as we have done below.
It is important to understand that the Fund's total returns and yield
represent past performance and should not be considered to be predictions
of future returns or performance. More detailed information about how
total returns are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to measure
and compare the Fund's performance. The Fund's investment performance will
vary over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally they include
the payment of the current maximum initial sales charge. When total
returns are shown for Class B shares, they reflect the effect of the
contingent deferred sales charge that applies to the period for which
total return is shown. When total returns are shown for Class C shares,
for a one-year period (or less), they reflect the effect of the contingent
deferred sales charge. Total returns may also be quoted "at net asset
value," without considering the sales charge, and those returns would be
reduced if sales charges were deducted.
- Yield. Each class of shares calculates its yield by dividing the
annualized net investment income per share from the portfolio during a 30-
day period by the maximum offering price on the last day of the period.
The yield of each class will differ because of the different expenses of
each class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B and Class C
shares do not reflect the deduction of the contingent deferred sales
charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year, ended September 30, 1995,
followed by a graphical comparison of the Fund's performance to a broad-
based bond market index and a broad-based stock market index. Two market
indices have been shown for comparison, because the Fund invests in both
debt and equity securities. There is no single appropriate broad market
index of both debt and equity investments that the Manager believes to be
appropriate to compare the Fund's performance.
- Management's Discussion of Fund Performance. During the Fund's
fiscal year ended September 30, 1995, the U.S. fixed-income markets
rallied substantially. In reaction, the Manager shifted the Fund's fixed-
income investments into foreign bonds, in expectation of better
opportunities, in markets that had not performed as well as the U.S.
market. For example, investments were made in Australia, Canada, Europe
and some emerging markets, in search of better values in terms of price
and yield than U.S. government bonds. Within the domestic portion of the
Fund's investments, overall maturity was shortened and the allocation of
the portion of the Fund's assets in mortgage-backed obligations was
increased. Profits were taken by reducing the Fund's investments in
domestic corporate bonds.
To seek its secondary objective of capital growth, the Manager focused
the Fund's buying on large, multi-national companies with recognizable
brands and world-wide earnings growth. The overall allocation of stocks
was reduced somewhat, in the belief that better relative values were
offered by bonds.
- Comparing the Fund's Performance to the Market. The graphs below
show the performance of a hypothetical $10,000 investment in shares of the
Fund held until September 30, 1995. In the case of Class A shares,
performance is measured from the Fund's inception on June 1, 1992, and in
the case of Class B shares, from the inception of the Class on November
30, 1992. In both cases, all dividends and capital gains distributions
were reinvested in additional shares. The graph for Class A shares
reflects the deduction of the 4.75% current maximum initial sales charge
for Class A shares and the graph for Class B shares reflects the
applicable contingent deferred sales charge that applies to redemptions
of Class B shares held from 11/30/92 until 9/30/95. Class C shares were
not publicly offered during the fiscal year ended September 30, 1995.
Accordingly, no performance information is presented for Class C shares
in the graphs below.
The performance of each class of the Fund's shares is compared to the
performance of the Lehman Brothers Aggregate Bond Index and the S&P 500
Index. The Lehman Brothers Aggregate Bond Index is a broad-based,
unmanaged index of U.S. corporate bond issues, U.S. government securities
and mortgage-backed securities widely regarded as a measure of the
performance of the domestic debt securities market. The S&P 500 Index is
a broad-based index of equity securities widely regarded as a general
measurement of the performance of the U.S. equity securities market. Index
performance reflects the reinvestment of dividends but does not consider
the effect of capital gains or transaction costs, and none of the data
below shows the effect of taxes. Also, the Fund's performance reflects
the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not limited
to the securities in any one index. Moreover, the index performance data
does not reflect any assessment of the risk of the investments included
in the index.
Comparison of Change in Value
of a $10,000 Hypothetical Investments in:
Oppenheimer Strategic Income & Growth Fund,
Lehman Brothers Aggregate Bond Index and the S&P 500 Index
(Graph) (with Class A shares of the Fund)
(Graph) (with Class B shares of the Fund)
Past performance is not predictive of future performance.
Average Annual Total Returns
of the Fund at 9/30/95
A Shares 1-Year Life*
10.58% 6.21%
B Shares 1-Year Life**
10.25% 5.89%
- ----------------------
* The inception date of the Fund (Class A shares) was 06/01/92. The
average anual total returns and the ending account value for Class A
shares in the graph reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 4.75% maximum
initial sales charge.
** Class B shares of the Fund were first publicly offered on 11/30/92.
The average annual total returns and the ending account value for Class
B shares in the graph reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% and 3%
contingent deferred sales charges, respectively for the 1-year period and
life of the class. The ending account value in the graph is net of the
applicable 3% contingent deferred sales charge.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you may pay an initial
sales charge on investments up to $1 million (up to $500,000 for purchases
by OppenheimerFunds prototype 401(k) plans). If you purchase Class A
shares as part of an investment of at least $1 million ($500,000 for
OppenheimerFunds prototype 401(k) plans) in shares of one or more
Oppenheimer funds, you will not pay an initial sales charge, but if you
sell any of those shares within 18 months of buying them, you may pay a
contingent deferred sales charge. The amount of that sales charge will
vary depending on the amount you invested. Sales charges are described in
"Buying Class A Shares" below.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years of
buying them, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. Sales charges are
described in "Buying Class B Shares", below.
- Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but if you sell your shares within 12 months of
buying them, you will normally pay a contingent deferred sales charge of
1%. Sales charges are described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors to consider are how much
you plan to invest and how long you plan to hold your investment. If your
goals and objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should consider
another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class of shares and considered the
effect of the annual asset-based sales charge on Class B and Class C
expenses (which, like all expenses, will affect your investment return).
For the sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based
on the Fund's actual investment returns and the operating expenses borne
by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice
or recommendations, because each investor's financial considerations are
different. The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only one class
of shares, and not a combination of shares of different classes.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases of
Class A shares may, over time, offset the effect of paying an initial
sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher class-based expenses on Class B or Class C
shares for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to amounts you sell
after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases
toward six years, Class C shares might not be as advantageous as Class A
shares. That is because the annual asset-based sales charge on Class C
shares will have a greater impact on your account over the longer term
than the reduced front-end sales charge available for larger purchases of
Class A shares. For example, Class A might be more advantageous than
Class C (as well as Class B) for investments of more than $100,000
expected to be held for 5 or 6 years (or more). For investments over
$250,000 expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and B). If investing $500,000 or
more, Class A may be more advantageous as your investment horizon
approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more or $1 million or more
of Class B or Class C shares, respectively, from a single investor.
- Investing for the Longer Term. If you are investing for the longer-
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to
invest more than $100,000 over the long term, Class A shares will likely
be more advantageous than Class B shares or C shares, as discussed above,
because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in
Class A shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time,
using the assumed annual performance return stated above, and therefore
should not be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available to Class B or Class C
shareholders, or other features (such as Automatic Withdrawal Plans) may
not be advisable (because of the effect of the contingent deferred sales
charge) in non-retirement accounts for Class B or Class C shareholders,
you should carefully review how you plan to use your investment account
before deciding which class of shares to buy. Share certificates are not
available for Class B or Class C shares and if you are considering using
your shares as collateral for a loan, that may be a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class of shares than for selling another class. It is important that
investors understand that the purpose of the Class B and Class C
contingent deferred sales charges and asset-based sales charges is the
same as the purpose of the front-end sales charge on sales of Class A
shares: that is, to compensate the Distributor for commissions it pays to
dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans.
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25. Subsequent purchases of at
least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure
to specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, it is
recommended that you discuss your investment first with a financial
advisor, to be sure it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
or to have the Transfer Agent send redemption proceeds or to transmit
dividends and distributions to your bank account.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to "AccountLink"
below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time each day The New York
Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your order
by the close of The New York Stock Exchange on a regular business day and
transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix B to this
Prospectus sets forth conditions for the waiver of, or exemption from,
sales charges or the special sales charge rates that apply to purchases
of shares of the Fund (including purchases by exchange) by a person who
was a shareholder of one of the Former Quest for Value Funds (as defined
in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price be the net asset value. In some
cases, reduced sales charges may be available, as described below. Out
of the amount you invest, the Fund receives the net asset value to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge
as as Commission as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering 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%
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the
Oppenheimer funds in the following cases:
-- purchases aggregating $1 million or more, or
-- purchases by an OppenheimerFunds prototype 401(k) plan that: (1)
buys shares costing $500,000 or more or (2) has, at the time of purchase,
100 or more eligible participants, or (3) certifies that it projects to
have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class of
shares that has no designation are considered "Class A shares" for this
purpose. The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5
million. That commission will be paid only on the amount of those
purchases in excess of $1 million ($500,000 for purchases by
OppenheimerFunds prototype 401(k) plans) that were not previously subject
to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer
on all Class A shares of all Oppenheimer funds you purchased subject to
the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
contingent deferred sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance up
to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of Oppenheimer funds
(other than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A and Class B shares you purchase for your individual
accounts, or jointly, or for trust or custodial accounts on behalf of your
children who are minors. A fiduciary can count all shares purchased for
a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also include Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The Oppenheimer funds are listed in "Reduced Sales Charges" in
the Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, if you purchase Class
A shares or Class A shares and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales
charge rate that applies to your purchases of Class A shares. The total
amount of your intended purchases of both Class A and Class B shares will
determine the reduced sales charge rate for the Class A shares purchased
during that period. This can include purchases made up to 90 days before
the date of the Letter. More information is contained in the Application
and in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of
this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
- registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for
their employees;
- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser must
certify to the Distributor at the time of purchase that the purchase is
for the purchaser's own account (or for the benefit of such employee's
spouse or minor children);
- dealers, brokers or registered investment advisers that have entered
into an agreement with the Distributor (1) providing specifically for the
use of shares of the Fund in particular investment products made available
to their clients (those clients may be charged a transaction fee by their
broker, dealer or adviser for the purchase or sale of Fund shares) or (2)
to sell shares to defined contribution employee retirement plans for which
the dealer, broker or investment adviser provides administrative services;
- directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons;
- accounts for which Oppenheimer Capital is the investment adviser
(the Distributor must be advised of this arrangement) and persons who are
directors or trustees of the company or trust which is the beneficial
owner of such accounts;
- any unit investment trust that has entered into an appropriate
agreement with the Distributor;
- a TRAC-2000 401(k) plan (sponsored
by the former Quest for Value Advisors) whose Class B or Class C shares
of a Former Quest for Value Fund were exchanged for Class A shares of that
Fund due to the termination of the Class B and C TRAC-2000 program on
November 24, 1995; or
- qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, provided that such
arrangements are consummated and share purchases commence by March 31,
1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party,
- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates
acts as sponsor,
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other
than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor,
- shares purchased and paid for with the proceeds of shares redeemed
in the prior 12 months from a mutual fund (other than a fund managed by
the Manager or any of its subsidiaries) on which an initial sales charge
or contingent deferred sales charge was paid (this waiver also applies to
shares purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner); this waiver must
be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver, or
- purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series;
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived
if shares that would otherwise be subject to the contingent deferred sales
charge are redeemed in the following cases:
-- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation plans
or other employee benefit plans, including OppenheimerFunds prototype
401(k) plans (these are all referred to as "Retirement Plans"); or
-- to return excess contributions made to Retirement Plans; or
-- to make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value; or
-- involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and
Policies," below); or
-- if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees in writing to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and no further commission will be payable if the shares are
redeemed within 18 months of purchase); or
-- for distributions from OppenheimerFunds prototype 401(k) plans for
any of the following cases or purposes: (1) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must occur after the participant's
account was established); (2) hardship withdrawals, as defined in the
plan; (3) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue
Code, or (6) separation from service.
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net asset
value of Class A shares of the Fund. The Distributor uses all of those
fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares and to reimburse
itself (if the Fund's Board of Trustees authorizes such reimbursements,
which it has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net asset value of Class A shares held
in accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price. The Class B contingent
deferred sales charge is paid to the Distributor to reimburse its expenses
of providing distribution-related services to the Fund in connection with
the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period. The contingent deferred sales charge is not imposed in the
circumstances described in "Waivers of Class B and Class C Sales Charges,"
below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and
Class C Shares" in the Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its costs in distributing Class B shares and servicing
accounts. Under the Plan, the Fund pays the Distributor an annual "asset-
based sales charge" of 0.75% per year on Class B shares that are
outstanding for 6 years or less. The Distributor also receives a service
fee of 0.25% per year. Both fees are computed on the average annual net
assets of Class B shares, determined as of the close of each regular
business day. The asset-based sales charge allows investors to buy Class
B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge (and the first year's
service fee) to recoup the sales commissions it pays, the advances of
service fee payments it makes, and its financing costs.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At September, 30, 1995, the end of the
Plan year, the Distributor had incurred unreimbursed expenses under the
Plan of $1,001,578 (equal to 5.04% of the Fund's net assets represented
by Class B shares on that date), which have been carried over into the
present Plan year. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for expenses it incurred before the plan was
terminated.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions).
The Class C contingent deferred sales charge is paid to the Distributor
to reimburse its expenses of providing distribution-related services to
the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period. All purchases are considered to have been made on the
first regular business day of the month in which the purchase was made.
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to compensate
the Distributor for distributing Class C shares and servicing accounts.
Under the Plan, the Fund pays the Distributor an annual "asset-based sales
charge" of 0.75% per year on Class C shares. The Fund also pays the
Distributor a service fee of 0.25% per year. Both fees are computed on
the average annual net assets of Class C shares, determined as of the
close of each regular business day. The asset-based sales charge allows
investors to buy Class C shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by 1.00% of average net assets per year.
The Distributor pays the service fee to dealers in advance for the
first year after Class C shares have been sold by the dealer. After the
shares have been held for a year, the Distributor pays the service fee on
a quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
total up-front commission paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.00% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
The Fund pays the asset-based sales charge to the Distributor for its
services rendered in connection with the distribution of Class C shares.
Those payments are at a fixed rate which is not related to the
Distributor's expenses. The services rendered by the Distributor include
paying and financing the payment of sales commissions, service fees, and
other costs of distributing and selling Class C shares, including
compensating personnel of the Distributor who support distribution of
Class C shares. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing Class C shares before the Plan
was terminated.
- Waivers of Class B and Class C Sales Charges. The Class B and Class
C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to shares
redeemed in certain circumstances as described below. The reasons for this
policy are in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B and
Class C contingent deferred sales charges will be waived for redemptions
of shares in the following cases:
- to make distributions to participants or beneficiaries from
Retirement Plans, if the distributions are made (a) under an Automatic
Withdrawal Plan after the participant reaches age 59-1/2, as long as the
payments are no more than 10% of the account value annually (measured from
the date the Transfer Agent receives the request), or (b) following the
death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must have occurred
after the account was established);
- redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by
the Social Security Administration);
- to make returns of excess contributions to Retirement Plans;
- to make distributions from IRAs (including SEP-IRAs and SAR/SEP
accounts) before the participant is age 591/2, and distributions from
403(b)(7) custodial plans or pension or profit sharing plans before the
participant is age 591/2 but only after the participant has separated from
service, if the distributions are made in substantially equal periodic
payments over the life (or life expectancy) of the participant or the
joint lives (or joint life and last survivor expectancy) of the
participant and the participant's designated beneficiary (and the
distributions must comply with other requirements for such distributions
under the Internal Revenue Code and may not exceed 10% of the account
value annually, measured from the date the Transfer Agent receives the
request);
- shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," below; or
- distributions from OppenheimerFunds prototype 401(k) plans (1) for
hardship withdrawals; (2) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make
"substantially equal periodic payments" as described in Section 72(t) of
the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares in the following cases:
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose;
- shares issued in plans of reorganization to which the Fund is a
party; and
- shares redeemed in involuntary redemptions as described below.
Further details about this policy are contained in "Reduced Sales Charges"
in the Statement of Additional Information.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply to
each shareholder listed in the registration on your account as well as to
your dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
Oppenheimer funds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege applies
to Class A shares that you purchased subject to an initial sales charge
and to Class A or Class B shares on which you paid a contingent deferred
sales charge when you redeemed them. This privilege does not apply to
Class C shares. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and other
employers
- 401(k) Prototype Retirement Plans for businesses.
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Retirement Accounts. To sell shares in an Oppenheimer funds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and
must include a signature guarantee in the following situations (there may
be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive a
check
- The redemption check is not payable to all shareholders listed on
the account statement
- The redemption check is not sent to the address of record on your
account statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling
- The signatures of all registered owners exactly as the account is
registered, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail to: Send courier or
Express Mail requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue
Denver, Colorado 80217 Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-852-
8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone once in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be transferred.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for sale
in your state of residence
- The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is open
7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund.
Oppenheimer Money Market Fund, Inc. offers only one class of shares which
are considered "Class A" shares for this purpose. In some cases, sales
charges may be imposed on exchange transactions. Please refer to "How to
Exchange Shares" in the Statement of Additional Information for more
details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the
same name(s) and address. Shares held under certificates may not be
exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative at 1-800-525-7048. That list can change
from time to time.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to 7 days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever
it is reasonably able to do so, it may impose these changes at any time.
- For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of the shares of the other fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange, which is normally 4:00 P.M.
but may be earlier on some days, on each day the Exchange is open by
dividing the value of the Fund's net assets attributable to a class by the
number of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be
readily obtained. These procedures are described more completely in the
Statement of Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
- Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 7 days after the Transfer
Agent receives redemption instructions in proper form, except under
unusual circumstances determined by the Securities and Exchange Commission
delaying or suspending such payments. For accounts registered in the name
of a broker-dealer, payment will be forwarded within 3 business days. The
Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase
shares by certified check or arrange to have your bank provide telephone
or written assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from taxable dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and
Class C shares from net investment income on each regular business day and
pays those dividends to shareholders monthly. Normally, dividends are
paid on or about the first Tuesday of the following month, but the Board
of Trustees can change that date. Also, dividends paid on Class A shares
generally are expected to be higher than for Class B and Class C shares
because expenses allocable to Class B and Class C shares will generally
be higher.
During the Fund's fiscal year ended September 30, 1995, the Fund
attempted to pay dividends on its Class A shares at a targeted level above
3-month Treasury bill rates, to the extent that was consistent with the
amount of net investment income and other distributable income available
from the Fund's portfolio investments. However, the targeted level can
change and the amount of each dividend can change from time to time (or
there might not be a dividend at all on any class) depending on market
conditions, the Fund's expenses, and the composition of the Fund's
portfolio. Attempting to pay dividends at a targeted level required the
Manager to monitor the Fund's income stream from its investments compared
to Treasury bill rates and at times to select higher yielding securities
(appropriate to the Fund's investment objectives and restrictions) to try
to earn income at the targeted level. This practice did not affect the
net asset values of any class of shares. There is no targeted dividend
level for Class B shares. There is no fixed dividend rate and there can
be no assurance as to payment of any dividends.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a check
for all dividends and long-term capital gains distributions or have them
sent to your bank on AccountLink.
- Reinvest Your Distributions in Another Oppenheimer Fund Account. You
can reinvest all distributions in another Oppenheimer fund account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking, a
capital gain or loss is the difference between the price you paid for the
shares and the price you received when you sold them.
- Returns of Capital: In certain cases distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If
that occurs, it will be identified in notices to shareholders. A non-
taxable return of capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
Appendix A: Description of Ratings Categories of Rating Services
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds 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 rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group, they comprise what are generally known as
"high-grade" bonds. They are rated lower than the best bonds because
margins of protection may not be as large as with "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than those of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa: Bonds rated "Baa" are considered medium grade obligations, that
is, they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing and may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a
high degree and are often in default or have other marked shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects
of ever attaining 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: Bonds rated "BBB" are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
APPENDIX B
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this
Prospectus are modified as described below for those shareholders of (i)
Quest for Value Fund, Inc., Quest for Value Growth and Income Fund, Quest
for Value Opportunity Fund, Quest for Value Small Capitalization Fund and
Quest for Value Global Equity Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment adviser to those funds, and
(ii) Quest for Value U.S. Government Income Fund, Quest for Value
Investment Quality Income Fund, Quest for Global Income Fund, Quest for
Value New York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund
and Quest for Value California Tax-Exempt Fund when those funds merged
into various Oppenheimer funds on November 24, 1995. The funds listed
above are referred to in this Prospectus as the "Former Quest for Value
Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by
such shareholder pursuant to an exchange of shares of one of the
Oppenheimer funds that was one of the Former Quest for Value Funds or (ii)
received by such shareholder pursuant to the merger of any of the Former
Quest for Value Funds into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
- - Purchases by Groups, Associations and Certain Qualified Retirement
Plans. The following table sets forth the initial sales charge rates for
Class A shares purchased by a "Qualified Retirement Plan" through a single
broker, dealer or financial institution, or by members of "Associations"
formed for any purpose other than the purchase of securities if that
Qualified Retirement Plan or that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995. For this purpose
only, a "Qualified Retirement Plan" includes any 401(k) plan, 403(b) plan,
and SEP/IRA or IRA plan for employees of a single employer.
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
<S> <C> <C> <C>
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
</TABLE>
For purchases by Qualified Retirement plans and Associations having 50
or more eligible employees or members, there is no initial sales charge
on purchases of Class A shares, but those shares are subject to the Class
A contingent deferred sales charge described on pages 29 to 30 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge
rate that applies under the Rights of Accumulation described above in the
Prospectus. In addition, purchases by 401(k) plans that are Qualified
Retirement Plans qualify for the waiver of the Class A initial sales
charge if they qualified to purchase shares of any of the Former Quest For
Value Funds by virtue of projected contributions or investments of $1
millon or more each year. Individuals who qualify under this arrangement
for reduced sales charge rates as members of Associations, or as eligible
employees in Qualified Retirement Plans also may purchase shares for their
individual or custodial accounts at these reduced sales charge rates, upon
request to the Fund's Distributor.
- - Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of Former
Quest for Value Funds into those Oppenheimer funds, and which shares were
subject to a Class A contingent deferred sales charge prior to November
24, 1995 will be subject to a contingent deferred sales charge at the
following rates: if they are redeemed within 18 months of the end of the
calendar month in which they were purchased, at a rate equal to 1.0% if
the redemption occurs within 12 months of their initial purchase and at
a rate of 0.50 of 1.0% if the redemption occurs in the subsequent six
months. This contingent deferred sales charge rate also applies to shares
of the Fund purchased by exchange of shares of other Oppenheimer funds
that were acquired as a result of the merger of Former Quest for Value
Funds into those Oppenheimer Funds, and which shares were subject to a
Class A contingent deferred sales charge prior to November 24, 1995.
Class A shares of any of the Former Quest Fund for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales charge
in effect as of that date as set forth in the then-current prospectus for
such fund.
- - Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders of the Fund who were shareholders of the AMA Family
of Funds on February 28, 1991 and who acquired shares of any of the Former
Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
- Shareholders of the Fund who acquired shares of any Former Quest
for Value Fund by merger of any of the portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to redemptions
of Class A shares of the Fund purchased by the following investors who
were shareholders of any Former Quest for Value Fund:
- Investors who purchased Class A shares from a dealer that is or was
not permitted to receive a sales load or redemption fee imposed on a
shareholder with whom that dealer has a fiduciary relationship under the
Employee Retirement Income Security Act of 1974 and regulations adopted
under that law.
- Participants in Qualified Retirement Plans that purchased shares
of any of the Former Quest For Value Funds pursuant to a special
"strategic alliance" with the distributor of those funds. The Fund's
Distributor will pay a commission to the dealer for purchases of Fund
shares as described above in "Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest for Value Fund or into which
such fund merged, if those shares were purchased prior to March 6, 1995:
in connection with (i) distributions to participants or beneficiaries of
plans qualified under Section 401(a) of the Internal Revenue Code or from
custodial accounts under Section 403(b)(7) of the Code, Individual
Retirement Accounts, deferred compensation plans under Section 457 of the
Code, and other employee benefit plans, and returns of excess
contributions made to each type of plan, (ii) withdrawals under an
automatic withdrawal plan holding only either Class B or C shares if the
annual withdrawal does not exceed 10% of the initial value of the account,
and (iii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which
such fund merged, if those shares were purchased on or after March 6,
1995, but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under Section 408(a)
of the Internal Revenue Code or retirement plans under Section 401(a),
401(k), 403(b) and 457 of the Code, if those distributions are made either
(a) to an individual participant as a result of separation from service
or (b) following the death or disability (as defined in the Code) of the
participant or beneficiary; (2) returns of excess contributions to such
retirement plans; (3) redemptions other than from retirement plans
following the death or disability of the shareholder(s) (as evidenced by
a determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan (but
only for Class B or C shares) where the annual withdrawals do not exceed
10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in
the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, B or C shares
of the Fund described in this section if within 90 days after that
redemption, the proceeds are invested in the same Class of shares in this
Fund or another Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and that were transferred to an OppenheimerFunds
prototype 401(k) plan shall be eligible for an additional one-time payment
by the Distributor of 1% of the value of the plan assets transferred, but
that payment may not exceed $5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and (i) the shares held by those plans were exchanged
for Class A shares, or (ii) the plan assets were transferred to an
OppenheimerFunds prototype 401(k) plan, shall be eligible for an
additional one-time payment by the Distributor of 1% of the value of the
plan assets transferred, but that payment may not exceed $5,000.
<PAGE>
APPENDIX 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 Brothers Aggregate Bond Index and The
Standard & Poor's 500 Index - Change in Value of $10,000 Hypothetical
Investments"
Linear graphs 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 each
class of shares of 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 graphs.
Additional information with respect to the foregoing, including a
description of The Lehman Aggregate Bond Index and The Standard & Poor's
500 Index, is set forth in the Prospectus under "Performance of the Fund--
How Has the Fund Performed?"
<TABLE>
<CAPTION>
Oppenheimer
Fiscal Year Strategic Income Lehman Brothers
(Period) Ended & Growth Fund A Aggregate 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
11/30/92 $9,855 $10,437 $10,543
09/30/93 $10,522 $11,627 $11,479
09/30/94 $10,485 $11,253 $11,902
09/30/95 $12,221 $12,836 $15,442
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer
Fiscal Year Strategic Income Lehman Brothers
(Period) Ended & Growth Fund B Aggregate Bond Index S&P 500 Index
<S> <C> <C> <C>
11/30/92 $10,000 $10,000 $10,000
09/30/93 $10,565 $11,141 $10,888
09/30/94 $10,424 $10,782 $11,289
09/30/95 $11,761 $12,299 $14,646
</TABLE>
<PAGE>
Oppenheimer Strategic Income & Growth Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information
and, if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, OppenheimerFunds, Inc.,
OppenheimerFunds 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 an offer in such state.
PR275.001.0196N* Printed on Recycled Paper
<PAGE>
Oppenheimer Strategic Income & Growth Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated January 25, 1996
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 25, 1996. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objectives and Policies
Investment Policies and Strategies
Other Investment Techniques and Strategies
Other Investment Restrictions
How the Fund is Managed
Organization and History
Trustees and Officers of the Fund
The Manager and Its Affiliates
Brokerage Policies of the Fund
Performance of the Fund
Distribution and Service Plans
About Your Account
How To Buy Shares
How To Sell Shares
How To Exchange Shares
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Financial Information About the Fund
Independent Auditors' Report
Financial Statements
Appendix A: Corporate Industry ClassificationsA-1
<PAGE>
ABOUT THE FUND
Investment Objectives and Policies
Investment Policies and Strategies. The investment objectives and
policies of the Fund are discussed in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund may invest, as well as the strategies the Fund may use
to try to achieve its objective. Certain capitalized terms used in this
Statement of Additional Information are defined in the Prospectus.
In selecting securities for the Fund's portfolio, the Fund's investment
adviser, OppenheimerFunds, Inc. (referred to as 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 (these are in addition to other investment
risks that may affect a particular security). 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.
Because some of the securities the Fund invests in may be in more than
one of the three sectors the Fund invests in, they are discussed below in
this section, rather than in the sections discussing the individual
sectors. Among those securities are the following:
- 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.
- 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, which may be a domestic or foreign corporation. 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.
- Bank Obligations and Instruments Secured Thereby. The bank
obligations the Fund may invest in 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.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers, such as
corporations. Zero coupon U.S. Treasury securities include: (1) U.S.
Treasury bills without interest coupons, (2) U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons and (3)
receipts or certificates representing interests in such stripped debt
obligations or coupons. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations
in market value in response to changing interest rates than debt
obligations of comparable maturities that make current payments of
interest. However, the lack of periodic interest payments means that the
interest rate is "locked in" and there is no risk of having to reinvest
periodic interest payments in securities having lower rates.
Because the Fund accrues taxable income from zero coupon securities
without receiving cash, the Fund may be required to sell portfolio
securities in order to pay dividends or redemption proceeds for its
shares, which require the payment of cash. This will depend on several
factors: the proportion of shareholders who elect to receive dividends in
cash rather than reinvesting dividends in additional shares of the Fund,
and the amount of cash income the Fund receives from other investments and
the sale of shares. In either case, cash distributed or held by the Fund
that is not reinvested by investors in additional Fund shares will hinder
the Fund from seeking current income.
- Portfolio Turnover. 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.
- Domestic Debt Securities. Further information about the Fund's
investments in short-term debt obligations is provided below.
- 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 may 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.
- Municipal Securities. The two principal classifications of
Municipal Securities are "general obligations" (secured by the issuer's
pledge of its full faith, credit and taxing power) and "revenue
obligations" (payable only from the revenues derived from a particular
facility or class of facilities, or a specific excise tax or other revenue
source.) The Fund may invest in Municipal Securities of both
classifications.
- 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 are
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.
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.
- 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.
- 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 Debt 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 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.
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) that apply to foreign
securities traded and held abroad. If the Fund's securities are held
abroad, the sub-custodians or depositories holding them must be approved
by the Fund's Board of Trustees to the extent that approval is required
under applicable rules of the Securities and Exchange Commission.
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 to 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 "Other
Investment Techniques and Strategies - 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.
- Domestic Equity Securities. Information about some of the types of
domestic equity securities the Fund may invest in is provided below.
- Convertible Securities. While convertible securities are a form of
debt security in many cases, their conversion feature (allowing conversion
into equity securities) causes them to be regarded more as "equity
equivalents." As a result, the rating assigned to the security has less
impact on the Manager's investment decision with respect to convertible
securities than in the case of non-convertible debt securities. To
determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors: (1) whether, at
the option of the investor, the convertible security can be exchanged for
a fixed number of shares of common stock of the issuer, (2) whether the
issuer of the convertible securities has restated its earnings per share
of common stock on a fully diluted basis (considering the effect of
converting the convertible securities), and (3) the extent to which the
convertible security may be a defensive "equity substitute," providing the
ability to participate in any appreciation in the price of the issuer's
common stock.
- Warrants and Rights. Warrants are options to purchase equity
securities at set prices valid for a specified period of time. The prices
of warrants do not necessarily move in a manner parallel to the prices of
the underlying securities. The price the Fund pays for a warrant will be
lost unless the warrant is exercised prior to its expiration. Rights are
similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and
warrants have no voting rights, receive no dividends and have no rights
with respect to the assets of the issuer.
Other Investment Techniques and Strategies
- Hedging. As described in the Prospectus, the Fund may 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
obligation under 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. The Fund may purchase and
write puts and calls on foreign currencies that are traded on a securities
or commodities exchange or over-the-counter markets or are quoted by major
recognized dealers in such options. It does so to protect against
declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. If the Manager
anticipates a rise in the dollar value of a foreign currency in which
securities to be acquired are denominated, the increased cost of such
securities may be partially offset by purchasing calls or writing puts on
that foreign currency. If a decline in the dollar value of a foreign
currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of
currency rate fluctuations adverse to the Fund's position, it would lose
the premium it paid and transaction costs.
A call written on a foreign currency by the Fund is covered if the Fund
owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline in the
U.S. dollar value of a security which the Fund owns or has the right to
acquire and which is denominated in the currency underlying the option due
to an expected adverse change in the exchange rate. This is a cross-
hedging strategy. In such circumstances, the Fund collateralizes the
option by maintaining in a segregated account with the Fund's custodian,
cash or U.S. Government Securities in an amount not less than the value
of the underlying 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. 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 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 is required to
operate within certain guidelines and restrictions with respect to its use
of Futures and options on Futures established by the Commodity Futures
Trading Commission ("CFTC"). In particular, the Fund is exempted from
registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of the Rule adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its aggregate
Futures margin and related options premiums to no more than 5% of the
Fund's net assets for hedging strategies that are not considered bona fide
hedging strategies under the Rule.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options which the Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser. The exchanges also impose
position limits on Futures transactions which 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, cash or readily-marketable, short-term
(maturing in one year or less) debt instruments in an amount equal to the
market value of the securities underlying such Future, less the margin
deposit applicable to it.
- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive
from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with this
30% cap, the Fund will limit the extent to which it engages in the
following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) purchasing calls or puts which expire in less than three months;
(iii) effecting closing transactions with respect to calls or puts
purchased less than three months previously; (iv) exercising puts or calls
held by the Fund for less than three months; or (v) writing calls on
investments held 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 positions making up the straddle.
Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or
the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
- Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against 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.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the equity securities being hedged and movements in the price of
the hedging instruments, the Fund may use hedging instruments in a greater
dollar amount than the dollar amount of equity securities being hedged if
the historical volatility of the prices of the equity securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that if the Fund has used hedging instruments in a
short hedge, the market may advance and the value of equity securities
held in the Fund's portfolio may decline. If that occurred, the Fund would
lose money on the hedging instruments and also experience a decline in
value in its portfolio securities. However, while this could occur for
a very brief period or to a very small degree, over time the value of a
diversified portfolio of equity securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
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 U.S.
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 Fund may invest in securities of
small, unseasoned companies. These are companies that have been in
operation for less than three years, even after including the operations
of any of their predecessors. Securities of these companies may have
limited liquidity (which means that the Fund may have difficulty selling
them at an acceptable price when it wants to) and the prices of these
securities may be volatile. The Fund currently intends to invest no more
than 5% of its net assets in the next year in securities of small,
unseasoned issuers.
- 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', administrative or other fees the Fund pays in connection with
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, the Fund is
required within three days to reduce its bank debt to the extent necessary
to meet such requirement and may have to sell a portion of its investments
at a time when independent investment judgment would not dictate such
sale. Borrowing for investment increases both investment opportunity and
risk. Since substantially all of the Fund's assets fluctuate in value,
but borrowing obligations are fixed, when the Fund has outstanding
borrowings, its net asset value per share correspondingly will tend to
increase and decrease more when portfolio assets fluctuate in value than
otherwise would be the case.
- Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund, if
such registration is required before such securities may be sold publicly.
When registration must be arranged because the Fund wishes to sell the
security, a considerable period may elapse between the time the decision
is made to sell the securities and the time the Fund would be permitted
to sell them. The Fund would bear the risks of any downward price
fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery, or to securities to be delivered at a
later date. When such transactions are negotiated, the price (which is
generally expressed in yield terms) is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later
date. The Fund does not intend to make such purchases for speculative
purposes. The commitment to purchase a security for which payment will
be made on a future date may be deemed a separate security and involve
risk of loss if the value of the security declines prior to the settlement
date. During the period between commitment by the Fund and settlement
(generally within two months but not to exceed 120 days), no payment is
made for the securities purchased by the purchaser, and no interest
accrues to the purchaser from the transaction. Such securities are
subject to market fluctuation; the value at delivery may be less than the
purchase price. The Fund will maintain a segregated account with its
Custodian, consisting of cash, U.S. Government securities or other high
grade debt obligations at least equal to the value of purchase commitments
until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objectives 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.
- Short Sales "Against-the-Box." In this type of short sale, while the
short position is open, the Fund must own an equal amount of securities
sold short, or by virtue of ownership of other 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. They
may also be used to protect a gain on the security "in-the-box" when the
Fund does not want to sell it and recognize a capital gain.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental
policies and the Fund's investment objectives 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: (1) 67% or more of the shares
present or represented by proxy at a shareholder meeting if the holders
of more than 50% of the outstanding shares are present or represented by
proxy, or (2) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
- 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;
- buy securities on margin, except that the Fund may make margin
deposits in connection with any of the Hedging Instruments which it may
use;
- 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;
- 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;
- invest in oil, gas, or other mineral exploration or development
programs; or
- 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.
For purposes of the Fund's policy not to concentrate described in the
investment restrictions in the Prospectus, the Fund has adopted the
industry classifications set forth in Appendix A to this Statement of
Additional Information. This is not a fundamental policy.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
Shares of the Fund represent an interest in the Fund proportionately
equal to the interest of each other share of the same class and entitle
the holder to one vote per share (and a fractional vote for a fractional
share) on matters submitted to their vote at shareholders' meetings.
Shareholders of the Fund and of the Trust's other series vote together in
the aggregate on certain matters at shareholders' meetings, such as the
election of Trustees and ratification of appointment of auditors for the
Trust. Shareholders of a particular series or class vote separately on
proposals which affect that series or class, and shareholders of a series
or class which is not affected by that matter are not entitled to vote on
the proposal. For example, only shareholders of a series, such as the
Fund, vote exclusively on any material amendment to the investment
advisory agreement with respect to the series. Only shareholders of a
class of a series vote on certain amendments to the Distribution and/or
Service Plans if the amendments affect that class.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations and occupations
during the past five years are set forth below. Each Trustee is also a
Trustee, Director or Managing General Partner of Daily Cash Accumulation
Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Oppenheimer Total Return Fund,
Inc., Oppenheimer Equity Income Fund, Oppenheimer Champion Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer
Variable Account Funds, Oppenheimer Main Street Funds, Inc., Oppenheimer
Integrity Funds, Oppenheimer Strategic Funds Trust, Centennial America
Fund, L.P., Oppenheimer Tax-Exempt Bond Fund, Oppenheimer Limited-Term
Government Fund, Oppenheimer International Bond Fund, and The New York
Tax-Exempt Income Fund, Inc. (collectively, the "Denver-based Oppenheimer
funds"), except Ms. Macaskill and Mr. Fossel who are Trustees, Directors
or Managing General Partners of all the Denver-based Oppenheimer funds
except Oppenheimer Integrity Funds and Oppenheimer Strategic Funds Trust.
Messrs. Bishop, Bowen, Donohue, Farrar and Zack hold similar positions as
officers of all such Funds. Ms. Macaskill is President and Mr. Swain is
Chairman of each of the Denver-based Oppenheimer funds. As of January 2,
1996, the Trustees and officers of the Fund as a group owned less than 1%
of each class of shares of the Fund not including shares held of record
by an employee benefit plan of the Manager for which two of the officers
listed below, Ms. Macaskill and Mr. Donohue, are trustees.
Robert G. Avis, Trustee*, Age: 64
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Trustee; Age: 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems, Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, Trustee*: Age: 53
Two World Trade Center, New York, New York 10048-0203
Chairman and a director of the Manager; Director of Oppenheimer
Acquisition Corp. ("OAC"), the Manager's parent holding company,
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of
the Manager, Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly Chief Executive Officer of the Manager.
Raymond J. Kalinowski, Trustee; Age: 66
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; formerly Vice Chairman
and a director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice
President.
C. Howard Kast, Trustee; Age: 74
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age: 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Trustee*; Age 47
President, CEO and a Director of the Manager; Chairman and a Director of
SSI, President and a Director of OAC, HarbourView and Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager;
formerly Executive Vice President of the Manager.
______________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Ned M. Steel, Trustee; Age: 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee*; Age: 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; Director of Centennial Asset Management
Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly Chairman of the Board of SSI.
Andrew J. Donohue, Vice President; Age: 45
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"); an officer of
other Oppenheimer funds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor; formerly a Partner in
Kraft & McManimon (a law firm), prior to which he was an officer of First
Investors Corporation (a broker-dealer) and First Investors Management
Company, Inc. (broker-dealer and investment adviser) and a director and
an officer of the First Investors Family of Funds and First Investors Life
Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age: 59
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
Oppenheimer funds.
Robert C. Doll, Jr., Senior Vice President and Portfolio Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Executive Vice President of the Manager; an officer of other Oppenheimer
funds.
Arthur P. Steinmetz, Vice President and Portfolio Manager; Age: 36
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other Oppenheimer
funds.
David P. Negri, Vice President and Portfolio Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age: 47
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
______________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Robert J. Bishop, Assistant Treasurer; Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., an
accounting firm, and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Ms. Macaskill and Mr. Swain, who are both
officers and Trustees and Mr. Fossel) receive no salary or fee from the
Fund. The Trustees of the Fund (excluding Ms. Macaskill and Messrs.
Fossel and Swain) received the total amounts shown below (i) from the Fund
during its fiscal year ended September 30, 1995, and (ii) from all 21 of
the Denver-based Oppenheimer funds (other than the Fund) listed in the
first paragraph of this section (and from Oppenheimer Tax-Exempt Cash
Reserves, Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer
Strategic Short-Term Income Fund and Oppenheimer Diversified Income Fund,
which ceased operations following the acquisition of their assets by
certain other Oppenheimer funds), for services in the positions shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
<S> <C> <C>
Robert G. Avis $256.45 $53,000.00
Trustee
William A. Baker $354.46 $73,254.66
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $311.17 $64,309.17
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $314.51 $65,000.00
Derivative Instruments
Oversight Committee Member
and Trustee
C. Howard Kast $314.51 $65,000.00
Derivative Instruments
Oversight Committee Member
and Trustee
Robert M. Kirchner $330.44 $68,292.00
Audit and Review
Committee Member
and Trustee
Ned M. Steel $256.45 $53,000.00
Trustee
</TABLE>
______________________
1 For the 1995 calendar year.
- Major Shareholders. As of January 2, 1996, no person owns of record
or was known by the Fund to own beneficially 5% or more of the Fund as a
whole or the Fund's outstanding Class A, Class B or Class C shares except
(i) Betty R. Aliff, 4402 Cambridge Street, Lake Worth, Florida 33461 who
owned 4,624.988 Class C shares (34.78% of the Class C shares then
outstanding); (ii) A.G. Edwards & Sons Inc. C/F, Chester K. Jumonville,
SEP Rollover IRA Account, 6800 Cardinal Drive, Biloxi, Mississippi 39532,
who owned 2,007.056 Class C shares (15.09% of the Class C shares then
outstanding); (iii) Francis O. Calkins, 5091 Dogwood Trail, Lyndhurst,
Ohio 44124, who owned 1,847.465 Class C shares (13.89% of the Class C
shares then outstanding); (iv) Merrill Lynch Pierce Fenner & Smith, Inc.,
4800 Deer Lake Drive East, Floor 3, Jacksonville, Florida 32246, who owned
1,809.000 Class C shares (13.56% of the Class C shares then outstanding);
(v) Louis J. and Ruth A. Mazzaro, REV LIV Trust UAD 11/17/92, Louis J.
Mazzaro & Ruth A. Mazzaro, Trustees, 3422 Adams Shore Drive, Waterford,
MI 48329 (13.08% of the Class C shares then outstanding); and (vi)
Ricardo Torres & Eric Albee, TRS, Polyvel Inc. 401(k) Savings Plan, UA Jan
01 95, 100 9th Street, Hammonton, New Jersey 08037, who owned 966.627
Class C shares (7.07% of the Class C shares then outstanding).
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and three of whom (Ms. Macaskill, Mr. Swain
and Mr. Fossel) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including
portfolio managers, that would compete with or take advantage of the
Fund's portfolio transactions. Compliance with the Code of Ethics is
carefully monitored and strictly enforced by the Manager.
- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs. For the Fund's fiscal years ended September 30, 1993,
1994, and 1995, the management fees paid or payable by the Fund to the
Manager were $491,202, $475,265 and $435,819, respectively.
The advisory agreement contains no expense limitation. However,
independently of the advisory 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 assistance payments and extraordinary expenses such as
litigation costs) shall not exceed the most stringent expense limitation
imposed under state law applicable to the Fund. Pursuant to the
undertaking, the Manager's fee will be reduced at the end of a month so
that there will not be any accrued but unpaid liability under this
undertaking. Currently, the most stringent state expense limitation is
imposed by California, and limits the Fund's 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 annual net assets, and 1.5% of
average annual net assets in excess of $100 million. Any assumption of
the Fund's expenses under this limitation would lower the Fund's overall
expense ratio and increase its total return during any period in which
expenses are limited. The Manager reserves the right to terminate or amend
the undertaking at any time.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard for its obligations and duties under the
advisory agreement, the Manager is not liable for any loss resulting from
a good faith error or omission on its part with respect to any of its
duties thereunder. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation and to use
the name "Oppenheimer" in connection with other investment companies for
which it may act as investment adviser or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
- The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A, Class B and Class C
shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales excluding payments (other than
those paid under the Distribution and Service Plans but including
advertising and the cost of printing and mailing prospectuses) other than
those furnished to existing shareholders, are borne by the Distributor.
During the Fund's fiscal years ended September 30, 1993, 1994 and 1995,
the aggregate amounts of sales charges on sales of the Fund's Class A
shares were $841,033, $1,699,780 and $126,096, respectively, of which the
Distributor and an affiliated broker retained $213,712, $73,286 and
$39,054 in those respective periods. During the Fund's fiscal year ended
September 30, 1995, the contingent deferred sales charges on the Fund's
Class B shares totalled $79,615, all of which the Distributor retained.
Class C shares were not publicly offered during that period and no
contingent deferred sales charges were collected. For additional
information about distribution of the Fund's shares and the expenses
connected with such activities, please refer to "Distribution and Service
Plans," below.
- The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer
Agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions
paid to the extent consistent with interest and policies of the Fund as
established by its Board of Trustees. Purchases of securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated 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 or for certain fixed-income agency
transactions in the secondary market, and are otherwise paid 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 transaction in the
securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates are combined. The transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each account. Option commissions may be relatively higher than those
that would apply to direct purchases and sales of portfolio securities.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained by using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board 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. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to the
Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis
at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
During the Fund's fiscal years ended September 30, 1993, 1994 and 1995,
total brokerage commissions paid by the Fund were $70,753, $44,137 and
$32,068, respectively. During the fiscal year ended September 30, 1995,
$21,180 was paid to brokers as commissions in return for research
services; the aggregate dollar amount of those transactions was
$15,672,281. The transactions giving rise to those commissions were
allocated in accordance with the Manager's internal allocation procedures.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return," "cumulative total return," "average annual total return at
net asset value" and "cumulative total return at net asset value" of an
investment in a class of shares of the Fund may be advertised. An
explanation of how these total returns are calculated for each class and
the components of those calculations is set forth below. No total return
and yield calculations are presented below for Class C because no shares
of that class were publicly issued during the Fund's fiscal year ended
September 30, 1995.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B and Class C shares of the Fund are affected by portfolio quality,
the type of investments the Fund holds and its operating expenses
allocated to the particular class.
- Standardized Yields.
- Yield. The Fund's "yield" (referred to as "standardized yield") for
a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds (other than money market
funds) that quote yields:
Standardized Yield = 2 [(a - b 6 - 1]
------ + 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of that class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day period
may differ from its yield for any other period. The SEC formula assumes
that the standardized yield for a 30-day period occurs at a constant rate
for a six-month period and is annualized at the end of the six-month
period. This standardized yield is not based on actual distributions paid
by the Fund to shareholders in the 30-day period, but is a hypothetical
yield based upon the net investment income from the Fund's portfolio
investments calculated for that period. The standardized yield may differ
from the "dividend yield" of that class, described below. Additionally,
because each class of shares is subject to different expenses, it is
likely that the standardized yields of the Fund's classes of shares will
differ. For the 30-day period ended September 30, 1995, the standardized
yields for the Fund's Class A and Class B shares were 5.45% and 4.96%,
respectively.
- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the dividends paid on shares of a class
from dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income
and from realized capital gains declared during a stated period. Under
those calculations, the dividends and/or distributions for that class
declared during a stated period of one year or less (for example, 30 days)
are added together, and the sum is divided by the maximum offering price
per share of that class on the last day of the period. When the result
is annualized for a period of less than one year, the "dividend yield" is
calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accural period) x 365
The maximum offering price for Class A shares includes the
maximum front-end sales charge. For Class B and Class C shares, the
maximum offering price is the net asset value per share without
considering the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value (instead
of its respective maximum offering price) at the end of the period. The
dividend yields on Class A shares for the 30-day period ended September
30, 1995, were 6.08% and 6.38% when calculated at maximum offering price
and at net asset value, respectively. The dividend yield on Class B
shares for the 30-day period ended September 30, 1995 was 5.64% when
calculated at net asset value.
- Total Return Information.
- Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of return for
each year in a specified number of years. It is the rate of return based
on the change in value of a hypothetical initial investment of $1,000 ("P"
in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV") of that investment, according to the
following formula:
(ERV 1/n_)
(---- ) - 1 = Average Annual Total Return
( P )
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
--------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering price) is
deducted from the initial investment ("P") (unless the return is shown at
net asset value, as described below). For Class B shares, payment of a
contingent deferred sales charge of 5.0% for the first year, 4.0% for the
second year, 3.0% for the third and fourth years, 2.0% for the fifth year
and 1.0% for the sixth year, and none thereafter, is applied to the
investment result for the period shown (unless the total return is shown
at net asset value, as described below). For Class C shares, a 1.0%
contingent deferred sales charge is applied to the investment result for
the one-year period (or less). Total returns also assume that all
dividends and capital gains distributions during the period are reinvested
to buy additional shares, at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual
total returns on an investment in Class A shares for the fiscal year ended
September 30, 1995, and for the period June 1, 1992 (commencement of
operations) to September 30, 1995, were 10.58% and 6.21%, respectively.
The average annual total returns on an investment in Class B shares for
the fiscal year ended September 30, 1995, and for the period November 30,
1992 (inception of the class) to September 30, 1995 were 10.25% and 5.89%,
respectively. The cumulative total return on Class A shares for the
period June 1, 1992 (commencement of operations) through September 30,
1995 was 22.22%. The cumulative total return on Class B shares for the
period November 30, 1992 through September 30, 1995 was 17.62%.
- Total Returns At Net Asset Value. From time to time the Fund
may also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The cumulative total return
at net asset value on the Fund's Class A shares for the fiscal year ended
September 30, 1995, was 16.09%. The average annual total return at net
asset value for the period June 1, 1992 (commencement of operations) to
September 30, 1995, for Class A shares was 7.77%. The average annual
total returns at net asset value for Class B shares for the fiscal year
ended September 30, 1995 and for the period November 30, 1992 (inception
of that class) to September 30, 1995 were 15.26% and 6.84%, respectively.
Total return information may be useful to investors in reviewing
the performance of the Fund's Class A, Class B or Class C shares.
However, when comparing total return of an investment in Class A or Class
B shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison with other investments.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (i) all other funds, (ii)
all other "growth and income" funds, and (iii) all other fixed-income
funds, excluding money market funds. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gains
distributions and income dividends but do 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, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service, that ranks mutual funds,
including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
measures fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category.
Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other hybrid funds. Rankings
are subject to change.
The total return on an investment in the Fund's Class A, Class
B or Class C shares 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 Brothers 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 Brothers Government/Corporate Bond Index
generally represents the performance of intermediate and long-term
government and investment grade corporate debt securities. The Lehman
Brothers 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. Each index includes a factor for the reinvestment of interest but
does not reflect expenses or taxes. The performance of the Fund's Class
A, Class B or Class C shares may also be compared in publications to (i)
the performance of various market indices or to other investments for
which reliable performance data is available, and (ii) to averages,
performance rankings or other benchmarks prepared by recognized mutual
fund statistical services.
Investors may also wish to compare the Fund's Class A, Class B
or Class C return to the returns on fixed income investments available
from banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such as
Treasury bills. However, the Fund's returns and share price are not
guaranteed by the FDIC or any other agency and will fluctuate daily, while
bank depository obligations may be insured by the FDIC and may provide
fixed rates of return, and Treasury bills are guaranteed as to principal
and interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or Transfer Agent) or the investor services
provided by them to shareholders of the Oppenheimer funds, other than
performance rankings of the Oppenheimer funds themselves. Those ratings
or rankings of shareholder/investor services by third parties may compare
the Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services and may be based upon the
opinions of the rating or ranking service itself, based on its research
or judgment, or based upon surveys of investors, brokers, shareholders or
others.
Distribution and Service Plans
The Fund has adopted a Service Plan for its Class A shares and
Distribution and Service Plans for its Class B and Class C shares under
Rule 12b-1 of the investment Company Act pursuant to which the Fund will
make payments to the Distributor in connection with the servicing and/or
distribution of the shares of each class, as described in the Prospectus.
Each Plan has been approved by the vote of (i) the Board of Trustees of
the Fund, including a majority of the Independent Trustees, as required
by the Rule, 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 Class C shares, that required shareholder vote was
cast by the Manager as the sole shareholder of Class C shares at that
time.
The Class A and Class B Plans are "reimbursement-type" Plans,
which means that they provide for the reimbursement of the distributor's
actual expenses incurred in connection with the service/and or
distribution of the Fund's shares of those classes. The Class C Plan is
a "compensation-type" plan, which means that it provides for the
compensation of the distributor for the service and distribution of the
Fund's shares of that class.
Each plan provides for the payment of a Service Fee which the
Distributor may pay to brokers, dealers and other persons or entities
("Recipients") for providing personal services and account maintenance
services to accounts and shareholders that hold shares of the Fund. The
Service Fee is described more fully below under Class A Plan. The Class
B and Class C Plans also provide for the payment of an asset-based sales
charge of up to 0.75% of the average annual net assets of Class B and
Class C shares, respectively. Asset-based sales charge payments are
designed to permit an investor to purchase Class B or Class C shares of
the Fund without the payment of a front-end sales load and at the same
time permit the Distributor to compensate Recipients in connection with
the sale of those shares. The asset-based sales charges are described
more fully below under Class B Plan and Class C Plan.
Under each Plan, the Manager and the Distributor, in their sole
discretion, may from time to time use their own resources, at no cost to
the Fund, to make payments to Recipients for distribution and
administrative services they perform. In the case of the Manager, those
payments may be made from profits from the advisory fee it receives from
the Fund. The Distributor and the Manager may in their sole discretion
increase or decrease the amount of these payments. Under each Plan, the
Fund's Board of Trustees may change the amount paid to a Recipient, but
may not permit payment of an amount in excess of the maximum payment set
forth above. The Board may establish minimum assets levels to be held by
a Recipient, and may also establish a minimum holding period for
Recipients in each case to entitle a Recipient to receive any payments
under a Plan. The Board of Trustees has established the payment level at
the maximum provided for in each Plan and has not set any minimum holding
periods or minimum asset levels.
All payments under the Class B and Class C Plans are subject to
the limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based sales
charges and Service Fees.
While the plans are in effect, the Treasurer of the Fund must
provide separate written reports to the Fund's Board of Trustees at least
quarterly describing the amount of payments made pursuant to each Plan and
the purposes for which the payments were made. The Class B report also
must include the Distributor's distribution costs for the quarter, and
such costs for previous quarters that have been carried forward. The
Class A and Class B reports also must include the identity of each
Recipient that received any payment. These reports are subject to the
review and approval of the Independent Trustees.
A Plan may be terminated at any time by the vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined by the Investment Company Act) of the outstanding voting
securities of that Class. No amendment to a Plan which increases
materially the amount to be paid under the Plan may be made unless the
amendment is approved by the shareholders of the class affected by the
amendment. All material amendments must be approved by the Board of
Trustees. Unless terminated earlier, each Plan continues in effect from
year to year but only so long as its continuance is specifically approved
at least annually by the Fund's Board of Trustees and its Independent
Trustees by a vote cast in person at a meeting called for the purpose of
voting on such continuance. For the fiscal year ended September 30, 1995,
payments under the Plan for Class A shares totaled $99,809, all of which
was paid by the Distributor to Recipients including $11,588 that was paid
to an affiliate of the Distributor. Payments made under the Class B Plan
during the fiscal year ended September 30, 1995 totalled $172,898, all
paid by the Distributor to Recipients, including $2,326 paid to a dealer
affiliated with the Distributor. No payments have been made under the
Class C Plan during that period as no Class C shares were outstanding
during that fiscal year.
Class A Plan
The Class A Plan provides for the payment of a Service Fee, not
to exceed 0.25% of the average annual net assets of the class.
Class B Plan
The Class B Plan provides for the payment of a Service Fee of up
to 0.25% of the annual net assets of each class. This Service Fee is
virtually identical to the Service Fee described in Class A Plan above.
The Class B Plan allows the Service Fee payments made by the Distributor
to be paid to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly basis based in the average
daily net asset value of shares held in accounts at Recipients or by their
customers, as described in the Prospectus. Although the Class B Plan does
not require the Distributor to make these advance payments, the
Distributor presently intends to pay the Service Fee to Recipients in this
manner. An exchange of shares does not entitle a Recipient to an advance
Service Fee payment. If shares are redeemed during the first year they
are outstanding, the Recipient is obligated to repay to the Distributor
a pro rata portion of the advance payment for those shares.
The Class B Plan also provides for the payment of an asset-based
sales charge of up to 0.75% of the annual net assets of the Class B
shares. The asset-based sales charge paid to the Distributor under the
Class B Plan is intended to allow the Distributor to recoup the cost of
sales commission paid to authorized Recipients at the time of sale, plus
financing costs.
The Class B Plan provides that the Fund may reimburse the
Distributor for its distribution expenses in connection with the
distribution of Class B shares which include sales commissions and Service
Fees paid to Recipients, financing costs with respect to distribution
payments, compensation and expenses of personnel employed by the
Distributor to support distribution of Class B shares, and the costs of
sales literature, advertising and prospectuses (other than those furnished
to current shareholders) and state "blue sky" expenses.
The Distributor's actual Class B distribution expenses for any
given year may exceed the aggregate of payments received under the Class
B Plan and from recoveries of contingent deferred sales charges. The
Distributor anticipates that it will take a number of years for it to
recoup its Class B distribution expenses. The Class B Plan allows such
expenses to be carried forward and paid in future years. The Class B
shares will be charged only for interest expenses, carrying charges or
other financing costs that are directly related to the carry forward of
actual distribution expenses.
Class C Plan
The Class C Plan provides for the payment of a Service Fee of up to
0.25% of the annual net assets of each class. This Service Fee is
virtually identical to the Service Fee described in Class A Plan above.
The Class C Plan allows the Service Fee payments made by the Distributor
to be paid to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly basis based on the average
daily net asset value of shares held in accounts at Recipients or by their
customers, as described in the Prospectus. Although the Class C Plan does
not require the Distributor to make these advance payments, the
Distributor presently intends to pay the Service Fee to Recipients in this
manner. An exchange of shares does not entitle a Recipient to an advance
Service Fee payment. If shares are redeemed during the first year they
are outstanding, the Recipient is obligated to repay to the Distributor
a pro rata portion of the advance payment for those shares.
The Class C Plan also provides for the payment of an asset-based sales
charge of 0.75% of the annual net assets of the Class B shares. The Class
C Plan provides for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less that the
amount paid by the Fund.
The Distributor's services to the Class C shareholders of the Fund
include paying sales commissions and Service Fee payments to Recipients,
providing personnel to support distribution of shares, and bearing other
costs of distribution including the costs of sales literature, advertising
and prospectuses (other than those furnished to current shareholders) and
state "blue sky" expenses.
The Class C asset-based sales charge paid during the first year is
retained by the Distributor and thereafter paid to the Recipient as an
ongoing commission on Class C shares that have been outstanding for a year
or more.
About Your Account
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits the individual investor
to choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B and
Class C shares are the same as those of the initial sales charge with
respect to Class A shares. Any salesperson or other person entitled to
receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than another. The
Distributor will not accept any order for $500,000 or $1 million or more
of Class B or Class C shares, respectively, on behalf of a single investor
(not including dealer "street name" or omnibus accounts) because generally
it will be more advantageous for that investor to purchase Class A shares
of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the
effect that the conversion of Class B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (a) Distribution and
Service Plan fees, (b) incremental transfer and shareholder servicing
agent fees and expenses, (c) registration fees and (d) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class
rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day that the Exchange is open, by dividing the Fund's
net assets attributable to a class by the number of shares of that class
that are outstanding. The Exchange normally closes at 4:00 P.M., New York
time, but may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's most
recent annual holiday schedule (which is subject to change) states that
it will close on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It
may also close on other days. The Fund may invest a substantial portion
of its assets in foreign securities primarily listed on foreign exchanges
or in foreign over-the-counter markets that may trade on Saturdays or
customary U.S. business holidays on which the Exchange is closed. Because
the Fund's net asset value per share of Class A, Class B and Class C
shares will not be calculated on those days, the Fund's net asset value
per share of Class A, Class B and Class C shares may be significantly
affected on such days when shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a U.S. securities exchange or on NASDAQ for which
last sale information is regularly reported are valued at the last
reported sale price on their primary exchange or NASDAQ that day (or, in
the absence of sales that day, at values based on the last sales prices
of the preceding trading day, or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued at
the last sales price available to the pricing service approved by the
Fund's Board of Trustees or to the Manager as reported by the principal
exchange on which the security is traded; (iii) unlisted foreign
securities or listed foreign securities not actively traded are valued as
in (i) above, if available, or at the mean between "bid" and "asked"
prices obtained from active market makers in the security on the basis of
reasonable inquiry; (iv) long-term debt securities having a remaining
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) debt instruments having
a maturity of more than one year when issued, and non-money market type
instruments having a maturity of one year or less when issued,which have
a remaining maturity of 60 days or less are valued at the mean between the
"bid" and "asked" prices determined by a pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in the
security on the basis of reasonable inquiry; (vi) money market-type debt
securities having a maturity of less than one year when issued that have
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; (vii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures; and
(viii) securities traded on foreign exchanges are valued at the closing
or last sales prices reported on a principal exchange, or if none, at the
mean between closing bid and asked prices and reflect prevailing rates of
exchange taken from the closing price on the London foreign exchange that
day as provided by a reliable bank, dealer or pricing service.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of The New York
Stock Exchange. Events affecting the values of foreign securities traded
in stock markets that occur between the time their prices are determined
and the close of the Exchange will not be reflected in the Fund's
calculation of net asset value unless the Board of Trustees or the
Manager, under procedures established by the Board of Trustees, determines
that the particular event would materially affect the Fund's net asset
value, in which case an adjustment would be made, if necessary. Foreign
currency will be valued as close to the time fixed for the valuation date
as is reasonably practicable. The values of securities denominated in
foreign currency will be converted to U.S. dollars at the prevailing rates
of exchange at the time of valuation.
In the case of U.S. Government Securities, mortgage-backed 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
Directors has authorized the Manager to employ a pricing service to price
U.S. Government Securities, mortgage-backed securities, and foreign
government and corporate bonds. The Directors will monitor the accuracy
of such pricing services by comparing prices used for portfolio evaluation
to actual sales prices of selected securities.
Puts, calls and Futures held by the Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ,
as applicable, or, if there are no sales that day, in accordance with (i),
above. Forward currency contracts are valued at the closing price on the
London foreign exchange market as provided by a reliable bank, dealer or
pricing service. When the Fund writes an option, an amount equal to the
premium received by the Fund is included in the Fund's Statement of Assets
and Liabilities as an asset, and an equivalent deferred credit is included
in the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call written by the Fund
is exercised, the proceeds are increased by the premium received. If a
call or put written by the Fund expires, the Fund has a gain in the amount
of the premium; if the Fund enters into a closing purchase transaction,
it will have a gain or loss depending on whether the premium was more or
less than the cost of the closing transaction. If the Fund exercises a
put it holds, the amount the Fund receives on its sale of the underlying
investment is reduced by the amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will be purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in 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, sons- and daughters-in-law, siblings, a sibling's spouse and a
spouse's siblings.
- The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer U.S. Government Trust
Oppenheimer Bond Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Rochester Fund Municipals*
Rochester Fund Series - The Bond Fund for Growth*
Rochester Portfolio Series - Limited Term New York Municipal Fund*
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
______________________
*Shares of the Fund are not presently exchangeable for shares of these
funds.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent ("Letter") is the investor's
statement of intention to purchase Class A and Class B shares (or shares
of either class) of the Fund (and other eligible Oppenheimer funds) sold
with a front-end sales charge during the 13-month period from the
investor's first purchase to the Letter (the "letter of Intent period"),
which may, at the investor's request, include purchases made up to 90 days
prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases (excluding any
purchases made by reinvestment of dividends or distributions or purchases
made at net asset value without sales charge), which together with the
investor's holdings of such funds (calculated at their respective public
offering prices calculated on the date of the Letter) will equal or exceed
the amount specified in the Letter. This enables the investor to count
the shares to be purchased under the Letter of Intent to obtain the
reduced sales charge rate (as set forth in the Prospectus) that applies
under the Right of Accumulation to current purchases of Class A shares.
Each purchase of Class A shares under the Letter will be made at the
public offering price (including the sales charge) that applies to a
single lump-sum purchase of shares in the amount intended to be purchased
under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended purchase
amount under the letter entered into by an OppenheimerFunds prototype
401(k) plan is not purchased by the plan by the end of the Letter of
Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the
name of that plan.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual purchases. If total eligible purchases during the
Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
up to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period
the total purchases pursuant to the Letter are less than the intended
purchase amount specified in the Letter, the investor must remit to the
Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which would
have been paid if the total amount purchased had been made at a single
time. Such sales charge adjustment will apply to any shares redeemed
prior to the completion of the Letter. If such difference in sales
charges is not paid within twenty days after a request from the
Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares
remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the
redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter) include (a)
Class A shares sold with a front-end sales charge or subject to a Class
A contingent deferred sales charge, (b) Class B shares acquired subject
to a contingent deferred sales charge, and (c) Class A or Class B shares
acquired in exchange for either (i) Class A shares of one of the other
Oppenheimer funds that were acquired subject to a Class A initial or
contingent deferred sales charge or (ii) Class B shares of one of the
other Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "How to Exchange
Shares," and the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application may be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
- Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash. However, the
Board of Trustees of the Fund may determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make
payment of a redemption order wholly or partly in cash. In that case the
Fund may pay the redemption proceeds in whole or in part by a distribution
"in kind" of securities from the portfolio of the Fund, in lieu of cash,
in conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. This privilege does not apply to
Class C shares. The shareholder must ask the Distributor for that
privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter
any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which
a sales charge was paid are reinvested in shares of the Fund or another
of the Oppenheimer funds within 90 days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the
loss or increase the gain recognized from the redemption. However, in
that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may
amend, suspend or cease offering this reinvestment privilege at any time
as to shares redeemed after the date of such amendment, suspension or
cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of transfer to
the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B and Class C
contingent deferred sales charges will be followed in determining the
order in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans,
or pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address
listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must: (i) state the
reason for the distribution; (ii) state the owner's awareness of tax
penalties if the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons maintaining a plan account
in their own name) in OppenheimerFunds-sponsored prototype pension or
profit-sharing or 401 (k) plans may not directly redeem or exchange shares
held for their account under those plans. The employer or plan
administrator must sign the request. Distributions from pension and
profit sharing plans are subject to special requirements under the
Internal Revenue Code and certain documents (available from the Transfer
Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available
from the Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with
signatures(s) of the registered owners guaranteed on the redemption
document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the Class B and Class C
contingent deferred sales charges are waived as described in the
Prospectus under "Waivers of Class B and Class C Contingent Deferred Sales
Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the Oppenheimer funds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other Oppenheimer funds
automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How
to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
- - Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will
be redeemed first and shares acquired with reinvested dividends and
capital gains distributions will be redeemed next, followed by shares
acquired with a sales charge, to the extent necessary to make withdrawal
payments. Depending upon the amount withdrawn, the investor's principal
may be depleted. Payments made under withdrawal plans should not be
considered as a yield or income on your investment. It may not be
desirable to purchase additional Class A shares while making automatic
withdrawals because of the sales charges that apply to purchases when
made. Accordingly, a shareholder normally may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases of Class A
shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent and the Fund shall incur no liability
to the Planholder for any action taken or omitted by the Transfer Agent
in good faith to administer the Plan. Certificates will not be issued for
shares of the Fund purchased for and held under the Plan, but the Transfer
Agent will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions
of capital gains must be reinvested in shares of the Fund, which will be
done at net asset value without a sales charge. Dividends on shares held
in the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption date.
Checks or ACH transfer payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments are to
be sent may be changed at any time by the Planholder by writing to the
Transfer Agent. The Planholder should allow at least two weeks' time in
mailing such notification for the requested change to be put in effect.
The Planholder may, at any time, instruct the Transfer Agent by written
notice (in proper form in accordance with the requirements of the then-
current Prospectus of the Fund) to redeem all, or any part of, the shares
held under the Plan. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at any time
by the Transfer Agent upon receiving directions to that effect from the
Fund. The Transfer Agent will also terminate a Plan upon receipt of
evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of a Plan by the Transfer Agent or the Fund,
shares that have not been redeemed from the account will be held in
uncertificated form in the name of the Planholder, and the account will
continue as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
Oppenheimer funds that have a single class without a class designation are
deemed "Class A" shares for this purpose. All of the Oppenheimer funds
offer Class A, Class B and Class C shares except Oppenheimer Money Market
Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P., and
Daily Cash Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund, which only offers
Class A and Class B shares (Class B and Class C shares of Oppenheimer Cash
Reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored
401(k) plans). A list showing which funds offer which classes can be
obtained by calling the Distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds
of shares of other mutual funds (other than funds managed by the Manager
or its subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of the Fund and other Oppenheimer
funds without being subject to an initial or contingent deferred sales
charge, whichever is applicable. To qualify for that privilege, the
investor or the investor's dealer must notify the Distributor of
eligibility for this privilege at the time the shares of Oppenheimer Money
Market Fund, Inc. are purchased, and, if requested, must supply proof of
entitlement to this privilege. Shares of this Fund acquired by
reinvestment of dividends or distributions from any other of the
Oppenheimer funds or from any unit investment trust for which reinvestment
arrangements have been made with the Distributor may be exchanged at net
asset value for shares of any of the Oppenheimer funds.
No contingent deferred sales charge is imposed on exchanges of
shares of any class purchased subject to a contingent deferred sales
charge. However, when Class A shares acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end
of the calendar month of the initial purchase of the exchanged Class A
shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed
on Class B shares acquired by exchange if they are redeemed within 6 years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or the Class C contingent
deferred sales charge will be followed in determining the order in which
the shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any contingent
deferred sales charge that might be imposed in the subsequent redemption
of remaining shares. Shareholders owning shares of more than one class
must specify whether they intend to exchange Class A, Class B or Class
shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50 accounts
per day from representatives of authorized dealers that qualify for this
privilege. In connection with any exchange request, the number of shares
exchanged may be less than the number requested if the exchange or the
number requested would include shares subject to a restriction cited in
the Prospectus or this Statement of Additional Information or would
include shares covered by a share certificate that is not tendered with
the request. In those cases, only the shares available for exchange
without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtain and acknowledge receipt of a
prospectus of, the fund to which the exchange is to be made. For full or
partial exchanges of an account made by telephone, any special account
features such as Asset Builder Plans, Automatic Withdrawal Plans and
retirement plan contributions will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are
busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a shareholder
should assure that the Fund selected is appropriate for his or her
investment and should be aware of the tax consequences of an exchange.
For federal income tax purposes, an exchange transaction is treated as a
redemption of shares of one fund and a purchase of shares of another.
"Reinvestment Privilege," above, discusses some of the tax consequences
of reinvestment of redemption proceeds in such cases. The Fund, the
Distributor, and the Transfer Agent are unable to provide investment, tax
or legal advice to a shareholder in connection with an exchange request
or any other investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends that the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on Fund shares held for 45 days or less. To the extent the
Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or
dividends from foreign corporations, those dividends will not qualify for
the deduction.
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, in order to enable the investor to earn a
return on otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and Class
C Shares," above. 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 and Class C shares are expected to be lower than dividends on
Class A shares as a result of the asset-based sales charges on Class B and
Class C shares, and Class B and Class C dividends will also differ in the
amount as a consequence of any difference in net asset value between the
classes.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other Oppenheimer funds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. To elect
this option, a shareholder must notify the Transfer Agent in writing and
either have an existing account in the fund selected for reinvestment or
must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution. Dividends and/or
distributions from shares of other Oppenheimer funds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the delivery of
such securities to and from the Fund. The Manager has represented to the
Fund that the banking relationships between the Manager and the Custodian
have been and will continue to be unrelated to and unaffected by the
relationship between the Fund and the Custodian. It will be the practice
of the Fund to deal with the Custodian in a manner uninfluenced by any
banking relationship the Custodian may have with the Manager and its
affiliates. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such uninsured
balances at times may be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
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, 1995, the related statement of
operations for the year then ended, the statements of changes in net
assets for the year ended September 30, 1995 and 1994 and the financial
highlights for the period June 1, 1992 (commencement of operations) to
September 30, 1995. 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, 1995 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, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
October 20, 1995
<PAGE>
---------------------------------------------
STATEMENT OF INVESTMENTS September 30, 1995
---------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
==========================================================
==========================================================
===============
CERTIFICATES OF DEPOSIT--2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Citibank CD, 29.50%, 12/22/95(2)HUF $ 20,233,500 $ 155,624
---------------------------------------------------------------------------------------------------------------
First Boston Corp. CD:
10.40%, 10/12/95(2)(3)CZK 7,806,300 296,030
12.50%, 12/21/95(2)(3)ARA 300,000 300,038
---------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD, Zero Coupon, 6/17/96(2)IDR 500,000,000
194,506
---------------------------------------------------------------------------------------------------------------
Thai Military Bank Ltd. CD, 11%, 11/30/95(2)THB 7,500,000 299,042
-----------
Total Certificates of Deposit (Cost $1,254,896) 1,245,240
==========================================================
==========================================================
===============
MORTGAGE-BACKED OBLIGATIONS--6.9%
- -----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--4.8%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/ Federal Home Loan Mortgage Corp., Series 176, Cl. F, 8.95%, 3/15/20 192,888
194,395
SPONSORED--2.4% ---------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 10.50%, 11/25/20 315,000 372,783
Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl. 2, 10.26%, 2/25/24(4) 1,850,932 587,816
Collateralized Mtg. Obligations, Series 1994--83, Cl. Z, 7.50%, 6/25/24 351,348 333,999
-----------
1,488,993
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED Government National Mortgage Assn., 6%, 11/15/25 1,470,000
1,472,756
- --2.4%
- -----------------------------------------------------------------------------------------------------------------------------------
PRIVATE--2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--1.0% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991--M6, Cl. B4, 7.477%, 6/25/21(5) 79,623 78,554
Series 1992--CHF, Cl. D, 8.25%, 12/25/20 274,124 277,294
Series 1993--C1, Cl. D, 9.45%, 5/25/24 252,980 265,629
-----------
621,477
- -----------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY--1.1% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1994--C2, Cl. E, 8%, 4/25/25 480,461 436,619
Series 1994--C2, Cl. G, 8%, 4/25/25 234,299 192,748
-----------
629,367
-----------
Total Mortgage-Backed Obligations (Cost $4,055,233) 4,212,593
==========================================================
==========================================================
===============
U.S. GOVERNMENT OBLIGATIONS--19.8%
- -----------------------------------------------------------------------------------------------------------------------------------
TREASURY--19.8% U.S. Treasury Bonds:
11.50%, 11/15/95 900,000 906,750
11.625%, 11/15/02 7,600,000 9,991,620
8.125%, 8/15/19 292,000 342,826
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.125%, 11/15/95 230,000 229,928
9.375%, 4/15/96 568,000 579,182
-----------
Total U.S. Government Obligations (Cost $11,459,107) 12,050,306
</TABLE>
5 Oppenheimer Strategic Income & Growth Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
==========================================================
==========================================================
===============
FOREIGN GOVERNMENT OBLIGATIONS--11.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of):
Bonds, Bonos del Tesoro, Series II, 5.906%, 9/1/97(5) $ 23,000 $ 21,934
Medium-Term Nts., 8%, 8/9/97NLG 300,000 184,332
---------------------------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC:
International Finance BV Gtd. Bonds, 10.875%, 6/23/97(3)(5) 120,000 121,500
Zero Coupon, 12/5/95(3) 150,000 147,000
---------------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria de la Federacion, Zero Coupon, 8/15/96MXP 1,655,940 196,555
---------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Eligible Interest Bonds, 7.25%, 4/15/06(5) 500,000 333,100
---------------------------------------------------------------------------------------------------------------
Bulgaria (Republic of) Disc. Bonds, Tranche A, 6.75%, 7/28/24(5) 750,000 381,525
---------------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, Series H9, 12%, 3/1/05CAD 750,000 712,226
---------------------------------------------------------------------------------------------------------------
Central Bank of Costa Rica Principal Bonds, Series A, 6.25%, 5/21/10 300,000 168,000
---------------------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds, 8%, 3/15/06DKK 1,900,000 341,293
---------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Par Bonds, 3%, 2/28/25(5) 1,000,000 326,200
---------------------------------------------------------------------------------------------------------------
Islamic (Republic of Pakistan) Debs., 11.50%, 12/22/99 300,000 308,625
---------------------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali,
12%, 5/1/02ITL 500,000,000 315,700
---------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreement,
Tranche A, 6.688%, 1/1/09(5) 850,000 532,313
---------------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01AUD 410,000
361,923
---------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds:
10%, 7/15/97NZD 390,000 263,673
8%, 11/15/95NZD 400,000 262,921
---------------------------------------------------------------------------------------------------------------
Norwegian Government Bonds, 5.75%, 11/30/04NOK 720,000 104,595
---------------------------------------------------------------------------------------------------------------
Panama (Republic of) Debs., 7.25%, 5/10/02(5) 250,000 198,750
---------------------------------------------------------------------------------------------------------------
Poland (Republic of) Disc. Bonds, 7.125%, 10/27/24(5) 500,000 386,250
---------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01AUD 480,000 356,126
---------------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
10.25%, 11/30/98ESP 54,000,000 435,805
---------------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts., 13%, 7/14/00GBP 182,000 348,450
---------------------------------------------------------------------------------------------------------------
United Mexican States, Combined Facility 3,
Loan Participation Agreement, Tranche A, 6.75%, 9/20/97(5)(6) 142,880 103,588
----------
Total Foreign Government Obligations (Cost $6,744,272) 6,912,384
==========================================================
==========================================================
===============
CORPORATE BONDS AND NOTES--26.8%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--3.1%
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.3% NL Industries, Inc., 11.75% Sr. Sec. Nts., 10/15/03 200,000
212,000
- -----------------------------------------------------------------------------------------------------------------------------------
METALS/MINING--0.4% Kaiser Aluminum & Chemical Corp., 12.75% Sr. Sub. Nts., 2/1/03 100,000
108,750
---------------------------------------------------------------------------------------------------------------
UCAR Global Enterprises, Inc., 12% Sr. Sub. Nts., 1/15/05 100,000 114,000
----------
222,750
</TABLE>
6 Oppenheimer Strategic Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER--1.5% Gaylord Container Corp., 11.50% Sr. Nts., 5/15/01 $ 300,000 $ 313,500
---------------------------------------------------------------------------------------------------------------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 75,000 70,875
---------------------------------------------------------------------------------------------------------------
Repap New Brunswick, Inc., 9.617% First Priority Sr. Sec. Nts., 7/15/00(5) 200,000 200,500
---------------------------------------------------------------------------------------------------------------
Stone Consolidated Corp., 10.25% Sr. Sec. Nts., 12/15/00 125,000 131,875
---------------------------------------------------------------------------------------------------------------
Stone Container Corp., 10.75% First Mtg. Nts., 10/1/02 200,000 208,500
----------
925,250
- -----------------------------------------------------------------------------------------------------------------------------------
STEEL--0.9% Republic Engineered Steels, Inc., 9.875% First Mtg. Nts., 12/15/01 300,000
280,500
---------------------------------------------------------------------------------------------------------------
Wheel-Pittsburgh Corp., 9.375% Sr. Nts., 11/15/03 250,000 230,625
----------
511,125
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED--4.6%
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--2.0% AmeriSource Health Corp., 11.25% Sr. Debs., 7/15/05(7) 293,419
318,360
---------------------------------------------------------------------------------------------------------------
Capstone Capital Corp., 10.50% Cv. Sub. Debs., 4/1/02 500,000 579,375
---------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 10.125% Sr. Sub. Nts., 3/1/05 300,000 318,000
----------
1,215,735
- -----------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING--0.2% Rio Hotel & Casino, Inc., 10.625% Sr. Sub. Nts., 7/15/05(3) 100,000
97,375
- -----------------------------------------------------------------------------------------------------------------------------------
LEISURE--0.5% Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., Series A, 6/30/02 300,000 316,875
- -----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--0.4% Foodmaker, Inc., 9.75% Sr. Sub. Nts., 6/1/02 300,000
256,500
- -----------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL Polymer Group, Inc., 12.75% Sr. Nts., 7/15/02(3) 300,000
310,500
- --1.5% ---------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa, Zero Coupon Promissory Nts., 10/23/96IDR 1,200,000,000
415,075
---------------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 200,000 198,000
----------
923,575
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--0.6% Triton Energy Corp., Zero Coupon Sr. Sub. Disc. Nts., 11/1/97 400,000
342,500
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--1.2%
- -----------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS Banco Ganadero SA, Zero Coupon Nts., 7/1/96(3) 100,000
93,081
- --0.2% ----------------------------------------------------------------------------------------------------------------
Morgan Stanley Group, 14.25% Indian Rupee Indexed Nts., 6/26/96INR 1,570,500 46,293
----------
139,374
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED Banco del Atlantico SA, 7.875% Eurobonds, 11/5/98 300,000 264,000
FINANCIAL--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.6% Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 300,000
334,500
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSING RELATED--1.3%
- -----------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDERS/REAL Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts., 5/1/99 398,000
419,890
ESTATE--1.3% ---------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(3) 500,000 385,000
----------
804,890
</TABLE>
7 Oppenheimer Strategic Income & Growth Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.4% Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 $300,000 $
262,500
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--0.4% Terex Corp., Units (each unit consists of $1,000 principal amount
of 13.75% sr. sec. nts., 5/15/02 and four common stock appreciation rights)(3)(8) 300,000 247,500
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--6.1%
- -----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--0.3% New City Communications, Inc., 11.375% Sr. Sub. Nts., 11/1/03 200,000
194,000
- -----------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION Adelphia Communications Corp., 12.50% Sr. Nts., 5/15/02 300,000
302,250
- --4.0% ---------------------------------------------------------------------------------------------------------------
American Telecasting, Inc., 0%/14.50% Sr. Disc. Nts., 6/15/04(9) 430,316 248,507
---------------------------------------------------------------------------------------------------------------
Bell Cablemedia PLC, 0%/11.95% Sr. Disc. Nts., 7/15/04(9) 500,000 337,500
---------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 9.875% Sr. Sub. Debs., 2/15/13 250,000 261,250
---------------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.50% Sr. Debs., 8/1/13 400,000 417,000
---------------------------------------------------------------------------------------------------------------
Echostar Communications Corp., 0%/12.875% Sr. Disc. Nts., 6/1/04(9) 200,000 93,000
---------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.125% Debs., 1/15/13 400,000 428,882
---------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 300,000 338,682
----------
2,427,071
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(9) 750,000
583,125
- --1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/FILM Imax Corp., 7% Sr. Nts., 3/1/01(10) 320,000
305,600
- --0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/ Bell & Howell Holdings Co., 0%/11.50% Sr. Disc. Debs., Series B, 3/1/05(9) 250,000
156,250
PRINTING--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER--0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL--0.3% EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 200,000
180,000
- -----------------------------------------------------------------------------------------------------------------------------------
SERVICES--0.2% Grupo Mexicano de Desarrollo SA, 8.25% Gtd. Nts., 2/17/01(3) 300,000
136,125
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL--2.2%
- -----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 400,000
390,000
- --0.7%
- -----------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--1.5% Grand Union Co., 12% Sr. Nts., 9/1/04 398,000
384,070
---------------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc., 11.50% Sr. Nts., 2/1/03(7) 533,800 529,797
----------
913,867
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.2%
- -----------------------------------------------------------------------------------------------------------------------------------
RAILROADS--0.5% Transtar Holdings LP/Transtar Capital Corp., 0%/13.375% Sr. Disc. Nts.,
Series B, 12/15/03(9) 500,000 317,500
- -----------------------------------------------------------------------------------------------------------------------------------
SHIPPING--0.7% Sea Containers Ltd., 12.50% Sr. Sub. Debs., Series A, 12/1/04 400,000
442,000
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--5.2%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(9) 450,000
403,815
- --2.4% ---------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 10.375% Lease Obligation Bonds, Series 1986A, 1/2/11(11) 400,000 255,445
---------------------------------------------------------------------------------------------------------------
First PV Funding Corp., 10.15% Lease Obligation Bonds, Series 1986B, 1/15/16 300,000
311,791
---------------------------------------------------------------------------------------------------------------
Subic Power Corp.:
9.50% Sr. Sec. Nts., 12/28/08 465,500 435,824
9.50% Sr. Sec. Nts., 12/28/08(3) 93,103 81,116
----------
1,487,991
</TABLE>
8 Oppenheimer Strategic Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS Call-Net Enterprises, Inc., 0%/13.25% Sr. Disc. Nts., 12/1/04(9) $200,000
$ 129,750
- --2.8% ---------------------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04(3)(9) 400,000 290,132
---------------------------------------------------------------------------------------------------------------
Comcast Cellular Corp., Zero Coupon Nts., Series B, 3/5/00 250,000 191,250
---------------------------------------------------------------------------------------------------------------
In Flight Phone Corp., Units (each unit consists of $1,000 principal
amount of 0%/14% sr. disc. nts., series A, 5/15/02 and one warrant
to purchase one share of common stock)(3)(8)(9) 300,000 120,000
---------------------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04(9) 700,000 532,000
---------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts., 11/15/01(9) 500,000 415,000
-----------
1,678,132
-----------
Total Corporate Bonds and Notes (Cost $16,182,750) 16,288,110
SHARES
==========================================================
==========================================================
===============
COMMON STOCKS--30.7%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.3%
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--2.3% Morton International, Inc. 20,000 620,000
---------------------------------------------------------------------------------------------------------------
Union Carbide Corp. 20,000 795,000
-----------
1,415,000
- -----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS--0.0% Equitable Bag, Inc.(12) 1,861 4,653
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES &
SERVICES--0.2% Stryker Corp. 3,000 139,875
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED--11.4%
- -----------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/ Coca-Cola Co. (The) 16,000 1,104,000
TOBACCO--5.6% ---------------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 13,000 663,000
---------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc. 8,000 668,000
---------------------------------------------------------------------------------------------------------------
UST, Inc. 33,000 944,625
-----------
3,379,625
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--4.5% Medtronic, Inc. 16,000 860,000
---------------------------------------------------------------------------------------------------------------
Pfizer, Inc. 18,000 960,750
---------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 18,000 927,000
-----------
2,747,750
- -----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--1.3% McDonald's Corp. 20,000 765,000
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--3.8%
- -----------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS NationsBank Corp. 12,000 807,000
- --2.6% ---------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 12,000 793,500
-----------
1,600,500
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED
FINANCIAL--1.2% Federal National Mortgage Assn. 7,000 724,500
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.6%
- -----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ Automatic Data Processing, Inc. 11,000 749,375
ELECTRONICS/ ---------------------------------------------------------------------------------------------------------------
COMPUTERS--4.6% Microsoft Corp.(12) 12,000 1,086,000
---------------------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 12,000 958,500
-----------
2,793,875
</TABLE>
9 Oppenheimer Strategic Income & Growth Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT
/FILM--1.1% Walt Disney Co. 12,000 $ 688,500
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL--1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS
- --1.1% Goodyear Tire & Rubber Co. 17,000 669,375
- -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--6.1%
- -----------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE
- --1.6% Compaq Computer Corp.(12) 20,000 967,500
- -----------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE
- --1.5% Oracle Corp.(12) 24,000 921,000
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--3.0% Hewlett-Packard Co. 14,000 1,167,250
---------------------------------------------------------------------------------------------------------------
Intel Corp. 11,000 661,375
-----------
1,828,625
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS
- --0.1% Celcaribe SA(3)(12) 65,040 61,868
- -----------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $13,157,676) 18,707,646
==========================================================
==========================================================
===============
PREFERRED STOCKS--1.4%
- -----------------------------------------------------------------------------------------------------------------------------------
First Nationwide Bank, 11.50% Non-Cum. 2,500 277,500
---------------------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp., 8.255% Provisionally
Redeemable Income Debt Exchangeable for Stock 4,400 59,950
---------------------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 Cv., Series B 12,000 222,000
---------------------------------------------------------------------------------------------------------------
Unisys Corp., $3.75 Cv., Series A 7,000 262,500
-----------
Total Preferred Stocks (Cost $840,289) 821,950
UNITS
==========================================================
==========================================================
===============
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp. 6/99 2,000 5,500
---------------------------------------------------------------------------------------------------------------
Echostar Communications Corp. Wts., Exp. 6/04 1,200 13,200
-----------
Total Rights, Warrants and Certificates (Cost $0) 18,700
FACE
AMOUNT(1)
==========================================================
==========================================================
===============
STRUCTURED INSTRUMENTS--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch, 10% CD Linked Nts.,
10/30/95 (indexed to the mid-market yield of the Japanese Government
Bond, Series 174, 4.60%, 9/20/04, multiplied by 14)(6) $210,000 187,005
---------------------------------------------------------------------------------------------------------------
Salomon Brothers, Inc., Zero Coupon Brazilian Credit Linked Nts.,
12/14/95 (indexed to the Nota Do Tesouro Nacional, Zero Coupon, 12/13/95) 150,000 146,109
-----------
Total Structured Instruments (Cost $356,110) 333,114
</TABLE>
10 Oppenheimer Strategic Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
==========================================================
==========================================================
===============
REPURCHASE AGREEMENTS--2.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 6.35%, dated
9/29/95, to be repurchased at $1,400,741 on 10/2/95, collateralized by U.S.
Treasury Nts., 4.25%--8.75%, 11/30/95--8/15/00, with a value of $954,496,
U.S. Treasury Bills maturing 12/28/95--3/28/96, with a value of $216,699,
and U.S. Treasury Bonds, 8.50%--13.25%, 5/15/14--2/15/20, with a value of
$259,470 (Cost $1,400,000) $1,400,000 $1,400,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (Cost $55,450,333) 101.9%
61,990,043
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.9) (1,127,545)
------ -----------
NET ASSETS 100.0% $60,862,498
------ -----------
------ -----------
<FN>
1. Face amount is reported in local currency. Foreign currency abbreviations are as follows:
ARA -- Argentine Austral IDR -- Indonesian Rupiah
AUD -- Australian Dollar INR -- Indian Rupee
CAD -- Canadian Dollar ITL -- Italian Lira
CZK -- Czech Koruna MXP -- Mexican Peso
DKK -- Danish Krone NLG -- Netherlands Guilder
ESP -- Spanish Peseta NOK -- Norwegian Krone
GBP -- British Pound Sterling NZD -- New Zealand Dollar
HUF -- Hungarian Forints THB -- Thai Baht
2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign
currency.
3. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended.
This
security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to
$2,687,265 or 4.42% of the Fund's net assets, at September 30, 1995.
4. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans.
These
securities typically decline in price as interest rates decline. Most other fixed-income securities increase in price when interest
rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated.
The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities
(for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and
estimated timing and amount of future cash flows.
5. Represents the current interest rate for a variable rate security.
6. Identifies issues considered to be illiquid--See Note 7 of Notes to Financial Statements.
7. Interest or dividend is paid in kind.
8. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in
the
future.
9. Represents a zero coupon bond that converts to a fixed rate of interest at a designated future date.
10. Represents the current interest rate for an increasing rate security.
11. Partial interest payment received.
12. Non-income producing security.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
11 Oppenheimer Strategic Income & Growth Fund
<PAGE>
- --------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES September 30, 1995
- --------------------------------------------------------
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
===============
ASSETS Investments, at value (cost $55,450,333)--see accompanying statement $61,990,043
---------------------------------------------------------------------------------------------------------------
Cash 227,630
---------------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 1,072,390
Shares of beneficial interest sold 86,725
---------------------------------------------------------------------------------------------------------------
Deferred organization costs 6,098
---------------------------------------------------------------------------------------------------------------
Other 3,446
-----------
Total assets 63,386,332
==========================================================
==========================================================
===============
LIABILITIES Unrealized depreciation on forward foreign currency exchange contracts--Note 5 2,860
---------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 1,997,268
Dividends 252,465
Shares of beneficial interest redeemed 166,362
Distribution and service plan fees--Note 6 37,928
Transfer and shareholder servicing agent fees 7,206
Other 59,745
-----------
Total liabilities 2,523,834
==========================================================
==========================================================
===============
NET ASSETS $60,862,498
-----------
-----------
==========================================================
==========================================================
===============
COMPOSITION OF Paid-in capital $57,121,591
NET ASSETS ---------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (129,448)
---------------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investments, written options and foreign
currency transactions (2,667,616)
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 6,537,971
-----------
Net assets $60,862,498
-----------
-----------
==========================================================
==========================================================
===============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets of $40,977,136
and 7,643,377 shares of beneficial interest outstanding) $5.36
Maximum offering price per share (net asset value plus sales charge of 4.75%
of offering price) $5.63
---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $19,885,362 and 3,714,937 shares of beneficial interest outstanding) $5.35
See accompanying Notes to Financial Statements.
</TABLE>
12 Oppenheimer Strategic Income & Growth Fund
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended September 30, 1995
---------------------------------------------------------------
==========================================================
==========================================================
===============
INVESTMENT INCOME Interest (net of foreign withholding taxes of $2,000) $4,037,373
---------------------------------------------------------------------------------------------------------------
Dividends 447,310
----------
Total income 4,484,683
==========================================================
==========================================================
===============
EXPENSES Management fees--Note 6 435,819
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 6:
Class A 99,809
Class B 172,898
---------------------------------------------------------------------------------------------------------------
Shareholder reports 69,618
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 6 59,846
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 31,455
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 12,105
---------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 2,138
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class B 684
---------------------------------------------------------------------------------------------------------------
Other 29,962
----------
Total expenses 914,334
==========================================================
==========================================================
===============
NET INVESTMENT INCOME 3,570,349
==========================================================
==========================================================
===============
REALIZED AND Net realized gain (loss) from:
UNREALIZED Investments and options written (including premiums on options exercised)
(761,902)
GAIN (LOSS) ON Closing and expiration of options written--Note 4 (55,532)
INVESTMENTS, Foreign currency transactions (834,452)
OPTIONS WRITTEN Closing of futures contracts 9,624
AND FOREIGN ----------
CURRENCY Net realized loss (1,642,262)
TRANSACTIONS ---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 6,678,431
Translation of assets and liabilities denominated in foreign currencies (12,037)
----------
Net change 6,666,394
----------
Net realized and unrealized gain on investments, options written and
foreign currency transactions 5,024,132
==========================================================
==========================================================
===============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$8,594,481
----------
----------
See accompanying Notes to Financial Statements.
</TABLE>
13 Oppenheimer Strategic Income & Growth Fund
<PAGE>
-----------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
<S> <C> <C> <C>
==========================================================
==========================================================
===============
OPERATIONS Net investment income $ 3,570,349 $ 2,781,748
---------------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (1,642,262) (891,333)
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated in
foreign currencies 6,666,394 (2,128,001)
----------- -----------
Net increase (decrease) in net assets resulting from operations 8,594,481 (237,586)
==========================================================
==========================================================
===============
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.3198 and $.209 per share, respectively) (2,612,318)
(1,931,946)
SHAREHOLDERS Class B ($.2821 and $.185 per share, respectively) (977,840)
(722,244)
---------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.011 per share) -- (98,470)
Class B ($.011 per share) -- (36,812)
---------------------------------------------------------------------------------------------------------------
Distributions in excess of gain on investments, options written and
foreign currency transactions:
Class A ($.097 per share) -- (885,559)
Class B ($.097 per share) -- (331,059)
==========================================================
==========================================================
===============
BENEFICIAL INTEREST Net decrease in net assets resulting from Class A beneficial
TRANSACTIONS interest transactions--Note 2 (5,203,387) (9,347,360)
---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial interest
transactions--Note 2 2,275,946 4,699,403
==========================================================
==========================================================
===============
NET ASSETS Total increase (decrease) 2,076,882 (8,891,633)
---------------------------------------------------------------------------------------------------------------
Beginning of period 58,785,616 67,677,249
----------- -----------
End of period (including overdistributed net investment income
of $129,448 and $119,994, respectively) $60,862,498 $58,785,616
----------- -----------
----------- -----------
See accompanying Notes to Financial Statements.
</TABLE>
14 Oppenheimer Strategic Income & Growth Fund
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992(2) 1995 1994 1993(1)
<S> <C> <C> <C> <C> <C> <C> <C>
==========================================================
==========================================================
=============
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $4.92 $5.26 $5.03 $5.00 $4.91 $5.26 $5.10
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .21 .22 .07(3) .28 .19 .14
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions .44 (.23) .22 .02 .44 (.25) .16
------- ------ ------- ------- ------- ------- -------
Total income (loss) from
investment operations .76 (.02) .44 .09 .72 (.06) .30
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment
income (.32) (.21) (.20) (.06) (.28) (.18) (.13)
Dividends in excess of
net investment income -- (.01) -- -- -- (.01) --
Distributions from net realized
gain on investments, options written
and foreign currency transactions -- -- (.01) -- -- -- (.01)
Distributions in excess of net
realized gain on investments,
options written, and foreign
currency transactions -- (.10) -- -- -- (.10) --
------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions to shareholders (.32) (.32) (.21) (.06) (.28) (.29) (.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.36 $4.92 $5.26 $5.03 $5.35 $4.91 $5.26
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
==========================================================
==========================================================
=============
TOTAL RETURN, AT NET ASSET VALUE(4) 16.09% (.23)% 8.84% 1.74% 15.26% (1.17)%
5.86%
==========================================================
==========================================================
=============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $40,977 $42,733 $55,291 $48,397 $19,885 $16,053 $12,386
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $40,799 $48,360 $59,209 $30,264 $17,316 $14,986 $ 7,541
- ---------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 7,643 8,683 10,513 9,628 3,715 3,267 2,357
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.37% 4.56% 4.33% 4.59%(5) 5.61% 3.86% 3.32%(5)
Expenses 1.35% 1.43% 1.36% 1.46%(3)(5) 2.10% 2.17% 2.21%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 114.0% 80.0% 122.4% 25.8% 114.0% 80.0% 122.4%
</TABLE>
1. For the period from November 30, 1992 (inception of offering) to
September 30, 1993.
2. For the period from June 1, 1992 (commencement of operations) to
September 30, 1992.
3. Net investment income would have been $.07 per share absent the
voluntary expense reimbursement, resulting in an expense ratio of 1.74%.
4. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended September 30, 1995 were
$63,565,976 and $66,250,712,
respectively.
See accompanying Notes to Financial Statements.
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 advisor is Oppenheimer Management Corporation (the
Manager). The Fund offers both Class A and Class B shares. Class A shares
are sold with a front-end sales charge. Class B shares may be subject to
a contingent deferred sales charge. Both classes of shares have identical
rights to earnings, assets and voting privileges, except that each class
has its own distribution and/or service plan, expenses directly
attributable to a particular class and exclusive voting rights with
respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of
purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
INVESTMENT VALUATION. Portfolio securities are valued at the close of the
New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are valued
at the last sale price of the day or, in the absence of sales, at values
based on the closing bid or asked price or the last sale price on the
prior trading day.
Long-term and short-term "non-money market: debt securities are valued by
a portfolio pricing service approved by the Board of Trustees. Such
securities which cannot be valued by the approved portfolio pricing
service are valued using dealer-supplied valuations provided the Manager
is satisfied that the firm rendering the quotes is reliable and that the
quotes reflect current market value, or are valued under consistently
applied procedures established by the Board of Trustees to determine fair
value in good faith. Short-term "money market type" debt securities having
a remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount. Forward contracts are valued based on the closing
prices of the forward currency contract rates in the London foreign
exchange markets on a daily basis as provided by a reliable bank or
dealer. Options are valued based upon the last sale price on the principal
exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the
prior trading date if it is within the spread between the closing bid and
asked prices. If the last sale price is outside the spread, the closing
bid or asked price closest to the lastreported sale price is used.
SECURITY CREDIT RISK. The Fund invests in high yield securities, which may
be subject to a greater degree of credit risk, greater market fluctuations
and risk of loss of income and principal, and may be more sensitive to
economic conditions than lower yielding, higher rated fixed income
securities. The Fund may acquire securities in default, and is not
obligated to dispose of securities whose issuers subsequently default. At
September 30, 1995, securities with an aggregate market value of $255,445,
representing .42% of the Fund's net assets, were in default.
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and
investment income are translated at the rates of exchange prevailing on
the respective dates of such transactions. The effect of changes in
foreign currency exchange rates on investments is separately identified
from the fluctuations arising from changes in market values of securities
held and reported with all other foreign currency gains and losses in the
Fund's Statement of Operations.
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
FEDERAL TAXES. The Fund intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain
on investments not offset by loss carryovers, to shareholders. Therefore,
no federal income or excise tax provision is required. At September 30,
1995, the Fund had available for federal income tax purposes an unused
capital loss carryover of approximately $1,388,000 expiring in 2002 and
2003.
ORGANIZATION COSTS. The Manager advanced $20,590 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.
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income
(loss) and net realized gain (loss) may differ for financial statement and
tax purposes primarily because of paydown gains and losses and the
recognition of certain foreign currency gains (losses) as ordinary income
(loss) for tax purposes. The character of the distributions made during
the year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due
to timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gain
(loss) was recorded by the Fund.
During the year ended September 30, 1995, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during
the year ended September 30, 1995, amounts have been reclassified to
reflect a decrease in overdistributed net investment income of $10,355.
Accumulated net realized loss on investments was increased by the same
amount.
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, 1995 YEAR ENDED SEPTEMBER
30, 1994
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A:
Sold 1,075,489 $ 5,403,694 1,797,523 $ 9,177,865
Dividends and distributions reinvested 452,310 2,248,812 535,980 2,757,772
Redeemed (2,567,818) (12,855,893) (4,163,212) (21,282,997)
---------- ------------ ---------- ------------
Net decrease (1,040,019) $ (5,203,387) (1,829,709) $ (9,347,360)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,180,146 $ 5,932,623 1,752,588 $ 8,784,884
Dividends and distributions reinvested 162,515 808,194 100,839 724,590
Redeemed (894,830) (4,464,871) (943,022) (4,810,071)
---------- ------------ ---------- ------------
Net increase 447,831 $ 2,275,946 910,405 $ 4,699,403
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS AND OPTIONS WRITTEN. At
September 30, 1995, net unrealized appreciation on investments and options
written of $6,539,710 was composed of gross appreciation of $7,598,780 and
gross depreciation of $1,059,070.
4. OPTION ACTIVITY. The Fund may buy and sell put and call options, or
write covered put and call options on portfolio securities in order to
produce incremental earnings or protect against changes in the value of
portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes
obligated to sell or purchase the underlying security at a fixed price,
upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the purchase
cost for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
In this report, securities designated to cover outstanding call options
are noted in the Statement of Investments where applicable. Shares subject
to call, expiration date, exercise price, premium received and market
value are detailed in a footnote to the Statement of Investments. Options
written are reported as a liability in the Statement of Assets and
Liabilities. Gains and losses are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the security decreases and the
option is exercised. The risk in buying an option is that the Fund pays
a premium whether or not the option is exercised. The Fund also has the
additional risk of not being able to enter into a closing transaction if
a liquid secondary market does not exist.
Written option activity for the year ended September 30, 1995 was as
follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
------------ -----------
<S> <C> <C> <C> <C>
NUMBER AMOUNT NUMBER AMOUNT
OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS
- ----------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1994 2,621,646 $33,236 -- $ --
- ----------------------------------------------------------------------------------------------------------------
Options written 3,064 25,062 136,986 1,416
- ----------------------------------------------------------------------------------------------------------------
Options canceled in closing transactions (2,623,829) (53,257) -- --
- ----------------------------------------------------------------------------------------------------------------
Options expired prior to exercise (287) (1,152) (136,986) (1,416)
- ----------------------------------------------------------------------------------------------------------------
Options exercised (594) (3,889) -- --
---------- ------- -------- -------
Options outstanding at September 30, 1995 -- $ -- -- $ --
---------- ------- -------- -------
---------- ------- -------- -------
</TABLE>
5. FORWARD CONTRACTS. A forward foreign currency exchange contract
(forward contract) is a commitment to purchase or sell a foreign currency
at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency
risks. They may also be used to tactically shift portfolio currency risk.
The Fund generally enters into forward 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 existing portfolio
positions.
Forward contracts are valued based on the closing prices of the
forward currency contract rates in the London foreign exchange markets on
a daily basis as provided by a reliable bank or dealer. The Fund will
realize a gain or loss upon the closing or settlement of the forward
transaction.
In this report, securities held in segregated accounts to cover
net exposure on outstanding forward contracts are noted in the Statement
of Investments where applicable. Gains and losses on outstanding contracts
(unrealized appreciation or depreciation on forward contracts) are
reported in the Statement of Assets and Liabilities. Realized gains and
losses are reported with all other foreign currency gains and losses in
the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet
the terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At September 30, 1995 outstanding forward contracts to purchase and sell
currencies were as follows:
<TABLE>
<CAPTION>
CONTRACT
AMOUNT VALUATION AS OF UNREALIZED
CONTRACTS TO PURCHASE EXPIRATION DATE (000S) SEPTEMBER 30, 1995 DEPRECIATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
New Zealand Dollar (NZD) 10/10/95 133 NZD $87,736 $(1,064)
Contracts to Sell
- ----------------------------------------------------------------------------------------------------------
Australian Dollar (AUD) 10/10/95 120 AUD $90,596 $(1,796)
-------
$(2,860)
-------
-------
</TABLE>
6. 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 a fee of .75% on the first $200
million of average annual 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, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $126,096, of which $39,054
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated
broker/dealer. Sales charges advanced to broker/dealers by OFDI on sales
of the Fund's Class B shares totaled $216,239, of which $15,007 was paid
to an affiliated broker/dealer. During the year ended September 30, 1995,
OFDI received contingent deferred sales charges of $79,615 upon redemption
of Class B shares, as reimbursement for sales commissions advanced by OFDI
at the time of sale of suchshares.
Oppenheimer Shareholder Services (OSS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund, and for
other registered investment companies. OSS's total costs of providing such
services are allocated ratably to these companies.
Under separate approved plans, each class may expend up to .25% of
its net assets annually to reimburse OFDI for costs incurred in connection
with the personal service and maintenance of accounts that hold shares of
the Fund, including amounts paid to brokers, dealers, banks and other
financial institutions. In addition, Class B shares are subject to an
asset-based sales charge of .75% of net assets annually, to reimburse OFDI
for sales commissions paid from its own resources at the time of sale and
associated financing costs. In the event of termination or discontinuance
of the Class B plan, the Board of Trustees may allow the Fund to continue
payment of the asset-based sales charge to OFDI for distribution expenses
incurred on Class B shares sold prior to termination or discontinuance of
the plan. At September 30, 1995, OFDI had incurred unreimbursed expenses
of $1,001,578. During the year ended September 30, 1995, OFDI paid $11,588
and $2,326, respectively, to an affiliated broker/dealer as reimbursement
for Class A and Class B personal service and maintenance expenses and
retained $142,447 as reimbursement for Class B sales commissions and
service fee advances, as well as financing costs.
7. ILLIQUID AND RESTRICTED SECURITIES. At September 30, 1995, investments
in securities included issues that are illiquid or restricted. The
securities are often purchased in private placement transactions, are not
registered under the Securities Act of 1933, may have contractual
restrictions on resale, and are valued under methods approved by the Board
of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in
illiquid and restricted securities. The aggregate value of these
securities subject to this limitation at September 30, 1995 was $290,593,
which represents .48% of the Fund's net assets. Information concerning
these securities is as follows:
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT SEPT. 30, 1995
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch, 10% CD Linked Nts.,
10/30/95 (indexed to the mid-market yield of the Japanese
Government Bond, Series 174, 4.60%, 9/20/04, multiplied by 14) 4/14/95 $100.00 $89.05
- -------------------------------------------------------------------------------------------------------------------
United Mexican States, Combined Facility 3, Loan Participation
Agreement, Tranche A, 6.75%, 9/20/97 10/25/94 $ 89.00 $72.50
</TABLE>
Pursuant to guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
8. FUTURES CONTRACTS. The Fund may buy and sell interest rate futures
contracts in order to gain exposure to or protect against changes in
interest rates. The Fund may also buy or write put or call options on
these futures.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value
of fixed rate portfolio securities. The Fund may also purchase futures
contracts to gain exposure to changes in interest rates as it may be more
efficient or cost effective than actually buying fixed income securities.
Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount (initial margin) equal to
a certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract value and are
recorded as unrealized gains and losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with
changes in the value of the underlying securities.
<PAGE>
Appendix A
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Transmission*
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
*For purposes of the Fund's investment policy not to concentrate in
securities of issues in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202-4918
