As filed with the Securities and Exchange Commission on September 18, 2000
Registration No. 333-48973
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
-
POST-EFFECTIVE AMENDMENT NO. / /
OPPENHEIMER INTERNATIONAL BOND FUND
6803 South Tucson Way, Englewood, Colorado 80112
(Address of Principal Executive Offices)
303-768-3200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
Title of Securities Being Registered: for Class A, Class B, and Class C shares
of the Oppenheimer International Bond Fund
It is proposed that this filing will become effective on October 19, 2000
pursuant to Rule 488.
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement for Oppenheimer World Bond Fund and Prospectus for International
Bond Fund.
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
FORM N-14
OPPENHEIMER INTERNATIONAL BOND FUND
Cross Reference Sheet
Part A of Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of Document
-------------------------------------------------------------------------
1. (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2. (a) *
(b) Table of Contents
3. (a) Comparative Fee Tables
(b) Synopsis
(c) Principal Risk Factors
4. (a) Synopsis; Approval or Disapproval of the Reorganization;
Comparison between World Bond Fund and International Bond Fund.;
Method of Carrying Out the Reorganization; Additional Information
(b) Approval or Disapproval of the Reorganization - Capitalization
Table
5. (a) Prospectus of International Bond Fund (see Part B); Annual
Report of International Bond Fund (see Part B); Statement of
Additional Information of International Bond Fund (see Part B);
Synopsis; Comparison Between World Bond Fund and International Bond
Fund.
(b) *
(c) *
(d) *
(e) Additional Information
(f) Additional Information
6. (a) Prospectus of World Bond Fund (see Part B); Annual Report of
World Bond Fund (see Part B); Statement of Additional Information of
World Bond Fund (see Part B); Synopsis; Comparison Between World
Bond Fund and International Bond Fund.
(b) Additional Information
(c) *
(d) *
7. (a) Introduction; Synopsis
(b) *
(c) Introduction; Synopsis; Comparison Between World Bond Fund and
International Bond Fund.
8. (a) *
(b) *
9. *
<PAGE>
Part B of Form N-14
Item No. Statement of Additional Information Heading
10. Cover Page
11. Table of Contents
12. (a) Statement of Additional Information of International Bond Fund.
(b) *
(c) *
13 (a) Statement of Additional Information of World Bond Fund
(b) *
(c) *
14. Statement of Additional Information of International Bond Fund,
Statement of Additional Information of World Bond Fund; Annual
Report of World Bond Fund at 10/31/99; Annual Report of
International Bond Fund at 9/30/00.
Part C of Form N-14
Item No. Other Information Heading
15. Indemnification
16. Exhibits
17. Undertakings
---------------
* Not Applicable or negative answer
<PAGE>
Oppenheimer World Bond Fund
Proxy For Special Shareholders Meeting To Be Held December 4, 2000
The undersigned shareholder of Oppenheimer World Bond Fund ("World Bond Fund"),
does hereby appoint Andrew J. Donohue, Robert Bishop, Scott Farrar and Brian W.
Wixted, and each of them, as attorneys-in-fact and proxies of the undersigned,
with full power of substitution, to attend the Special Meeting of Shareholders
of World Bond Fund to be held on December 4, 2000 at 6803 South Tucson Way,
Englewood, Colorado at 10:00 A.M., Mountain time, and at all adjournments
thereof, and to vote the shares held in the name of the undersigned on the
record date for said meeting on the Proposal specified on the reverse side. Said
attorneys-in-fact shall vote in accordance with their best judgment as to any
other matter.
This proxy is solicited on behalf of the Board of Trustees. The shares
represented hereby will be voted as indicated on the reverse side or for the
Proposal if no choice is indicated.
Please mark your proxy, date and sign it on the reverse side and return it
promptly in the accompanying envelope, which requires no postage if mailed in
the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between World Bond Fund
and Oppenheimer International Bond Fund ("International Bond Fund"), and the
transactions contemplated thereby, including (a) the transfer of
substantially all the assets of World Bond Fund to International Bond Fund
in exchange for Class A, Class B and Class C shares of equal value of
International Bond Fund, (b) the distribution of such shares of
International Bond Fund to the corresponding Class A, Class B and Class C
shareholders of World Bond Fund in complete liquidation of World Bond Fund
and (c) the cancellation of the outstanding shares of World Bond Fund.
FOR______ AGAINST______ ABSTAIN_______
Dated: _________________________________, 2000
(Month) (Day)
---------------------------------
Signature(s)
---------------------------------
Signature(s)
Please read both sides of this ballot.
<PAGE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as
custodian, attorney, executor, administrator, trustee, etc., please give your
full title as such. All joint owners should sign this proxy. If the account is
registered in the name of a corporation, partnership or other entity, a duly
authorized individual must sign on its behalf and give his or her title.
<PAGE>
Bridget A. Macaskill
President and OppenheimerFunds Logo
Chief Executive Officer Two World Trade Center, 34th
Floor New York, NY 10048-0203
800.525.7048
www.oppenheimerfunds.com
October 31, 2000
Dear Oppenheimer World Bond Fund Shareholder,
One of the things we are proud of at OppenheimerFunds, Inc. is our
commitment to searching for new investment opportunities for shareholders of our
funds. I am writing to you today to let you know about one of those
opportunities--a positive change that has been proposed for Oppenheimer World
Bond Fund.
After careful consideration, the Board of Trustees has determined that it
would be in the best interest of shareholders of World Bond Fund to
reorganize into another Oppenheimer fund, Oppenheimer International
Bond Fund. A shareholder meeting has been scheduled in December, and
all World Bond Fund shareholders of record on October 2nd are being
asked to vote either in person or by proxy on the proposed
reorganization. You will find a notice of the meeting, a ballot
card, a proxy statement detailing the proposal, an International
Bond Fund prospectus and a postage-paid return envelope enclosed for
your use.
Why does the Board of Trustees recommend this change?
World Bond Fund and International Bond Fund have similar objectives and
investments, and are currently managed by the same portfolio managers as
discussed in the enclosed proxy statement. In addition, the consolidation of the
two funds is expected to result in greater economies of scale. By merging with
International Bond Fund, former shareholders of World Bond Fund may benefit from
a lower expense ratio as costs are spread among a larger asset base.
How do you vote?
<PAGE>
No matter how large or small your investment, your vote is important, so
please review the proxy statement carefully. To cast your vote, simply mark,
sign and date the enclosed proxy ballot and return it in the postage-paid
envelope today. Remember, it can be expensive for the Fund--and ultimately for
you as a shareholder--to remail ballots if not enough responses are received to
conduct the meeting.
If you have any questions about the proposal, please feel free to contact
your financial advisor, or call us at 1-800-525-7048. As always, we appreciate
your confidence in OppenheimerFunds and look forward to serving you for many
years to come.
Sincerely,
BAM's signature
Enclosures
XP0705.003.0800
<PAGE>
PRELIMINARY COPY
OPPENHEIMER WORLD BOND FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 4, 2000
To the Shareholders of Oppenheimer World Bond Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer World Bond Fund ("World Bond Fund"), a registered investment
management company, will be held at 6803 South Tucson Way, Englewood,
Colorado 80112 at 10:00 A.M., Mountain time, on December 4, 2000, or any
adjournments thereof (the "Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization between World Bond
Fund and Oppenheimer International Bond Fund ("International Bond Fund"),
and the transactions contemplated thereby, including (a) the transfer of
substantially all the assets of World Bond Fund to International Bond Fund
in exchange for Class A, Class B and Class C shares of International Bond
Fund, (b) the distribution of these shares of International Bond Fund to the
corresponding Class A, Class B and Class C shareholders of World Bond Fund
in complete liquidation of World Bond Fund and (c) the cancellation of the
outstanding shares of World Bond Fund (all of the foregoing being referred
to as the "Proposal").
2. To act upon such other matters as may properly come before the Meeting.
Shareholders of record at the close of business on October 2, 2000 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the Proxy Statement and Prospectus. Please read it
carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. The Board of Trustees of World Bond Fund recommends
a vote in favor of the Proposal. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Andrew J. Donohue, Secretary
October 23, 2000
----------------------------------------------------------------------
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
<PAGE>
PRELIMINARY COPY
COMBINED PROSPECTUS AND PROXY STATEMENT
DATED OCTOBER 23, 2000
Acquisition of the Assets of OPPENHEIMER WORLD BOND FUND
By and in exchange for Class A, Class B and Class C shares
of OPPENHEIMER INTERNATIONAL BOND FUND
This combined Prospectus and Proxy Statement solicits proxies from the
shareholders of Oppenheimer World Bond Fund ("World Bond Fund") to be voted at a
Special Meeting of Shareholders (the "Meeting") to approve the Agreement and
Plan of Reorganization (the "Reorganization Agreement") and the transactions
contemplated thereby (the "Reorganization") between World Bond Fund and
Oppenheimer International Bond Fund ("International Bond Fund"). This combined
Prospectus/Proxy Statement constitutes the Prospectus of International Bond Fund
and the Proxy Statement of World Bond Fund filed on Form N-14 with the
Securities and Exchange Commission ("SEC"). If shareholders vote to approve the
Reorganization Agreement and the Reorganization, the net assets of World Bond
Fund will be acquired by and in exchange for shares of International Bond Fund.
The Meeting will be held at the offices of OppenheimerFunds, Inc. at 6803 South
Tucson Way, Englewood, Colorado 80112 on December 4, 2000 at 10:00 A.M. Mountain
time. The Board of Trustees of World Bond Fund is soliciting these proxies on
behalf of World Bond Fund. This Prospectus/Proxy Statement will first be sent to
shareholders on or about October 23, 2000.
If the shareholders vote to approve the Reorganization Agreement, you will
receive Class A shares of International Bond Fund equal in value to the value as
of the Valuation Date of your Class A shares of World Bond Fund; Class B shares
of International Bond Fund equal in value to the value as of the Valuation Date
of your Class B shares of World Bond Fund; and Class C shares of International
Bond Fund equal in value to the value as of the Valuation Date of your Class C
shares of World Bond Fund. World Bond Fund will then be liquidated.
International Bond Fund's primary investment objective is to seek total
return. As a secondary objective, International Bond Fund seeks income when
consistent with total return. International Bond Fund as a matter of fundamental
policy invests mainly in debt securities of foreign government and corporate
issuers. Those debt securities generally referred to as "bonds," include
long-term and short-term government bonds, participation interests in loans,
corporate debt obligations, "structured" notes and other debt obligations. They
may include "zero coupon" or "stripped" securities. Under normal market
conditions, International Bond Fund invests at least 65% of total assets in
bonds and invests in at least three countries other than the United States. The
Fund does not limit its investments to securities of issuers in a particular
market capitalization or maturity range or rating category, and can hold rated
and unrated securities below investment grade. The Fund invests in debt
securities of issuers in both developed and emerging markets throughout the
world.
This Prospectus/Proxy Statement gives information about Class A, Class B
and Class C shares of International Bond Fund that you should know before
investing. You should retain it for future reference. A Statement of Additional
Information relating to the Reorganization described in this Proxy Statement and
Prospectus, dated October 23, 2000, (the "Prospectus/Proxy Statement of
Additional Information") has been filed with the Securities and Exchange
Commission ("SEC") as part of the Registration Statement on Form N-14 (the
"Registration Statement") and is incorporated herein by reference. You may
receive a copy by written request to the Transfer Agent or by calling toll-free
as detailed above. The Prospectus/Proxy Statement of Additional Information
includes the following documents: (i) Annual Report as of September 30, 2000 of
International Bond Fund; (ii) Annual Report and Semi-Annual Report, as October
31, 1999 and April 30, 2000, respectively, of World Bond Fund; (iii) the
International Bond Fund Statement of Additional Information; and (iv) the World
Bond Fund Statement of Additional Information.
The Prospectus of International Bond Fund dated January 28, 2000 as
supplemented October ____, 2000, is attached to and considered a part of this
Prospectus/Proxy Statement and is intended to provide you with information about
International Bond Fund.
The following documents have been filed with the SEC and are available
without charge upon written request to OppenheimerFunds Services (the "Transfer
Agent") or by calling the toll-free number shown above: (i) a Prospectus for
World Bond Fund, dated February 23, 2000 as supplemented July 12, 2000; (ii) a
Statement of Additional Information for World Bond Fund, dated February 23,
2000; and (iii) a Statement of Additional Information for International Bond
Fund, dated October ___ 2000.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
Mutual fund shares are not deposits or obligations of any bank, and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
U.S. government agency. Mutual fund shares involve investment risks including
the possible loss of principal.
This Proxy Statement and Prospectus is dated October 23, 2000.
<PAGE>
TABLE OF CONTENTS
COMBINED PROSPECTUS AND PROXY STATEMENT
Page
Synopsis
What am I being asked to vote on?
What are the general tax consequences of the Reorganization?
Comparisons of Some Important Features
How do the investment objectives and policies of the Funds compare?
Who manages the Funds?
What are the fees and expenses of each Fund and those expected after the
.......................................................Reorganization?
..........Where can I find more financial information about the Funds?
.........................................How have the Funds performed?
.............................What are other key features of the Funds?
Investment Management and Fees
Transfer Agency and Custody Services
Distribution Services
Purchases, Redemptions, Exchanges and other Shareholder Services
Dividends and Distributions
What are the principal risks of an investment in International Bond Fund?
Reasons for the Reorganization
Information about the Reorganization
How will the Reorganization be carried out? Who will pay the expenses of
the Reorganization? What are the tax consequences of the Reorganization?
What should I know about Class A, Class B and Class C shares of
International Bond Fund? What are the capitalizations of the Funds and
what might the capitalizations be after the Reorganization?
Comparison of Investment Objectives and Policies
Are there any significant differences between the investment objectives
and strategies of the Funds?
How do the investment policies of the Funds compare? What are the
fundamental investment restrictions of the Funds? What are the main risks
associated with investment in the Funds?
Risks of Foreign Investing
Special Risks of Emerging and Developing Markets
Credit Risks
Interest Rate Risks
Risk of Non-Diversification
Risks of Derivative Investments
Special Risks of Lower-Grade Securities
How do the Account Features and Shareholder Services for the Funds Compare?
Investment Management
Distribution
Purchases and Redemptions
Shareholder Services
Dividends and Distributions
Voting Information
How many votes are necessary to approve the Reorganization Agreement? How
do I ensure my vote is accurately recorded?
Can I revoke my proxy?
What other matters will be voted upon at the Meeting? Who is entitled to
vote? What other solicitations will be made?
Are there any appraisal rights?
Information about International Bond Fund
Information about World Bond Fund
Principal Shareholders
Exhibit A - Agreement and Plan of Reorganization by and between Oppenheimer
World Bond Fund, and Oppenheimer International Bond Fund
Enclosures :
Prospectus of Oppenheimer International Bond Fund, dated January 28, 2000 as
supplemented October ____, 2000
<PAGE>
SYNOPSIS
This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
Prospectus and Proxy Statement and by the Reorganization Agreement which is
attached as Exhibit A. Shareholders should carefully review this Prospectus and
Proxy Statement and the Reorganization Agreement in their entirety and, in
particular, the current Prospectus of International Bond Fund which accompanies
this Prospectus and Proxy Statement and is incorporated herein by reference.
What am I being asked to vote on?
Your Fund's investment manager, OppenheimerFunds, Inc. (the "Manager"),
proposed to the Board of Trustees a reorganization of your Fund, World Bond
Fund, with and into Oppenheimer International Bond Fund so that shareholders of
World Bond Fund may become shareholders of a substantially larger fund advised
by the same investment advisor with historically better short-term and long-term
performance, lower fund expenses and investment objectives, policies, and
strategies virtually identical to those of their current Fund. In addition,
portfolio management of the surviving International Bond Fund will be the same
one that manages World Bond Fund. The Board also considered the fact that the
surviving fund has the potential for lower overall operating expenses. In
addition, the Board considered that both Funds have Class A, Class B and Class C
shares offered under identical sales charge arrangements. The Board also
considered that the Reorganization would be a tax-free reorganization, and there
would be no sales charge imposed in effecting the Reorganization. In addition,
due to the relatively moderate costs of the reorganization, the Boards of both
Funds concluded that neither Fund would experience dilution as a result of the
Reorganization.
A reorganization of World Bond Fund with and into International Bond Fund
is recommended by the Manager based on the fact that both Funds have virtually
identical investment policies, practices and objectives with the same portfolio
managers.
At a meeting held on _________, 2000, the Board of Trustees of World Bond
Fund approved a reorganization transaction that will, if approved by
shareholders, result in the transfer of the net assets of World Bond Fund to
International Bond Fund, in exchange for an equal value of shares of
International Bond Fund. The shares of International Bond Fund will then be
distributed to World Bond Fund shareholders and World Bond Fund will be
liquidated. As a result of the Reorganization, you will cease to be a
shareholder of World Bond Fund and will become a shareholder of International
Bond Fund. This exchange will occur on the Closing Date of the Reorganization.
Approval of the Reorganization means you will receive Class A shares of
International Bond Fund equal in value to the value as of the Valuation Date of
your Class A shares of World Bond Fund; Class B shares of International Bond
Fund equal in value to the value as of the Valuation Date of your Class B shares
of World Bond Fund; and Class C shares of International Bond Fund equal in value
to the value as of the Valuation Date of your Class C shares of World Bond Fund.
The shares you receive will be issued at net asset value without a sales charge
or the payment of a contingent deferred sales charge ("CDSC") although if your
shares of World Bond Fund are subject to a CDSC, your International Bond Fund
shares will continue to be subject to the same CDSC applicable to your shares.
For the reasons set forth in the "Reasons for the Reorganization" section,
the Board of World Bond Fund has determined that the Reorganization is in the
best interests of the shareholders of World Bond Fund. The Board concluded that
no dilution in value would result to shareholders of World Bond Fund as a result
of the Reorganization.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
What are the general tax consequences of the Reorganization?
It is expected that shareholders of World Bond Fund who are U.S. citizens
will not recognize any gain or loss for federal income tax purposes, as a result
of the exchange of their shares for shares of International Bond Fund. You
should, however, consult your tax advisor regarding the effect, if any, of the
Reorganization in light of your individual circumstances. You should also
consult your tax advisor about state and local tax consequences. For further
information about the tax consequences of the Reorganization, please see the
"Information About the Reorganization--What are the tax consequences of the
Reorganization?"
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment objectives and policies of the Funds compare?
World Bond Fund and International Bond Fund have the same investment
objectives. As a fundamental investment policy, both Funds' primary investment
objective is to seek total return with a secondary objective to seek income when
consistent with total return.
In seeking their investment objectives, World Bond Fund and International
Bond Fund utilize a similar investing strategy. Both Funds invest primarily in
debt securities issued by foreign governments and corporations in developed or
emerging markets. World Bond Fund also invests in debt securities issued by
domestic governments and corporations. Under normal market conditions, World
Bond Fund invests at least 65% of its total assets in debt securities and 50% of
net assets in foreign securities. Under normal market conditions, International
Bond Fund invests at least 65% of its total assets in debt securities and
invests in at least three countries other than the United States. As of
September 30, 2000, World Bond Fund had _____% of its total assets invested in
foreign securities and _____% invested in the United States. As of the same
date, International Bond Fund had _____% of its total assets invested in foreign
securities and ____% invested in the United States.
In addition to the United States, both Funds hold bonds in many of the
same countries. As of September 30, 2000, the top ten countries as a percent of
the assets of the Funds are listed below. Please refer to the Annual and
Semi-Annual Reports of both Funds for a complete listing of the investments for
each Fund.
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World Bond Fund International Bond Fund
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United States Brazil
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Mexico Mexico
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Japan Japan
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Brazil Argentina
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Russia Russia
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Argentina Turkey
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Turkey United States
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France France
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Netherlands Germany
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Germany Belgium
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As of September 30, 2000, the average credit quality of both Funds was
similar. The average credit quality as rated by Standard and Poors for the
securities held by World Bond Fund was _____ and _____ for International Bond
Fund.
Who Manages the Funds?
The day-to-day management of the business and affairs of each Fund is the
responsibility of the Manager. World Bond Fund was originally a closed-end,
diversified management company organized on October 5, 1988 as a Massachusetts
business trust named "Oppenheimer Multi-Government Trust." It commenced
operations on November 23, 1988 and on July 26, 1996 its name was changed to
Oppenheimer World Bond Fund. On April 24, 1998, it was converted to an open-end,
diversified investment management company, with an unlimited number of
authorized shares of beneficial interest. World Bond Fund is governed by a Board
of Trustees, which is responsible for protecting the interests of shareholders
under Massachusetts law. World Bond Fund is located at Two World Trade Center,
New York, New York 10048-02036.
International Bond Fund is an open-end, non-diversified investment
management company with an unlimited number of authorized shares of beneficial
interest and was organized as a Massachusetts business trust in 1995. It is
governed by a Board of Trustees, which is responsible for protecting the
interests of shareholders under Massachusetts law. International Bond Fund is
located at 6803 South Tucson Way, Englewood, Colorado 80112.
The Manager, located at Two World Trade Center, New York, New York 10048,
acts as investment advisor to both Funds. The portfolio managers are also the
same for each Fund. Arthur P. Steinmetz is a Senior Vice President and Ruggero
de'Rossi, is a Vice President of the Manager and each is a Vice President of
both Funds. Mr. Steinmetz has been the portfolio manager for both Funds since
May 20, 1999 and Mr. de'Rossi since March 6, 2000.
Additional information about the Funds and the Manager is set forth below
in "Comparison of Investment Objectives and Policies."
What are the fees and expenses of each Fund and those expected after the
Reorganization?
World Bond Fund and International Bond Fund each pay a variety of expenses
directly for management of their assets, administration and distribution of
their shares and other services. Those expenses are subtracted from each Fund's
assets to calculate the Fund's net asset values per share. Shareholders pay
these expenses indirectly. Shareholders pay other expenses directly, such as
sales charges. The following tables are provided to help you understand and
compare the fees and expenses of investing in shares of World Bond Fund with the
fees and expenses of investing in shares of International Bond Fund. The pro
forma expenses of the surviving International Bond Fund show what the fees and
expenses are expected to be after giving effect to the Reorganization. All
amounts shown are a percentage of net assets of each class of shares of the
Funds.
Shareholder Fees (charges paid directly from a shareholder's investment):
World Bond Fund International Bond Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
Shares Shares Shares Shares Shares Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Sales Charge 4.75% None None 4.75% None None
(Load) on Purchases
(as a % of offering
price)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Deferred Sales None (1) 5% (2) 1% (3) None (1) 5% (2) 1% (3)
Charge (Load) (as % of
the lower of the
original offering
price or redemption
proceeds)
------------------------
Note: Shareholder fees for International Bond Fund after giving effect to the
Reorganization will be the same as the shareholder fees set forth above for
International Bond Fund.
1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" in each fund's Prospectus.
2. Applies to redemptions within the first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within 12 months of purchase.
<PAGE>
Fund Operating Expenses (deducted from fund assets):
(% of average daily net assets)
--------------------------------------------------------------------------------
World Bond Fund International Pro Forma Surviving
Class A shares1 Bond Fund International Bond Fund
Class A Shares1 Class A shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Management Fees 0.__% 0.___% 0.___%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution
and/or Service 0.25% 0.25% 0.25%
(12b-1) Fees
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Other Expenses2 0.__% 0.____% 0.____%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Fund 0.___% 0.___% 0.___%
Operating
Expenses
--------------------------------------------------------------------------------
Expenses may vary in future years.
1Annual Fund Operating expenses are shown as of _______ for World Bond Fund and
_______ for International Bond Fund and _______ for Pro Forma Surviving
International Bond Fund.
2Other Expenses include transfer agent fees and custodial, accounting and legal
expenses.
-------------------------------------------------------------------------------
World Bond Fund International Pro Forma Surviving
Class B shares Bond Fund International Bond Fund
Class B Shares Class B shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Management Fees 0.___% ____% _____%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution
and/or Service 1.00% 1.00% 1.00%
(12b-1) Fees
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Other Expenses 0.____% _____% _____%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Fund ____% ____% _____%
Operating
Expenses3
-------------------------------------------------------------------------------
Expenses may vary in future years.
1Annual Fund Operating expenses are shown as of _______ for World Bond Fund and
_______ for International Bond Fund and _______ for Pro Forma Surviving
International Bond Fund.
2Other Expenses include transfer agent fees and custodial, accounting and legal
expenses.
--------------------------------------------------------------------------------
Pro Forma Surviving
World Bond Fund International International Bond Fund
Class C Shares Bond Fund Class C Class C Shares
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Management Fees 0.___% ____% _____%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution
and/or Service 1.00% 1.00% 1.00%
(12b-1) Fees
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Other Expenses3 0.____% _____% _____%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total Fund ____% ____% _____%
Operating
Expenses
--------------------------------------------------------------------------------
Expenses may vary in future years.
1Annual Fund Operating expenses are shown as of _______ for World Bond Fund and
_______ for International Bond Fund and _______ for Pro Forma Surviving
International Bond Fund.
2Other Expenses include transfer agent fees and custodial, accounting and legal
expenses.
The 12b-1 fees for Class A shares of both World Bond Fund and
International Bond Fund are service plan fees which are a maximum of 0.25% of
average annual net assets of Class A shares. The 12b-1 fees for Class B and
Class C shares of both Funds are Distribution and Service Plan fees which
include a service fee of 0.25% and an asset-based sales charge of 0.75% of the
average net assets.
Examples
These examples below are intended to help you compare the cost of
investing in each Fund and the proposed surviving International Bond Fund. These
examples assume an annual return for each class of 5%, the operating expenses
described above and reinvestment of your dividends and distributions.
Your actual costs may be higher or lower because expenses will vary over
time. For each $10,000 investment, you would pay the following projected
expenses if you sold your shares after the number of years shown.
12 Months Ended 9/30/00
World Bond Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $ _____ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
--------------------------------------------------------------------------------
World Bond Fund
-------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
--------------------------------------------------------------------------------
International Bond Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
-------------------------------------------------------------------------------
International Bond Fund
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
--------------------------------------------------------------------------------
Pro Forma Surviving International Bond Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
--------------------------------------------------------------------------------
Pro Forma Surviving International Bond Fund
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $_____ $_____ $______ $______
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C $_____ $_____ $______ $______
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1 Class B
expenses for years 7 through 10 are based on Class A expenses, since Class B
shares automatically convert to Class A after 6 years.
Where can I find more financial information about the Funds?
Performance information for both International Bond Fund and
World Bond Fund is set forth in each Fund's Prospectus under the
section "The Fund's Past Performance." International Bond Fund's
Prospectus accompanies this Prospectus/Proxy Statement and is
incorporated by reference.
The financial statements of International Bond Fund and
additional information with respect to its performance during its
fiscal year ended September 30, 1999 (and the six month semi-annual
period ended March 31, 2000), including a discussion of factors that
materially affected its performance and relevant market conditions,
is set forth in International Bond Fund's Annual Report dated as of
September 30, 2000 that is included in the Prospectus/Proxy
Statement of Additional Information and incorporated herein by
reference. These documents are available upon request. See section
entitled "Information About International Bond Fund." The financial
statements of World Bond Fund and additional information with
respect to the Fund's performance during its fiscal year ended
October 31, 2000 (and the six month semi-annual period ended April
30, 2000), including a discussion of factors that materially
affected its performance and relevant market conditions, is set
forth in World Bond Fund's Annual and Semi-Annual Reports dated as
of October 31, 1999 and April 30, 2000, respectively, that are
included in the Prospectus/Proxy Statement of Additional Information
and incorporated herein by reference. These documents are available
upon request. See section entitled "Information About World Bond
Fund." Pro forma financial statements for the period ___________
through ___________ reflecting International Bond Fund after the
Reorganization are included in the Prospectus/Proxy Statement of
Additional Information and incorporated by reference.
How have the Funds performed?
Past performance information for each Fund is set forth in its
respective Prospectus: (i) a bar chart detailing annual total
returns of Class A shares of each Fund as of December 31st for each
of the full calendar years since each Fund's inception; and (ii) a
table detailing how the average annual total returns of
International Bond Fund's Class A, Class B and Class C shares
compare to those of the Salomon Brothers Non-U.S. World Government
Bond Index which is a market-capitalization-weighted index that
tracks the performance of 13 government bond markets in developed
countries and of how World Bond Fund's Class A, Class B and Class C
shares compare to those of the Salomon Brothers World Government
Bond Index which measures the performance of selected domestic and
foreign government bond markets. Past performance is no guarantee of
how a fund will perform in the future.
<PAGE>
Average annual total returns for the Funds for the period
ended September 30, 2000 are as follows:
----------------------------------------------------------------------
Fund 5-year/Life 1-year 10-year/Life
----------------------------------------------------------------------
----------------------------------------------------------------------
World Bond Fund ______% ______%
Class A (inception ______%
11/23/88)
----------------------------------------------------------------------
----------------------------------------------------------------------
World Bond Fund ______% ______%
Class B (inception N/A
4/27/98)
----------------------------------------------------------------------
----------------------------------------------------------------------
World Bond Fund ______% ______%
Class C (inception N/A%
4/27/98)
----------------------------------------------------------------------
----------------------------------------------------------------------
Salomon Brothers ______% ______%
World Government ______%
Bond Index
(from _____)
----------------------------------------------------------------------
----------------------------------------------------------------------
Fund 5-year/Life 1-year 10-year/Life
----------------------------------------------------------------------
----------------------------------------------------------------------
International Bond ______% ______%
Fund Class A ______%
(inception 6/15/95)
----------------------------------------------------------------------
----------------------------------------------------------------------
International Bond ______% ______%
Fund Class B ______%
(inception 6/15/95)
----------------------------------------------------------------------
----------------------------------------------------------------------
International Bond ______% ______%
Fund Class C ______%
(inception 6/15/95)
----------------------------------------------------------------------
----------------------------------------------------------------------
Salomon Brothers ______% ______%
Non-U.S. World ______%
Government Bond
Index
(from _____)
----------------------------------------------------------------------
The Funds' average annual total returns include change in share price and
reinvestment of dividends and capital gains distributions in a hypothetical
investment for the periods shown. An explanation of the different performance
calculations is set forth in each Fund's prospectus and Statement of Additional
Information. Each Fund's average annual total return includes the applicable
sales charge: for Class A, the current maximum initial sales charge is 4.75% and
for Class B, the contingent deferred sales charges is 5% (1-year), 1% (5-year
and life-of-class returns for International Bond), and 4% for the life-of-class
return for World Bond Fund; and for Class C, the 1% contingent deferred sales
charge for the 1-year period. The Salomon Brothers World Government Bond Index
is shown from _______ to compare against the longest-lived class of shares of
World Bond Fund, those of World Bond Fund Class A shares. The Salomon Brothers
Non-U.S. Government Bond Index is shown from _______ to compare against the
longest-lived class of shares of International Bond Fund, those of International
Bond Fund Class A shares. Neither index performance considers the effects of
transaction costs and capital gains.
World Bond Fund converted from a closed-end fund (having no sales charges or
12b-1 plans) to an open-end fund on April 24, 1998. Its existing shares became
the Fund's Class A shares. The returns in the table for Class A shares are based
on World Bond Fund's historical performance prior to the conversion, adjusted
downward for the current Class A maximum initial sales charge.
The graphs that follow show the performance of a hypothetical $10,000
investment in each class of shares of International Bond Fund held until
September 30, 1999. For Class A, Class B and Class C shares, performance is
measured from inception of the class on June 15, 1995. The Fund's performance
reflects the deduction of the maximum initial sales charge on Class A shares,
the applicable contingent deferred sales charge on Class B and Class C shares,
and reinvestment of all dividends and capital gain distributions. International
Bond Fund's performance is compared to the performance of the Salomon Brothers
Non-U.S. World Government Bond Index, which is a market-capitalization-weighted
index that tracks the performance of 13 government bond markets in developed
countries. Index performance reflects the reinvestment of dividends but does not
consider the effect of capital gains or transaction costs, and none of the data
in the graphs that follow shows the effect of taxes. Also, both indices do not
include corporate bonds or bonds from emerging markets, in which the Funds can
invest. 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 investments in the Index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer International Bond Fund (Class A) and Salomon Brothers Non-U.S.
World Government Bond Index
[Begin: Tabular Representation of Line Chart]
Oppenheimer International Salomon Brothers Non-U.S. World
Bond Fund Class A Government Bond Index
===== ===== =====
===== ===== =====
===== ===== =====
[End: Tabular Representation of Line Chart]
Average Annual Total Return of Class A Shares of International Bond Fund at
_______1
1 Year -____% 5 Year ____% Life ____%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer International Bond Fund (Class B) and Salomon Brothers Non-U.S.
World Government Bond Index
[Begin: Tabular Representation of Line Chart]
Oppenheimer International Salomon Brothers Non-U.S. World
Bond Fund Class B Government Bond Index
===== ===== =====
===== ===== =====
===== ===== =====
[End: Tabular Representation of Line Chart]
Average Annual Total Return of Class B Shares of International Bond Fund at
_______2
1 Year -_____% 5 Year _____% Life ______%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer International Bond Fund (Class C) and Salomon Brothers Non-U.S.
World Government Bond Index
[Begin: Tabular Representation of Line Chart]
Oppenheimer International Salomon Brothers Non-U.S. World
Bond Fund Class C Government Bond Index
===== ===== =====
===== ===== =====
===== ===== =====
[End: Tabular Representation of Line Chart]
Average Annual Total Return of Class C Shares of International Bond Fund at
_____3
1 Year -_____% 5%______Life _____%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for the Salomon Brothers Non-U.S. World Government
Bond Index in the graphs begins on ______for Class A, ______ for Class B and
_______ for Class C.
Past performance is not predictive of future performance. Graphs are not drawn
to the same scale.
---------------------------------
1The average annual total returns are shown net of the applicable 4.75% maximum
initial sales charge. 2Class B shares of the Fund were first publicly offered on
6/15/95. The average annual total returns are shown net of the applicable 5%
(1-year) and 1% (5-year) contingent deferred sales charges. The ending account
value in the graph is net of the applicable 1% contingent deferred sales charge.
3The 1-year period is shown net of the applicable 1% contingent deferred sales
charge.
<PAGE>
What are other key features of the Funds?
The description of certain key features of the Funds below is
supplemented by each Fund's Prospectus and Statement of Additional
Information, which are incorporated by reference.
Investment Management and Fees - The Manager manages the assets of both
Funds and makes their respective investment decisions. Both Funds obtain
investment management services from the Manager according to the terms of
management agreements that are virtually identical with the exception that
International Bond Fund has lower management fees for assets over one billion
dollars.
-------------------------------------------------------------------------------
World Bond Fund International Bond Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.75% of the first $200 million 0.75% of the first $200 million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.72% of the next $200 million 0.72% of the next $200 million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.69% of the next $200 million 0.69% of the next $200 million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.66% of the next $200 million 0.66% of the next $200 million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.60% of the next $200 million 0.60% of the next $200 million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0.58% in excess of $1 billion 0.50% in excess of $1 billion
--------------------------------------------------------------------------------
Based on average annual net assets of the Funds.
The management fee for World Bond Fund for its fiscal year ended October
31, 1999 was 0.75% of the average annual net assets for each class of shares.
The management fee for International Bond Fund for its fiscal year ended
September 30, 2000 was ______% of the average annual net assets for each class
of shares. The 12b-1 distribution plans for both Funds are the same. However,
the other expenses the Funds incur are lower for International Bond Fund because
it is a larger fund. Therefore, the total operating expenses for International
Bond Fund have been significantly lower than the operating expenses for World
Bond Fund.
--------------------------------------------------------------------------------
Management Fee Distribution Other Expenses Total Annual
and/or 12b-1 Operating
Fees Expense
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
World Bond Fund
(As of 10/31/99)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
International
Bond Fund
(As of 11/30/00)
--------------------------------------------------------------------------------
"Other expenses" include transfer agent fees and custodial, accounting and legal
expenses the Funds pay.
International Bond Fund is a significantly larger fund than World Bond
Fund. The total assets under management for International Bond Fund on September
30, 2000 were __________ as compared to ___________ for World Bond Fund. Since
World Bond Fund converted from a closed-end fund to an open-end fund on April
24, 1998, the total assets of the Fund have decreased from approximately $50
million to approximately ____ million as of September 30, 2000. Although a
certain amount of redemptions are anticipated when a fund converts from a
closed-end fund to an open-end fund, the Manager has not seen any influx of
money into World Bond Fund and does not anticipate the assets of the Fund will
grow substantially thereby helping to decrease fund operating expenses.
Effective upon the Closing of the Reorganization, the management fee rate for
International Bond Fund is expected to be ____% of average annual net assets
based on combined assets of the Funds as of September 30, 2000. Additionally,
the other expenses of the surviving Fund are expected to be the same as those
listed for International Bond Fund.
For a detailed description of each Fund's investment management agreement,
see the section below entitled "Comparison of Investment Objectives and Policies
- How do the Account Features and Shareholder Services for the Funds Compare?"
Transfer Agency and Custody Services - Both Funds receive shareholder
accounting and other clerical services from OppenheimerFunds Services in its
capacity as transfer agent and dividend paying agent. It acts on an "at-cost"
basis for both Funds. The terms of the transfer agency agreement for both Funds
are identical.
The Bank of New York located at One Wall Street, New York, New York 10015,
acts as custodian of the securities and other assets of both Funds.
Distribution Services - OppenheimerFunds Distributor, Inc. (the
"Distributor") acts as the principal underwriter in a continuous public offering
of shares of both Funds, but is not obligated to sell a specific number of
shares. Both Funds have adopted a Service Plan and Agreement under Rule 12b-1 of
the Investment Company Act for their Class A shares. The Service Plan provides
for the reimbursement to OppenheimerFunds Distributor, Inc. (the "Distributor"),
for a portion of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares of the respective Funds. Under
the plans, payment is made quarterly at an annual rate that may not exceed 0.25%
of the average annual net assets of Class A shares of the respective Funds. The
Distributor currently 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 of the
respective Funds.
Both Funds have adopted Distribution and Service Plans and Agreements
under Rule 12b-1 of the Investment Company Act for Class B and Class C shares.
These plans compensate the Distributor for its services and costs in connection
with the distribution of Class B shares and Class C shares and the personal
service and maintenance of shareholder accounts. Under each Plan, the Funds pay
the Distributor a service fee at an annual rate of 0.25% of average annual net
assets and an asset-based sales charge at an annual rate of 0.75% of net assets
on Class B and Class C shares. All fee amounts are computed on the average
annual net assets of the class determined as of the close of each regular
business day of each Fund. The Distributor uses all of the service fees to
compensate dealers for providing personal services and maintenance of accounts
of their customers that hold shares of the Funds. The Class B asset-based sales
charge is retained by the Distributor. After the first year, the Class C
asset-based sales charge is paid to the broker-dealer as an ongoing concession
for shares that have been outstanding for a year or more. The terms of the
Funds' respective Distribution and Service Plans are substantially similar.
For a detailed description of each Fund's distribution-related services,
see the section entitled "Comparison of Investment Objectives and Policies - How
do the Account Features and Shareholder Services for the Funds Compare?"
Purchases, Redemptions, Exchanges and other Shareholder Services - Both
Funds have the same requirements and restrictions in connection with purchases,
redemptions and exchanges. In addition, each Fund also offers the same types of
shareholder services. More detailed information regarding purchases,
redemptions, exchanges and shareholder services can be found below in the
section "Comparison of Investment Objectives and Policies - How do the Account
Features and Shareholder Services for the Funds Compare?"
Dividends and Distributions - Both Funds declare dividends separately for
each class of shares from net income and/or net investment income each regular
business day and pay those dividends to shareholders monthly on a date selected
by the Boards of each Fund. Daily dividends will not be declared or paid on
newly-purchased shares until Federal Funds are available to the Funds from the
purchase payment for those shares.
For a detailed description of each Fund's policy on dividends and
distributions, see the section entitled "Comparison of Investment Objectives and
Policies - How do the Account Features and Shareholder Services for the Funds
Compare?"
What are the principal risks of an investment in International Bond Fund?
As with most investments, investments in International Bond Fund and World
Bond Fund involve risks. There can be no guarantee against loss resulting from
an investment in either Fund, nor can there be any assurance that either Fund
will achieve its investment objective. The risks associated with an investment
in each Fund are similar and include risks generally associated with other
foreign securities investments and debt securities investments, such as currency
rate changes, interest rate risks and credit risks. There are, however, some
distinctions in the investment techniques and strategies of International Bond
Fund and World Bond Fund, such as the variety of permitted investments and risks
associated with such investments as measured by securities ratings.
For more information about the risks of the Funds, see "What are the risk
factors associated with investments in the Funds?" under the heading "Comparison
of Investment Objectives and Policies."
REASONS FOR THE REORGANIZATION
At a meeting of the Board of Trustees of World Bond Fund held ________,
2000, the Board considered whether to approve the proposed Reorganization and
reviewed and discussed with the Manager and independent legal counsel the
materials provided by the Manager relevant to the proposed Reorganization.
Included in the materials was information with respect to the Funds' respective
investment objectives and policies, management fees, distribution fees and other
operating expenses, historical performance and asset size.
The Board reviewed information demonstrating that World Bond Fund is a
relatively smaller fund with approximately $_____ million in net assets as of
September 30, 2000, and that World Bond Fund's assets decreased approximately
___% from the date it converted from a closed-end to an open-end fund (April 24,
1998) until September 30, 2000. The Board anticipates that World Bond Fund's
assets will not increase substantially in size in the near future. In
comparison, International Bond Fund had approximately $_____ million in net
assets as of September 30, 2000, and its assets increased approximately ___%
during the 12 month period ended September 30, 2000. After the Reorganization,
the shareholders of World Bond Fund would become shareholders of a larger fund
that has lower overall operating expenses than World Bond Fund. Economies of
scale may benefit shareholders of World Bond Fund.
The Board noted that International Bond Fund's management fee is currently
lower than that of World Bond Fund due to the larger size of International Bond
Fund. The Board also considered that International Bond Fund's performance is
better than World Bond Fund's performance over comparable periods, noting that
the Reorganization would permit shareholders of World Bond Fund to own shares of
a similar fund that historically has had lower overall expenses and better
performance.
The Board considered the fact that both Funds have the same investment
objective of primarily seeking total return with a secondary objective of
seeking income when consistent with total return. Additionally, the Board
considered that both Funds invest a substantial portion of their assets in debt
securities issued by foreign governments and corporations. It was, however noted
that World Bond Fund generally invests a larger portion of its assets in U.S.
securities.
The Board also considered that the procedures for purchases, exchanges and
redemptions of shares of both Funds are identical and that both Funds offer the
same investor services and options.
The Board also considered the terms and conditions of the Reorganization,
including that there would be no sales charge imposed in effecting the
Reorganization and that the Reorganization is expected to be a tax-free
reorganization. The Board concluded that World Bond Fund's participation in the
transaction is in the best interests of the Fund and that the Reorganization
would not result in a dilution of the interests of existing shareholders of
World Bond Fund.
After consideration of the above factors, and such other factors and
information as the Board of World Bond Fund deemed relevant, the Board,
including the Independent Trustees, unanimously approved the Reorganization and
the Reorganization Agreement and voted to recommend its approval to the
shareholders of World Bond Fund.
The Board of International Bond Fund also determined that the
Reorganization was in the best interests of International Bond Fund and its
shareholders and that no dilution would result to those shareholders.
International Bond Fund shareholders do not vote on the Reorganization.
The Board of Trustees of World Bond Fund recommends that shareholders
approve the Reorganization in order to combine World Bond Fund with the larger
International Bond Fund. Although the Board considered alternatives it concluded
that this reorganization is in the best interests of shareholders and the Fund.
Because of the relatively low demand for shares of World Bond Fund, the Manager
recommended to the Board of Trustees of World Bond Fund that it reorganize into
the larger International Bond Fund. The Board reasoned that the Reorganization
would permit shareholders to pursue their investment goals in a larger fund
managed by the same portfolio management team with lower expected expenses and
historically better performance.
The Board concluded that the Reorganization is in the best interests of
the shareholders of World Bond Fund and that no dilution of value would result
to shareholders from the Reorganization. The Trustees approving the
Reorganization and the Reorganization Agreement included a majority of the
Trustees who are not interested persons of World Bond Fund or International Bond
Fund.
For the reasons discussed above, the Board, on behalf of World Bond Fund,
recommends that you vote FOR the Reorganization Agreement. If the shareholders
of World Bond Fund do not approve the Reorganization Agreement, the Board may
consider other possible courses of action for World Bond Fund, including
dissolution and liquidation.
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the Reorganization Agreement. You
should read the actual form of Reorganization Agreement. It is
attached as Exhibit A.
How Will the Reorganization be Carried Out?
If the shareholders of World Bond Fund approve the Reorganization
Agreement, the Reorganization will take place after various conditions are
satisfied by World Bond Fund and International Bond Fund, including delivery of
certain documents. The closing date is presently scheduled for December 8, 2000
and the Valuation Date is presently scheduled for December 7, 2000. If
shareholders of World Bond Fund do not approve the Reorganization Agreement, the
Reorganization will not take place.
If shareholders of World Bond Fund approve the Reorganization Agreement,
World Bond Fund will deliver to International Bond Fund substantially all of its
assets on the closing date. In exchange, shareholders of World Bond Fund will
receive Class A, Class B and Class C International Bond Fund shares that have a
value equal to the dollar value of the assets delivered by World Bond Fund to
International Bond Fund. World Bond Fund will then be liquidated and its
outstanding shares will be cancelled. The stock transfer books of World Bond
Fund will be permanently closed at the close of business on the Valuation Date.
Only redemption requests received by the Transfer Agent in proper form on or
before the close of business on the Valuation Date will be fulfilled by World
Bond Fund. Redemption requests received after that time will be considered
requests to redeem shares of International Bond Fund.
Shareholders of World Bond Fund who vote their Class A, Class B or Class C
shares in favor of the Reorganization will be electing in effect to redeem their
shares of World Bond Fund at net asset value on the Valuation Date, after World
Bond Fund subtracts a cash reserve, and reinvest the proceeds in Class A, Class
B or Class C shares of International Bond Fund at net asset value. The cash
reserve is that amount retained by World Bond Fund which is deemed sufficient in
the discretion of the Board for the payment of the Fund's outstanding debts and
expenses of liquidation. International Bond Fund is not assuming any debts of
World Bond Fund except debts for unsettled securities transactions and
outstanding dividend and redemption checks. World Bond Fund will recognize
capital gain or loss on any sales of portfolio securities made prior to the
Reorganization.
Under the Reorganization Agreement, within one year after the Closing
Date, World Bond Fund shall: (a) either pay or make provision for all of its
debts and taxes; and (b) either (i) transfer any remaining amount of the cash
reserve to International Bond Fund, if such remaining amount is not material (as
defined below) or (ii) distribute such remaining amount to the shareholders of
World Bond Fund who were shareholders on the Valuation Date. The remaining
amount shall be deemed to be material if the amount to be distributed, after
deducting the estimated expenses of the distribution, equals or exceeds one cent
per share of the number of World Bond Fund shares outstanding on the Valuation
Date. If the cash reserve is insufficient to satisfy any of World Bond Fund's
liabilities, the Manager will assume responsibility for any such unsatisfied
liability. Within one year after the Closing Date, World Bond Fund will complete
its liquidation.
Under the Reorganization Agreement, either World Bond Fund or
International Bond Fund may abandon and terminate the Reorganization Agreement
for any reason and there shall be no liability for damages or other recourse
available to the other Fund, provided, however, that in the event that one of
the Funds terminates this Agreement without reasonable cause, it shall, upon
demand, reimburse the other Fund for all expenses, including reasonable
out-of-pocket expenses and fees incurred in connection with this Agreement.
To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of World Bond Fund.
Who Will Pay the Expenses of the Reorganization?
The Funds will bear the cost of their respective tax opinions. Any
documents such as existing prospectuses or annual reports that are included in
the proxy mailing or at a shareholder's request will be a cost of the Fund
issuing the document. Any other out-of-pocket expenses associated with the
Reorganization will be paid by the Funds in the amounts incurred by each.
What are the Tax Consequences of the Reorganization?
The Reorganization is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions and representations received
from World Bond Fund and International Bond Fund, it is expected to be the
opinion of Deloitte & Touche LLP, tax advisor to World Bond Fund, that
shareholders of World Bond Fund will not recognize any gain or loss for federal
income tax purposes as a result of the exchange of their shares for shares of
International Bond Fund, and that shareholders of International Bond Fund will
not recognize any gain or loss upon receipt of World Bond Fund's assets. In
addition, neither Fund is expected to recognize a gain or loss as a result of
the Reorganization.
Immediately prior to the Valuation Date, World Bond Fund will pay a
dividend(s) which will have the effect of distributing to World Bond Fund's
shareholders all of World Bond Fund's net investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any available capital loss carry-forward). Such dividends will be
included in the taxable income of World Bond Fund's shareholders as ordinary
income and capital gain, respectively.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Reorganization in light of your individual circumstances.
You should also consult your tax advisor as to state and local and other tax
consequences, if any, of the Reorganization because this discussion only relates
to federal income tax consequences.
What should I know about Class A , Class B and Class C shares of International
Bond Fund?
The rights of shareholders of both Funds are substantially the same. Class
A, Class B and/or Class C shares of International Bond Fund will be distributed
to shareholders of Class A, Class B and Class C shares of World Bond Fund,
respectively, in connection with the Reorganization. Each share will be fully
paid and nonassessable when issued with no personal liability attaching to the
ownership thereof except as set forth under "Shareholder & Trustee Liability" in
International Bond Fund's Statement of Additional Information, will have no
preemptive or conversion rights and will be transferable on the books of
International Bond Fund. Neither Fund permits cumulative voting. The shares of
International Bond Fund will be recorded electronically in each shareholder's
account. International Bond Fund will then send a confirmation to each
shareholder. As described in its prospectus, International Bond Fund does not
issue share certificates for its Class B and Class C shares. Former Class A
shareholders of World Bond Fund who wish to have certificates representing their
shares of International Bond Fund must make a written request to the Transfer
Agent. Shareholders of World Bond Fund holding certificates representing their
shares will not be required to surrender their certificates in connection with
the reorganization. However, former Class A shareholders of World Bond Fund
whose shares are represented by outstanding share certificates will not be
allowed to redeem or exchange class shares of International Bond Fund they
receive in the Reorganization until the certificates for the exchanged World
Bond Fund have been returned to the Transfer Agent.
Like World Bond Fund, International Bond Fund does not routinely hold
annual shareholder meetings.
What are the capitalizations of the Funds and what might the capitalization be
after the Reorganization?
The following table sets forth the capitalization (unaudited) of World
Bond Fund and International Bond Fund and indicates the pro forma combined
capitalization as of September 30, 2000 as if the Reorganization had occurred on
that date.
Net Asset
Shares Value
Net Assets Outstanding Per Share
World Bond Fund
Class A $__________ _________ $_____
Class B $__________ _________ $_____
Class C $__________ _________ $_____
International Bond Fund
Class A $__________ _________ $_____
Class B $__________ _________ $_____
Class C $__________ _________ $_____
International Bond Fund
(Pro Forma Surviving Fund)
Class A $__________ _________ $_____*
Class B $__________ _________ $_____*
Class C $__________ _________ $_____*
*Reflects the issuance of _________ Class A shares, _________ Class B shares of
International Bond Fund and _________ Class C shares of International Bond Fund
in a tax-free exchange for the net assets of World Bond Fund, aggregating
$------------.
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
This section describes key investment policies of World Bond
Fund and International Bond Fund, and certain noteworthy differences
between the investment objectives and policies of the two Funds. For
a complete description of International Bond Fund's investment
policies and risks please review its prospectus dated January 28,
2000 as supplemented October ___, 2000, which is attached to this
Prospectus/Proxy Statement as Exhibit A.
Are there any significant differences between the investment objectives and
strategies of the Funds?
In considering whether to approve the Reorganization, shareholders of
World Bond Fund should consider the differences in investment objectives,
policies and risks of the Funds. Additional information about International Bond
Fund is set forth in its Prospectus, accompanying this Prospectus/Proxy
Statement and incorporated herein by reference, and additional information about
both Funds is set forth in documents that may be obtained upon request to the
Transfer Agent or upon review at the offices of the SEC. See "Information about
World Bond Fund" and "Information about International Bond Fund".
World Bond Fund and International Bond Fund's investment objectives are
identical. Both Funds' primary investment objective is to seek total return. As
a secondary objective, both Funds seek income when consistent with total return.
Both Funds invest primarily in debt securities issued by foreign governments and
corporations in developed or emerging markets. World Bond Fund also invests in
debt securities issued by domestic governments and corporations. Both Funds hold
bonds in many of the same countries. Under normal market conditions, World Bond
Fund invests at least 65% of its total assets in debt securities and 50% of net
assets in foreign securities. With the exception of the United States, as a
fundamental policy, World Bond Fund will not make any purchase that will cause
25% or more of its total assets to be invested in foreign government securities
and foreign corporate securities of any one country. Under normal market
conditions, International Bond Fund invests at least 65% of its total assets in
debt securities and invests in at least three countries other than the United
States. It also will not make any purchase that will cause 25% or more of its
total assets to be invested in foreign government securities and foreign
corporate securities of any one country. As of September 30, 2000, World Bond
Fund had _______% of its total assets invested in foreign debt securities with
________% invested in the United States and International Bond Fund had ______%
of its total assets invested in foreign debt securities with ______% invested in
the United States.
One of the differences between the Funds is that World Bond Fund is a
"diversified company" under the 1940 Act. This means that as to 75% of its
assets, no individual security can represent more than 5% of the Fund's assets,
and World Bond Fund cannot own more than 10% of the issuer's voting securities.
This investment restriction does not apply to securities issued by the U.S.
government or any of its agencies or instrumentalities. This investment
restriction is a fundamental restriction that can only be changed by a
shareholder vote. On the other hand, International Bond Fund is a
"non-diversified" fund and therefore is permitted to invest a greater portion of
its assets in the securities of a single issuer. The non-diversified status of
International Bond Fund increases International Bond Fund's investment
flexibility, since all debt obligations issued by the government of any one
country ("sovereign debt") are considered securities of a single issuer for
purposes of the present diversification requirement. Therefore, from time to
time, a greater portion of International Bond Fund's assets could be invested in
sovereign debt obligations of a single country. The non-diversified status of
International Bond Fund does increase the risks of that Fund. For example, if
International Bond Fund invested to a greater degree in the debt instruments of
a particular country, a decline in price in the sovereign debt obligations of
such country could cause a larger decline in International Bond Fund's net asset
values.
Regardless of the diversification status of the Funds, both Funds still
currently intend to diversify their investments so that they will continue to
qualify as a "regulated investment companies" under the Internal Revenue Code.
This means that at the end of each calendar quarter, as to 50% of each Fund's
assets, no individual security can represent 5% of that Fund's assets. In
addition, no more than 25% of each Fund's assets will be invested in the
sovereign debt securities of any one country, or in the securities of any one
corporate issuer.
How Do the Investment Policies of the Funds compare?
Both Funds invest in debt securities issued by domestic and foreign governments
and corporations in both developed or emerging markets. Those debt securities,
or "bonds," include government bonds, as well as participation interests in
loans, corporate debt obligations, mortgage-related securities (including
collateralized mortgage obligations, or "CMOs"), "structured notes" and other
debt obligations. They include "zero-coupon" or "stripped" securities. The Funds
have no limitation on the range of maturities of the debt securities in which
they can invest, and therefore may hold bonds with short-, medium- or long-term
maturities as well as securities below investment grade.
While both Funds invest in securities issued by domestic corporations and
the U.S. government, World Bond Fund has historically invested a greater portion
of its portfolio in domestic securities. While foreign securities offer special
investment opportunities not available to investments in domestic securities,
there are also special risks involved in foreign investing that can reduce the
Fund's share price. Therefore, shareholders of World Bond Fund should carefully
review the section of this proxy statement discussing the risks of foreign
investing. Please refer to the section of this proxy statement entitled "What
are the risk factors associated with investment in the Funds?" for a more
complete description of the special risks involved in foreign investing.
Foreign Debt Obligations. Both Funds invest primarily in a variety of debt
securities to seek their objectives. For the most part, these will be debt
securities issued or guaranteed by foreign companies or governments, including
foreign supra-national entities. They also include securities of companies
(including those that are located in the U.S. or organized under U.S. law) that
derive a significant portion of their revenue or profits from foreign
businesses, investments or sales, or that have a significant portion of their
assets abroad. They may be traded on foreign securities exchanges or in the
foreign over-the-counter markets.
The Funds may buy securities issued by certain "supra-national" entities,
which include entities designated or supported by governments to promote
economic reconstruction or development, international banking organizations and
related government agencies. Examples are the International Bank for
Reconstruction and Development (commonly called the "World Bank"), the Asian
Development bank and the Inter-American Development Bank.
The Funds can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero coupon obligations that have the same maturity as
the Brady Bonds.
Special Risks of Emerging Markets. Both Funds can invest in securities in both
emerging and developing markets. Emerging and developing markets abroad may also
offer special opportunities for growth investing but have greater risks than
more developed foreign markets. Please see the section entitled "What are the
risk factors associated with investment in the Funds?" below for a more complete
description of the special risks involved in foreign investing as well as the
special risks of investing in emerging and developing markets.
U.S. Government Securities. Both Funds can invest in securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities"
(commonly referred to as "U.S. government securities"). World Bond Fund has
historically invested a significant portion of its assets in U.S. government
securities. As of September 30, 2000, World Bond Fund held ___% of its assets in
U.S. government securities. As of September 30, 2000, International Bond Fund
held ___% of its assets in U.S. government securities.
U.S. government securities which the Funds invest in include Treasury
bills (which have maturities of one year or less when issued), Treasury notes
(which have maturities of one to ten years when issued), and Treasury bonds
(which have maturities of more than ten years when issued). Treasury securities
are backed by the full faith and credit of the United States as to timely
payments of interest and repayment of principal. The Funds can buy U. S.
Treasury securities that have been "stripped" of their interest coupons by a
Federal Reserve Bank, zero-coupon U.S. Treasury securities and Treasury
Inflation-Protection Securities. Although not rated, Treasury obligations have
little credit risk but, prior to their maturity, are subject to interest rate
risk.
Obligations issued or guaranteed by U.S. government agencies or
instrumentalities include direct obligations and mortgage-related securities
that have different levels of credit support from the U.S. government. Some are
supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
High Yield, Lower-Grade Debt Securities. International Bond Fund can invest
without limit in securities below investment grade, sometimes referred to as
"junk bonds." World Bond Fund can invest up to 50% of its total assets in
securities below investment grade; however, it cannot invest more than 5% of its
total assets in securities rated "C" or "D" by a national rating organization.
Additionally, not more than 30% of World Bond Fund's total assets can be
invested in the following securities if they are below investment-grade: foreign
government securities, foreign corporate securities, and securities denominated
in currencies other than the U.S. dollar. Because lower-rated securities tend to
offer higher yields than investment grade securities, the Funds may invest in
lower grade securities if the Manager is trying to achieve greater income. In
some cases, the appreciation possibilities of lower-grade securities may be a
reason they are selected for the Fund's portfolio. However, these investments
will generally only be made when consistent with the Funds' investment
objectives.
Participation Interests in Loans. These securities represent an undivided
fractional interest in a loan obligation of a borrower. They are typically
purchased from banks or dealers that have made the loan or are members of the
loan syndicate. The loans may be to foreign or U.S. companies. They are subject
to the risk of default by the borrower. If the borrower fails to pay interest or
repay principal, the Funds can lose money on its investment. Neither Fund
invests more than 5% of its net assets in participation interests of any one
borrower.
Mortgage-Related Securities. Each Fund can purchase mortgage-related securities
which are a form of derivative investment collateralized by pools of commercial
or residential mortgages. Pools of mortgage loans are assembled as securities
for sale to investors by government agencies or entities or by private issuers.
These securities can include collateralized mortgage obligations ("CMOs") and
mortgage pass-through securities. Mortgage-related securities that are issued or
guaranteed by agencies or instrumentalities of the U.S. government have
relatively little credit risk (depending on the nature of the issuer) but are
subject to interest rate risks and prepayment risks, as described in the
Prospectus of each Fund.
Zero-Coupon and "Stripped" Securities. Some of the government and corporate debt
securities both Funds can buy are zero-coupon bonds that pay no interest and are
issued at a substantial discount from their face value. "Stripped" securities
are the separate income or principal components of a debt security. Some CMOs or
other mortgage-related securities both Funds can buy may be stripped, with each
component having a different proportion of principal or interest payments. One
class might receive all the interest and the other all the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations in price
from interest rate changes than interest-bearing securities. The Fund may have
to pay out the imputed income on zero-coupon securities without receiving the
actual cash currently. Interest-only securities are particularly sensitive to
changes in interest rates.
The values of interest-only mortgage-related securities are also very sensitive
to prepayments of underlying mortgages. Principal-only securities may also be
more volatile when interest rates change. When prepayments tend to fall, the
timing of the cash flows to these securities increases, increasing their
fluctuations in value when rates change. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price.
Floating Rate and Variable Rate Obligations. Some securities the Funds can
purchase have variable or floating interest rates. Variable rates are adjusted
at stated periodic intervals. Variable rate obligations can have a demand
feature that requires the Funds to tender the obligation to the issuer or a
third party prior to its maturity.
The interest rate on a floating rate demand note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals of not less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value.
Derivatives. To seek income or for hedging purposes, both Funds can also invest
in a variety of derivative investments that pay interest that depends on the
change in value of an underlying asset, interest rate or index. Examples are,
interest rate swaps, structured notes, options, futures contracts,
mortgage-related securities and other hedging instruments. Special risks of
using derivative investments are described below in the section entitled "What
are the risk factors associated with investment in the Funds?"
Hedging. Both Funds can buy and sell futures contracts, put and call options,
and enter into interest rate swap agreements. These are all referred to as
"hedging instruments." Neither Fund uses hedging for speculative purposes and
both Funds have limits on their use of hedging instruments. The Funds do not use
hedging instruments to a substantial degree and are not required to use them in
seeking their objective. Special risks of using hedging instruments are
described in each Fund's prospectus.
Both Funds can buy and sell certain kinds of put options ("puts") and call
options ("calls"). The Funds can buy and sell exchange-traded and
over-the-counter put and call options, including index options, securities
options, currency options, commodities options, and options on the other types
of futures. The Funds can buy and sell calls and puts on foreign currencies.
They include puts and calls that trade on a securities or commodities exchange
or in the over-the-counter markets or are quoted by major recognized dealers in
such options. The Funds could use these calls and puts to try to protect against
declines in the dollar value of foreign securities and increases in the dollar
cost of foreign securities the Funds want to acquire.
Forward contracts are foreign currency exchange contracts. Both Funds can
use forward contracts to buy or sell foreign currency for future delivery at a
fixed price. A forward contract enables the Fund to "lock in" the U.S. dollar
price of a security denominated in a foreign currency that the Fund has bought
or sold, or to protect against possible losses from changes in the relative
values of the U.S. dollar and a foreign currency. The Funds may use forward
contracts to protect against uncertainty in the level of future exchange rates.
The Funds limit exposure in foreign currency exchange contracts in a particular
foreign currency to the amount of their assets denominated in that currency or a
closely-correlated currency. The Funds may also use "cross-hedging" where a Fund
hedges against changes in currencies other than the currency in which a security
it holds is denominated.
When-Issued and Delayed-Delivery Transactions. Both Funds may purchase
securities on a "when-issued" basis and may purchase or sell such securities on
a "delayed-delivery" basis. Between the purchase and settlement, no payment is
made for the security and no interest accrues to the buyer from the investment.
There is a risk of loss to the Funds if the value of the security declines prior
to the settlement date.
Puts and Stand-By Commitments. Both Funds can acquire "stand-by commitments" or
"puts" with respect to securities. The Funds obtain the right to sell specified
securities at a set price on demand to the issuing broker-dealer or bank.
However, this feature may result in a lower interest rate on the security. Both
Funds acquire stand-by commitments or puts solely to enhance portfolio liquidity
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or dispose
of them promptly at an acceptable price. Neither Fund will invest more than 10%
(the Board can increase that limit to 15%) of its net assets in illiquid
securities. 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 Manager monitors holdings of illiquid securities on
an ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity. Certain restricted securities that are eligible for resale to
qualified institutional buyers may not be subject to that limit.
Temporary Defensive Investments. Both Funds can invest up to 100% of their total
assets in temporary defensive investments during periods of unusual market
conditions. Generally, they would be: obligations issued or guaranteed by the U.
S. government or its instrumentalities or agencies, but could be U.S. government
securities or highly-rated corporate debt securities. The Funds can also hold
cash and cash equivalents pending the investment of proceeds from the sale of
fund shares or portfolio securities or to meet anticipated redemptions of fund
shares.
Loans of Portfolio Securities. Both Funds can lend their portfolio securities to
brokers, dealers and other financial institutions. The Funds might do so to
raise cash for liquidity purposes. These loans are limited to not more than 25%
of the value of International Bond Fund's net assets and 25% of World Bond
Fund's total assets. There are risks in connection with securities lending. The
Fund might experience a delay in receiving additional collateral to secure a
loan, or a delay in recovery of the loaned securities. Neither Fund presently
intends to engage in loans of securities that will exceed 5% of the value of
that Fund's total assets.
Repurchase Agreements. Both Funds can acquire securities subject to repurchase
agreements. They may do so for liquidity purposes to meet anticipated
redemptions of fund shares, or pending the investment of the proceeds from sales
of fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor 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. Repurchase agreements having a maturity
beyond seven days are subject to the Funds' limits on holding illiquid
investments. There is no limit on the amount of the Funds' net assets that may
be subject to repurchase agreements of seven days or less.
Asset-Backed Securities. The Funds can buy asset-backed securities, which are
fractional interests in pools of loans collateralized by the loans or other
assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
Money Market Instruments, Bank Obligations and Securities That Are Secured By
Them. The Funds can invest in obligations of a commercial bank, savings bank,
and savings and loan association that may or may not be members of the Federal
Deposit Insurance Corporation, including time deposits, certificates of deposit,
and bankers' acceptances. They must be either obligations of a domestic bank
with total assets of at least $1 billion or obligations of a foreign bank with
total assets of at least U.S. $1 billion. The Funds may also invest in
instruments secured by bank obligations (for example, debt which is guaranteed
by the bank).
Variable Amount Master Demand Notes. World Bond Fund can invest in Variable
Amount Master Demand Notes. Master demand notes are corporate obligations that
permit the investment of fluctuating amounts by the Fund at varying rates of
interest under 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. 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 expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are 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.
Currently, the Fund does not intend that its investments in variable amount
master demand notes will exceed 5% of its total assets.
Interest Rate Swap Transactions. Both Funds can enter into interest rate swap
agreements. 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 might swap the right to receive floating rate payments for fixed rate
payments. Both Funds can enter into swaps only on securities that they own.
Neither Fund will enter into swaps with respect to more than 25% of its total
assets. Also, the Funds will identify liquid assets on their books (such as cash
or U.S. government securities) to cover any amounts they could owe under swaps
that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Swap agreements entail both interest rate risk and
credit risk which are described below in the section entitled "What are the risk
factors associated with investment in the Funds?" and in the Statements of
Additional Information for each Fund.
Rights and Warrants. Both Funds may invest in rights and warrants. International
Bond Fund may invest up to 5% of its total assets in warrants or rights. That
limit does not apply to warrants and rights International Bond Fund has acquired
as part of units of securities or that are attached to other securities that the
Fund buys. Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. 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. Neither Fund expects that it will have significant investments in
warrants and rights.
What are the fundamental investment restrictions of the Funds?
Both World Bond Fund and International Bond Fund have certain additional
investment restrictions that, together with their investment objectives, are
fundamental policies, changeable only by shareholder approval. Generally, these
investment restrictions are similar between the Funds and are discussed below.
o Neither Fund can invest 25% or more of their total assets in any industry.
Obligations of the U.S. government, its agencies and instrumentalities are
not considered to be part of an "industry" for the purposes of this policy.
International Bond Fund will not invest 25% or more of its total assets in
government securities of any one foreign company or in debt and equity
securities issued by companies organized under the laws of any one foreign
country.
o World Bond Fund cannot buy or sell real estate. However, it can purchase and
sell debt securities of companies that deal in real estate or interests in
real estate. International Bond Fund cannot buy or sell real estate. However,
it can purchase debt securities secured by real estate or interests in real
estate or issued by companies, including real estate investment trusts, which
invest in real estate or interests in real estate.
o The Funds cannot underwrite securities of other companies. A permitted
exception is in case a Fund is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own
portfolio.
o Neither Fund can issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Funds are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or
sell derivatives, hedging instruments, options or futures.
o World Bond Fund cannot invest in physical commodities or physical commodity
contracts. However, it may buy and sell hedging instruments permitted by any
of its other investment policies. It can also buy and sell options, futures,
securities or other instruments backed by physical commodities, or whose
investment return is linked to changes in the price of physical commodities.
International Bond Fund is not subject to this investment restriction.
o World Bond Fund cannot make short sales of securities or maintain a short
position unless it owns an equal amount of the applicable securities while
the short position is open, or has the right to acquire an equal amount of
those securities without payment of any further amount of consideration.
These permitted short transactions are referred to as
"short-sales-against-the-box," and because changes in federal income tax laws
would not enable the Fund to defer realization of gain or loss for federal
income tax purposes, they therefore would not be used by the Fund.
International Bond Fund is not subject to this investment restriction.
o World Bond Fund cannot buy securities issued or guaranteed by any one issuer
if more than 5% of its total assets would be invested in securities of that
issuer or if it would then own more than 10% of that issuer's voting
securities. That restriction applies to 75% of the Fund's total assets. The
limit does not apply to securities issued by the U.S. government or any of
its agencies or instrumentalities. This means that World Bond Fund is
presently a "diversified company" under the 1940 Act. International Bond Fund
is not a diversified company and is not subject to these restrictions.
o World Bond Fund cannot buy securities on margin. However, it can make margin
deposits in connection with any other of its investments. International Bond
Fund is not subject to this investment restriction.
o World Bond Fund cannot invest in or hold securities of any issuer if officers
and Directors or Trustees of the Fund or the Manager individually
beneficially own more than 1/2 of 1% of the securities of that issuer and
together own more than 5% of the securities of that issuer. International
Bond Fund is not subject to this investment restriction.
o World Bond Fund cannot invest in any company for the purpose of exercising
control or management of that company. International Bond Fund is not subject
to this restriction.
o World Bond Fund cannot invest in interests in oil, gas or other mineral
exploration or development programs. International Bond Fund is not subject
to this restriction.
o World Bond Fund may borrow money from banks on an unsecured basis to buy
securities, and may borrow for temporary, emergency purposes or under other
unusual circumstances, subject to the limits set forth in the Investment
Company Act.
o International Bond Fund cannot borrow in excess of 33 1/3% of the value of
its total assets. The Fund may borrow only from banks and/or affiliated
investment companies. The Fund cannot make any investment at a time during
which its borrowings exceed 5% of the value of its assets. With respect to
this fundamental policy, the Fund can borrow only if it maintains a 300%
ratio of assets to borrowings at all times in the manner set forth in the
Investment Company Act of 1940.
o World Bond Fund cannot make loans. However, it can invest in debt securities
and enter into repurchase agreements, delayed-delivery and when-issued
transactions and similar securities transactions. The Fund may also lend its
portfolio securities.
o International Bond Fund cannot make loans except (a) through lending of
securities, (b) through the purchase of debt instruments or similar evidences
of indebtedness, (c) through an inter-fund lending program with other
affiliated funds, provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of its total assets
(taken at market value at the time of such loans), and (d) through repurchase
agreements.
o World Bond Fund cannot mortgage, pledge or otherwise hypothecate any of its
assets. However, this does not prohibit the Fund from escrow, collateral or
margin arrangements in connection with any of its investments. International
Bond Fund is not subject to this restriction.
What are the risk factors associated with investment in the Funds?
Like all investments, an investment in both of the Funds involves risk.
There is no assurance that the Funds will meet their investment objectives. The
achievement of the Funds' goals depends upon market conditions, generally, and
on the portfolio manager's analytical and portfolio management skills. The risks
described below collectively form the risk profiles of the Funds, and can affect
the value of the Funds' investments, investment performance and prices per
share. There is also the risk that poor securities selection by the Manager will
cause the Fund to underperform other funds having a similar objective. These
risks mean that you can lose money by investing in either Fund. When you redeem
your shares, they may be worth more or less than what you paid for them.
Risks of Foreign Investing. Both Funds invest a significant portion of
their assets in foreign debt securities and can buy securities in both developed
and emerging markets. Investments in foreign securities may offer special
opportunities for investing but also present special additional risks and
considerations not typically associated with investments in domestic securities
which can reduce the Funds' share prices and returns. Some of these additional
risks are:
o higher transaction and operating costs for the Funds;
o foreign issuers are not subject to the same accounting and disclosure
requirements that apply to U.S. companies;
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o currency exchange rates can also affect distributions the Fund makes; o
transaction charges for currency exchange; o lack of public information about
foreign issuers; o lack of uniform accounting, auditing and financial reporting
standards in
foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
Special Risks of Emerging and Developing Markets. Securities in emerging
and developing markets may offer special investment opportunities, but
investments in those countries present risks not found in more mature markets.
Those securities may be more difficult to sell at an acceptable price and their
prices may be more volatile than securities of issuers in more developed
markets. Settlements of trades may be subject to greater delays so that the Fund
might not receive the proceeds of a sale of a security on a timely basis.
Emerging markets might have less developed trading markets and exchanges.
Emerging countries may have less developed legal and accounting systems and
investments may be subject to greater risks of government restrictions on
withdrawing the sales proceeds of securities from the country. Economies of
developing countries may be more dependent on relatively few industries that may
be highly vulnerable to local and global changes. Governments may be more
unstable and present greater risks of nationalization or restrictions on foreign
ownership of securities of local companies. These investments may be
substantially more volatile than debt securities of issuers in the U.S. and
other developed countries and may be very speculative.
Credit Risk. Debt securities are subject to credit risk. Credit risk is
the risk that the issuer of a security might not make interest and principal
payments on the security as they become due. If the issuer fails to pay
interest, the Funds' income might be reduced, and if the issuer fails to repay
principal, the value of that bond and of the Funds' shares might fall. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities.
Interest Rate Risks. The values of debt securities are subject to change
when prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Funds' share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Funds' investments in debt securities. Also, if interest rates fall, the Funds'
investments in new securities at lower yields will reduce the Fund's income.
Risks Of Non-Diversification. International Bond Fund is
"non-diversified." That means that compared to World Bond Fund, it can invest a
greater portion of its assets in the securities of one country. Having a higher
percentage of its assets invested in the securities of fewer countries,
particularly obligations of corporate issuers of one country, could result in
greater fluctuations of Fund share prices due to economic, regulatory or
political problems in that country. In this respect, International Bond Fund
could be considered riskier than a diversified fund. A non-diversified fund also
typically provides less stable invest returns than a diversified fund.
Risks Of Derivative Investments. Both Funds can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, structured notes and forward contracts are examples of derivatives both
Funds can use. If the issuer of the derivative investment does not pay the
amount due, the Funds can lose money on their investments. Also, the underlying
security or investment on which the derivative is based, and the derivative
itself, may not perform the way the Manager expected it to perform. If that
happens, the Funds will get less income than expected or their share prices
could decline. Some derivatives may be illiquid, making it difficult to sell
them at an acceptable price. Using derivatives can increase the volatility of
the Funds' share prices.
Special Risks of Lower-Grade Securities. International Bond Fund can
invest without limit in lower-grade debt securities, sometimes referred to as
"junk bonds." World Bond Fund can invest up to 50% of its total assets in
securities below investment grade. It cannot invest more than 5% of its total
assets in securities rated "C" or "D" by a national rating organization.
Additionally, not more than 30% of World Bond Fund's total assets can be
invested in the following securities if they are below investment-grade: foreign
government securities, foreign corporate securities, and securities denominated
in currencies other than the U.S. dollar. Lower-grade corporate debt securities
(commonly called "junk bonds") may be subject to greater market fluctuations and
greater risks of loss of income and principal than higher-grade corporate debt
securities. Securities that are (or that have fallen) below investment grade
entail a greater risk that the issuers may not meet their debt obligations.
Additionally, they may be less liquid than investment grade securities making it
harder to sell them quickly at an acceptable price. These risks can reduce both
Funds' share prices and the income they earn.
How do the Account Features and Shareholder Services for the Funds Compare?
Investment Management- Pursuant to each investment advisory agreement, the
Manager acts as the investment advisor for both Funds and supervises the
investment program of the Funds. The investment advisory agreements state that
the Manager will provide administrative services for the Funds, including
compilation and maintenance of records, preparation and filing of reports
required by the SEC, reports to shareholders, and composition of proxy
statements and registration statements required by Federal and state securities
laws. Further, the Manager has agreed to furnish the Funds with office space,
facilities and equipment and arrange for its employees to serve as officers of
the Funds. The administrative services to be provided by the Manager under the
investment advisory agreement will be at its own expense.
Expenses not expressly assumed by the Manager under each Fund's advisory
agreement or by the Distributor under the General Distributor's Agreement are
paid by the Funds. The investment advisory agreements list examples of expenses
paid by the Funds, 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.
Both investment advisory agreements generally provide that in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or reckless disregard of its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss sustained by reason
of good faith errors or omissions in connection with any matters to which the
agreement(s) relate. The agreements permit the Manager to act as investment
advisor for any other person, firm or corporation. Pursuant to each agreement,
the Manager is permitted to use the names "Oppenheimer" in connection with other
investment companies for which it may act as investment advisor or general
distributor. If the Manager shall no longer act as investment advisor to the
Funds, the Manager may withdraw the right of the Funds to use the name
"Oppenheimer" as part of their names.
The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior officers of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies. The
Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $____ billion in
assets as of September 30, 2000, including other Oppenheimer funds with more
than ____ million shareholder accounts. The Manager is located at Two World
Trade Center, 34th Floor, New York, New York 10048-0203. OppenheimerFunds
Services, a division of the Manager, acts as transfer and shareholder servicing
agent on an at-cost basis for both World Bond Fund and International Bond Fund
and for certain other open-end funds managed by the Manager and its affiliates.
Distribution - Pursuant to General Distributor's Agreements, the
Distributor acts as principal underwriter in a continuous public offering of
shares of World Bond Fund and International Bond Fund, but is not obligated to
sell a specific number of shares. Expenses normally attributable to sales,
including advertising and the cost of printing and mailing prospectuses other
than those furnished to existing shareholders, are borne by the Distributor,
except for those for which the Distributor is paid under each Fund's Rule 12b-1
Distribution and Service Plan described below.
Both Funds have adopted a Service Plan and Agreement under Rule 12b-1 of
the Investment Company Act for their Class A shares. The Service Plan provides
for the reimbursement to the Distributor for a portion of its costs incurred in
connection with the personal service and maintenance of accounts that hold Class
A shares. Under the plan, payment is made quarterly at an annual rate that may
not exceed 0.25% of the average annual net assets of Class A shares of the
Funds. The Distributor currently uses all of those fees to compensate dealers,
brokers, banks and other financial institutions quarterly for expenses they
incur in providing personal service and maintenance of accounts of their
customers that hold Class A shares.
Both Funds have adopted Distribution and Service Plans under Rule 12b-1 of
the 1940 Act for their Class B and Class C shares. The Funds' Plans compensate
the Distributor for its services in distributing Class B and Class C shares and
servicing accounts. Under both Funds' Plans, the Funds pay the Distributor an
asset-based sales charge at an annual rate of 0.75% of Class B and Class C
assets. The Distributor also receives a service fee 0.25% of average annual net
assets under each plan. All fee amounts are computed on the average annual net
assets of the class determined as of the close of each regular business day of
each Fund. The Distributor uses all of the service fees to compensate
broker-dealers for providing personal services and maintenance of accounts of
their customers that hold shares of the Funds. The Class B asset-based sales
charges are retained by the Distributor. After the first year, the Class C
asset-based sales charges are paid to broker-dealers who hold or whose clients
hold Class C shares as an ongoing concession for shares that have been
outstanding for a year or more.
Purchases and Redemptions - Both Funds are part of the OppenheimerFunds
family of mutual funds. The procedures for purchases, exchanges and redemptions
of shares of the Funds are identical. Shares of either Fund may be exchanged for
shares of the same class of other Oppenheimer funds offering such shares.
Exchange privileges are subject to amendment or termination at any time.
Both Funds have the same initial and subsequent minimum investment amounts
for the purchase of shares. These amounts are $1,000 and $25, respectively. Both
Funds have a maximum initial sales charge of 4.75% on Class A shares for
purchases of less than $50,000. The sales charge of 4.75% is reduced for
purchases of Class A shares of $50,000 or more. Investors who purchase $1
million or more of Class A shares pay no initial sales charge but may have to
pay a contingent deferred sales charge of up to 1% if the shares are sold within
18 calendar months from the end of the calendar month during which they were
purchased. Class B shares of the Funds are sold without a front-end sales charge
but may be subject to a contingent deferred sales charge ("CDSC") upon
redemption depending on the length of time the shares are held. The CDSC begins
at 5% for shares redeemed in the first year and declines to 1% in the sixth year
and is eliminated after that. Class C shares may be purchased without an initial
sales charge, but if redeemed within 12 months of buying them, a CDSC of 1% may
be deducted.
Class A, Class B and Class C shares of International Bond Fund received in
the Reorganization will be issued at net asset value, without a sales charge and
no CDSC will be imposed on any World Bond Fund shares exchanged for
International Bond Fund shares as a result of the Reorganization. However, any
CDSC that applies to World Bond Fund shares as of the date of the exchange will
carryover to International Bond Fund shares received in the Reorganization.
Shareholder Services--Both Funds also offer the following privileges: (i)
Right of Accumulation, (ii) Letter of Intent, (iii) reinvestment of dividends
and distributions at net asset value, (iv) net asset value purchases by certain
individuals and entities, (v) Asset Builder (automatic investment) Plans, (vi)
Automatic Withdrawal and Exchange Plans for shareholders who own shares of the
Funds valued at $5,000 or more, (vii) AccountLink and PhoneLink arrangements,
(viii) exchanges of shares for shares of the same class of certain other funds
at net asset value, and (ix) telephone and Internet redemption and exchange
privileges. All of such services and privileges are subject to amendment or
termination at any time and are subject to the terms of the Funds' respective
prospectuses.
Dividends and Distributions - Both Funds intend to declare dividends
separately for each class of shares from net income on each regular business day
and to pay those dividends to shareholders monthly on a date selected by the
Board of Trustees of each Fund. Daily Dividends will not be declared or paid on
newly-purchased shares until federal funds are available to the funds from the
purchase payment for the shares. Dividends and the distributions paid on Class
A, Class B or Class C shares may vary over time, depending on market conditions,
the composition of the Funds' portfolios, and expenses borne by the particular
class of shares. Dividends paid on Class A shares will generally be higher than
those paid on Class B or Class C shares, which normally have higher expenses
than Class A. The Funds have no fixed dividend rates and there can be no
guarantee that either Fund will pay any dividends or distributions.
Either Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Funds may make
supplemental distributions of dividends and capital gains following the end of
their fiscal years.
VOTING INFORMATION
How many votes are necessary to approve the Reorganization Agreement?
The affirmative vote of the holders of a majority of the total number of
shares of World Bond Fund outstanding and entitled to vote is necessary to
approve the Reorganization Agreement and the transactions contemplated thereby.
Each shareholder will be entitled to one vote for each full share, and a
fractional vote for each fractional share of World Bond Fund held on the Record
Date. If sufficient votes to approve the proposal are not received by the date
of the Meeting, the Meeting may be adjourned to permit further solicitation of
proxies. The holders of a majority of shares entitled to vote at the Meeting and
present in person or by proxy (whether or not sufficient to constitute a quorum)
may adjourn the Meeting to permit further solicitation of proxies.
How do I ensure my vote is accurately recorded?
You can vote in either of two ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
A proxy card is, in essence, a ballot. If you simply sign and date the
proxy but give no voting instructions, your shares will be voted in favor of the
Reorganization Agreement.
Can I revoke my proxy?
Yes. You may revoke your proxy at any time before it is voted by (i)
writing to the Secretary of World Bond Fund at Two World Trade Center, 34th
Floor, New York, New York 10048 (if received in time to be acted upon); (ii)
attending the Meeting and voting in person; or (iii) signing and returning a
later-dated proxy (if returned and received in time to be voted).
What other matters will be voted upon at the Meeting?
The Board of Trustees of World Bond Fund does not intend to bring any
matters before the Meeting other than those described in this proxy. It is not
aware of any other matters to be brought before the Meeting by others. If any
other matters legally come before the Meeting, the proxy ballots confer
discretionary authority with respect to such matters, and it is the intention of
the persons named to vote proxies to vote in accordance with their judgment in
such matters.
Who is entitled to vote?
Shareholders of record of World Bond Fund at the close of business on
October 2, 2000 (the "record date") will be entitled to vote at the Meeting. On
the record date, there were __________ outstanding shares of World Bond Fund,
consisting of _______________ Class A shares, ______________ Class B shares, and
______________ Class C shares. On the record date, there were ___________
outstanding shares of International Bond Fund, consisting of _____________ Class
A shares, _____________ Class B shares and ___________ Class C shares. Under
relevant state law and World Bond Fund's charter documents, proxies representing
abstentions and broker non-votes will be included for purposes of determining
whether a quorum is present at the Meeting, but will be treated as votes not
cast and, therefore, will not be counted for purposes of determining whether the
matters to be voted upon at the Meeting have been approved. For purposes of the
Meeting, a majority of shares outstanding and entitled to vote, present in
person or represented by proxy, constitutes a quorum. International Bond Fund
shareholders do not vote on the Reorganization.
What other solicitations will be made?
World Bond Fund will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy material to the beneficial owners of the shares of
record, and may reimburse them for their reasonable expenses incurred in
connection with such proxy solicitation. In addition to solicitations by mail,
officers of World Bond Fund or officers and employees of OppenheimerFunds
Services, without extra pay, may conduct additional solicitations personally or
by telephone or telegraph. Any expenses so incurred will be borne by
OppenheimerFunds Services. Proxies may also be solicited by a proxy solicitation
firm hired at World Bond Fund's expense.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, and
the broker-dealer does not have discretionary power to vote such street account
shares under applicable stock exchange rules, the shares represented thereby
will be considered to be present at the Meeting for purposes of only determining
the quorum. Because of the need to obtain a majority vote for the Reorganization
proposal to pass, broker non-votes will have the same effect as a vote "against"
the Proposal.
Are there appraisal rights?
No. Under the 1940 Act, shareholders do not have rights of appraisal as a
result of the Reorganization. Although appraisal rights are unavailable, you
have the right to redeem your shares at net asset value until the closing date
for the Reorganization. After the closing date, you may redeem your new
International Bond Fund shares or exchange them into shares of certain other
funds in the OppenheimerFunds family of mutual funds, subject to the terms of
the prospectuses of both funds.
INFORMATION ABOUT INTERNATIONAL BOND FUND
Information about International Bond Fund is included in International
Bond Fund's Prospectus, which is attached to and considered a part of this Proxy
Statement and Prospectus. Additional information about International Bond Fund
is included the Fund's Statement of Additional Information dated January 28,
2000 as amended October _____, 2000, its Annual Report dated September 30, 2000,
which have been filed with the SEC and are incorporated herein by reference. You
may request a free copy of these materials and other information by calling
1.800.525.7048 or by writing to International Bond Fund at OppenheimerFunds
Services, P.O. Box 5270, Denver, CO 80217. International Bond Fund also files
proxy materials, reports and other information with the SEC in accordance with
the informational requirements of the Securities and Exchange Act of 1934 and
the 1940 Act. These materials can be inspected and copied at: the SEC's Public
Reference Room in Washington, D.C. (Phone: 1.202.942.8090) or the EDGAR database
on the SEC's Internet website at http:\\www.sec.gov. Copies may be obtained upon
payment of a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
INFORMATION ABOUT WORLD BOND FUND
Information about World Bond Fund is included in the current World Bond
Fund Prospectus. This document has been filed with the SEC and is incorporated
by reference herein. Additional information about World Bond Fund is also
included in the Fund's Statement of Additional Information dated February 23,
2000, Annual Report dated October 31, 1999 and Semi-Annual Report dated April
30, 2000, which have been filed with the SEC and are incorporated by reference
herein. You may request free copies of these or other documents relating to
World Bond Fund by calling 1.800.525.7048 or by writing to OppenheimerFunds
Services, P.O. Box 5270, Denver, CO 80217. Reports and other information filed
by World Bond Fund can be inspected and copied at: the SEC's Public Reference
Room in Washington, D.C. (Phone: 1.202.942.8090) or the EDGAR database on the
SEC's Internet web-site at http:\\www.sec.gov. Copies may be obtained upon
payment of a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
<PAGE>
PRINCIPAL SHAREHOLDERS
As of the record date, the officers and Trustees of World Bond Fund, as a
group, owned less than 1% of the outstanding voting shares of World Bond Fund
and International Bond Fund. To the knowledge of World Bond Fund, as of the
record date, no person owned (beneficially or of record) 5% or more of the
outstanding shares of World Bond Fund. To the knowledge of International Bond
Fund, as of the record date, no person owned (beneficially or of record) 5% or
more of the outstanding shares of International Bond Fund except
for__________________________________________________-.
By Order of the Board of Trustees
Andrew J. Donohue, Secretary
October __, 2000
<PAGE>
EXHIBITS TO THE COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization between Oppenheimer World Bond Fund
and Oppenheimer International Bond Fund
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
____________, 2000 by and between Oppenheimer World Bond Fund ("World Bond
Fund"), a Massachusetts business trust and Oppenheimer International Bond
Fund ("International Bond Fund"), a Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of World Bond Fund through the acquisition by
International Bond Fund of substantially all of the assets of World Bond
Fund in exchange for the voting shares of beneficial interest ("shares") of
Class A, Class B and Class C shares of International Bond Fund and the
assumption by International Bond Fund of certain liabilities of World Bond
Fund, which Class A, Class B and Class C shares of International Bond Fund
are to be distributed by World Bond Fund pro rata to its shareholders in
complete liquidation of World Bond Fund and complete cancellation of its
shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan of
Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code
as follows: The reorganization will be comprised of the acquisition by
International Bond Fund of substantially all of the assets of World Bond
Fund in exchange for Class A, Class B and Class C shares of International
Bond Fund and the assumption by International Bond Fund of certain
liabilities of World Bond Fund, followed by the distribution of such Class
A, Class B and Class C shares of International Bond Fund to the Class A,
Class B and Class C shareholders of World Bond Fund in exchange for their
Class A, Class B and Class C shares of World Bond Fund, all upon and subject
to the terms of the Agreement hereinafter set forth.
The share transfer books of World Bond Fund will be permanently
closed at the close of business on the Valuation Date (as hereinafter
defined) and only redemption requests received in proper form on or prior to
the close of business on the Valuation Date shall be fulfilled by World Bond
Fund; redemption requests received by World Bond Fund after that date shall
be treated as requests for the redemption of the shares of International
Bond Fund to be distributed to the shareholder in question as provided in
Section 5 hereof.
2. On the Closing Date (as hereinafter defined), all of the assets of
World Bond Fund on that date, excluding a cash reserve (the "cash reserve")
to be retained by World Bond Fund sufficient in its discretion for the
payment of the expenses of World Bond Fund's dissolution and its
liabilities, but not in excess of the amount contemplated by Section 10E,
shall be delivered as provided in Section 8 to International Bond Fund, in
exchange for and against delivery to World Bond Fund on the Closing Date of
a number of Class A, Class B and Class C shares of International Bond Fund,
having an aggregate net asset value equal to the value of the assets of
World Bond Fund so transferred and delivered.
3. The net asset value of Class A, Class B and Class C shares of
International Bond Fund and the value of the assets of World Bond Fund to be
transferred shall in each case be determined as of the close of business of
The New York Stock Exchange on the Valuation Date. The computation of the
net asset value of the Class A, Class B and Class C shares of International
Bond Fund and the Class A, Class B and Class C shares of World Bond Fund
shall be done in the manner used by International Bond Fund and World Bond
Fund, respectively, in the computation of such net asset value per share as
set forth in their respective prospectuses. The methods used by
International Bond Fund in such computation shall be applied to the
valuation of the assets of World Bond Fund to be transferred to
International Bond Fund.
World Bond Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to World Bond Fund's
shareholders all of World Bond Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing (the "Closing") shall be at the offices of
OppenheimerFunds, Inc. (the "Agent"), 6803 S Tucson Way, Englewood, CO
80112, New York time on December 8, 2000 or at such other time or place as
the parties may designate or as provided below (the "Closing Date"). The
business day preceding the Closing Date is herein referred to as the
"Valuation Date."
In the event that on the Valuation Date either party has, pursuant
to the Investment Company Act of 1940, as amended (the "Act"), or any rule,
regulation or order thereunder, suspended the redemption of its shares or
postponed payment therefore, the Closing Date shall be postponed until the
first business day after the date when both parties have ceased such
suspension or postponement; provided, however, that if such suspension shall
continue for a period of 60 days beyond the Valuation Date, then the other
party to the Agreement shall be permitted to terminate the Agreement without
liability to either party for such termination.
5. In conjunction with the Closing, World Bond Fund shall distribute on a
pro rata basis to the shareholders of World Bond Fund as of the Valuation
Date Class A, Class B and Class C shares of International Bond Fund received
by World Bond Fund on the Closing Date in exchange for the assets of World
Bond Fund in complete liquidation of World Bond Fund; for the purpose of the
distribution by World Bond Fund of Class A, Class B and Class C shares of
International Bond Fund to World Bond Fund's shareholders, International
Bond Fund will promptly cause its transfer agent to: (a) credit an
appropriate number of Class A, Class B and Class C shares of International
Bond Fund on the books of International Bond Fund to each Class A, Class B
and Class C shareholder of World Bond Fund in accordance with a list (the
"Shareholder List") of World Bond Fund shareholders received from World Bond
Fund; and (b) confirm an appropriate number of Class A, Class B and Class C
shares of International Bond Fund to each Class A, Class B and Class C
shareholder of World Bond Fund; certificates for Class A shares of
International Bond Fund will be issued upon written request of a former
shareholder of World Bond Fund but only for whole shares, with fractional
shares credited to the name of the shareholder on the books of International
Bond Fund and only after any share certificates for World Bond Fund are
returned to the transfer agent.
The Shareholder List shall indicate, as of the close of business on
the Valuation Date, the name and address of each shareholder of World Bond
Fund, indicating his or her share balance. World Bond Fund agrees to supply
the Shareholder List to International Bond Fund not later than the Closing
Date. Shareholders of World Bond Fund holding certificates representing
their shares shall not be required to surrender their certificates to anyone
in connection with the reorganization. After the Closing Date, however, it
will be necessary for such shareholders to surrender their certificates in
order to redeem, transfer or pledge the shares of International Bond Fund
which they received.
6. Within one year after the Closing Date, World Bond Fund shall (a)
either pay or make provision for payment of all of its liabilities and
taxes, and (b) either (i) transfer any remaining amount of the cash reserve
to International Bond Fund, if such remaining amount (as reduced by the
estimated cost of distributing it to shareholders) is not material (as
defined below) or (ii) distribute such remaining amount to the shareholders
of World Bond Fund on the Valuation Date. Such remaining amount shall be
deemed to be material if the amount to be distributed, after deduction of
the estimated expenses of the distribution, equals or exceeds one cent per
share of World Bond Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between the
parties as to their respective portfolios so that, after the Closing,
International Bond Fund will be in compliance with all of its investment
policies and restrictions. At the Closing, World Bond Fund shall deliver to
International Bond Fund two copies of a list setting forth the securities
then owned by World Bond Fund. Promptly after the Closing, World Bond Fund
shall provide International Bond Fund a list setting forth the respective
federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to International
Bond Fund of record ownership thereof by The Depository Trust Company or
through the Federal Reserve Book Entry System or any other depository
approved by World Bond Fund pursuant to Rule 17f-4 and Rule 17f-5 under the
Act shall be endorsed and delivered, or transferred by appropriate transfer
or assignment documents, by World Bond Fund on the Closing Date to
International Bond Fund, or at its direction, to its custodian bank, in
proper form for transfer in such condition as to constitute good delivery
thereof in accordance with the custom of brokers and shall be accompanied by
all necessary state transfer stamps, if any. The cash delivered shall be in
the form of certified or bank cashiers' checks or by bank wire or intra-bank
transfer payable to the order of International Bond Fund for the account of
International Bond Fund. Class A, Class B and Class C shares of
International Bond Fund representing the number of Class A, Class B and
Class C shares of International Bond Fund being delivered against the assets
of World Bond Fund, registered in the name of World Bond Fund, shall be
transferred to World Bond Fund on the Closing Date. Such shares shall
thereupon be assigned by World Bond Fund to its shareholders so that the
shares of International Bond Fund may be distributed as provided in Section
5.
If, at the Closing Date, World Bond Fund is unable to make delivery under
this Section 8 to International Bond Fund of any of its portfolio securities
or cash for the reason that any of such securities purchased by World Bond
Fund, or the cash proceeds of a sale of portfolio securities, prior to the
Closing Date have not yet been delivered to it or World Bond Fund's
custodian, then the delivery requirements of this Section 8 with respect to
said undelivered securities or cash will be waived and World Bond Fund will
deliver to International Bond Fund by or on the Closing Date with respect to
said undelivered securities or cash executed copies of an agreement or
agreements of assignment in a form reasonably satisfactory to International
Bond Fund, together with such other documents, including a due bill or due
bills and brokers' confirmation slips as may reasonably be required by
International Bond Fund.
9. International Bond Fund shall not assume the liabilities (except for
portfolio securities purchased which have not settled and for shareholder
redemption and dividend checks outstanding) of World Bond Fund, but World
Bond Fund will, nevertheless, use its best efforts to discharge all known
liabilities, so far as may be possible, prior to the Closing Date. The cost
of printing and mailing the proxies and proxy statements will be borne by
World Bond Fund. World Bond Fund and International Bond Fund will bear the
cost of their respective tax opinion. Any documents such as existing
prospectuses or annual reports that are included in that mailing will be a
cost of the Fund issuing the document. Any other out-of-pocket expenses of
International Bond Fund and World Bond Fund associated with this
reorganization, including legal, accounting and transfer agent expenses,
will be borne by World Bond Fund and International Bond Fund, respectively,
in the amounts so incurred by each.
10. The obligations of International Bond Fund hereunder shall be subject
to the following conditions:
A. The Board of Trustees of World Bond Fund, shall have authorized the
execution of the Agreement, and the shareholders of World Bond Fund shall
have approved the Agreement and the transactions contemplated hereby, and
World Bond Fund shall have furnished to International Bond Fund copies of
resolutions to that effect certified by the Secretary or the Assistant
Secretary of World Bond Fund; such shareholder approval shall have been by
the affirmative vote required by the Massachusetts Law and its charter
documents at a meeting for which proxies have been solicited by the Proxy
Statement and Prospectus (as hereinafter defined).
B. International Bond Fund shall have received an opinion dated as of the
Closing Date from counsel to World Bond Fund, to the effect that (i) World
Bond Fund is a business trust duly organized, validly existing and in good
standing under the laws of the State of Massachusetts with full corporate
powers to carry on its business as then being conducted and to enter into
and perform the Agreement; and (ii) that all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable on World
Bond Fund and to authorize effectively the transactions contemplated by the
Agreement have been taken by World Bond Fund. Massachusetts counsel may be
relied upon for this opinion.
C. The representations and warranties of World Bond Fund contained herein
shall be true and correct at and as of the Closing Date, and International
Bond Fund shall have been furnished with a certificate of the President, or
a Vice President, or the Secretary or the Assistant Secretary or the
Treasurer of World Bond Fund, dated the Closing Date, to that effect.
D. On the Closing Date, World Bond Fund shall have furnished to International
Bond Fund a certificate of the Treasurer or Assistant Treasurer of World
Bond Fund as to the amount of the capital loss carry-over and net
unrealized appreciation or depreciation, if any, with respect to World
Bond Fund as of the Closing Date.
E. The cash reserve shall not exceed 10% of the value of the net assets,
nor 30% in value of the gross assets, of World Bond Fund at the close of
business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by International Bond Fund
under the Securities Act of 1933, as amended (the "1933 Act"), containing a
preliminary form of the Proxy Statement and Prospectus, shall have become
effective under the 1933 Act.
G. On the Closing Date, International Bond Fund shall have received a
letter of Andrew J. Donohue or other senior executive officer of
OppenheimerFunds, Inc. acceptable to International Bond Fund, stating that
nothing has come to his or her attention which in his or her judgment would
indicate that as of the Closing Date there were any material, actual or
contingent liabilities of World Bond Fund arising out of litigation brought
against World Bond Fund or claims asserted against it, or pending or to the
best of his or her knowledge threatened claims or litigation not reflected
in or apparent from the most recent audited financial statements and
footnotes thereto of World Bond Fund delivered to International Bond Fund.
Such letter may also include such additional statements relating to the
scope of the review conducted by such person and his or her responsibilities
and liabilities as are not unreasonable under the circumstances.
H. International Bond Fund shall have received an opinion, dated the
Closing Date, of Deloitte & Touche LLP, to the same effect as the opinion
contemplated by Section 11.E. of the Agreement.
I. International Bond Fund shall have received at the Closing all of the
assets of World Bond Fund to be conveyed hereunder, which assets shall be
free and clear of all liens, encumbrances, security interests, restrictions
and limitations whatsoever.
11. The obligations of World Bond Fund hereunder shall be subject to the
following conditions:
A. The Board of Trustees of International Bond Fund shall have authorized
the execution of the Agreement, and the transactions contemplated thereby,
and International Bond Fund shall have furnished to World Bond Fund copies
of resolutions to that effect certified by the Secretary or the Assistant
Secretary of International Bond Fund.
B. World Bond Fund's shareholders shall have approved the Agreement and
the transactions contemplated hereby, by an affirmative vote required by the
Massachusetts Law and its charter documents and World Bond Fund shall have
furnished International Bond Fund copies of resolutions to that effect
certified by the Secretary or an Assistant Secretary of World Bond Fund.
C. World Bond Fund shall have received an opinion dated as of the Closing
Date from counsel to International Bond Fund, to the effect that (i)
International Bond Fund is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts
with full powers to carry on its business as then being conducted and to
enter into and perform the Agreement; (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable upon
International Bond Fund and to authorize effectively the transactions
contemplated by the Agreement have been taken by International Bond Fund,
and (iii) the shares of International Bond Fund to be issued hereunder are
duly authorized and when issued will be validly issued, fully-paid and
non-assessable, except as set forth under "Shareholder and Trustee
Liability" in International Bond Fund's Statement of Additional Information.
Massachusetts counsel may be relied upon for this opinion.
D. The representations and warranties of International Bond Fund contained
herein shall be true and correct at and as of the Closing Date, and World
Bond Fund shall have been furnished with a certificate of the President, a
Vice President or the Secretary or the Assistant Secretary or the Treasurer
of the Trust to that effect dated the Closing Date.
E. World Bond Fund shall have received an opinion of Deloitte & Touche LLP
to the effect that the federal tax consequences of the transaction, if
carried out in the manner outlined in the Agreement and in accordance with
(i) World Bond Fund's representation that there is no plan or intention by
any World Bond Fund shareholder who owns 5% or more of World Bond Fund's
outstanding shares, and, to World Bond Fund's best knowledge, there is no
plan or intention on the part of the remaining World Bond Fund shareholders,
to redeem, sell, exchange or otherwise dispose of a number of International
Bond Fund shares received in the transaction that would reduce World Bond
Fund shareholders' ownership of International Bond Fund shares to a number
of shares having a value, as of the Closing Date, of less than 50% of the
value of all of the formerly outstanding World Bond Fund shares as of the
same date, and (ii) the representation by each of World Bond Fund and
International Bond Fund that, as of the Closing Date, World Bond Fund and
International Bond Fund will qualify as regulated investment companies or
will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code,
will be as follows:
1. The transactions contemplated by the Agreement will qualify as a
tax-free "reorganization" within the meaning of Section 368(a)(1) of the
Code, and under the regulations promulgated thereunder.
2. World Bond Fund and International Bond Fund will each qualify as a
"party to a reorganization" within the meaning of Section 368(b)(2) of the
Code.
3. No gain or loss will be recognized by the shareholders of World Bond
Fund upon the distribution of Class A, Class B and Class C shares of
beneficial interest in International Bond Fund to the shareholders of World
Bond Fund pursuant to Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be recognized by
World Bond Fund by reason of the transfer of substantially all its assets in
exchange for Class A, Class B and Class C shares of International Bond Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized by
International Bond Fund by reason of the transfer of substantially all of
World Bond Fund's assets in exchange for Class A, Class B and Class C shares
of International Bond Fund and International Bond Fund's assumption of
certain liabilities of World Bond Fund.
6. The shareholders of World Bond Fund will have the same tax basis and
holding period for the Class A, Class B and Class C shares of beneficial
interest in International Bond Fund that they receive as they had for World
Bond Fund shares that they previously held, pursuant to Section 358(a) and
1223(1), respectively, of the Code.
7. The securities transferred by World Bond Fund to International Bond
Fund will have the same tax basis and holding period in the hands of
International Bond Fund as they had for World Bond Fund, pursuant to Section
362(b) and 1223(1), respectively, of the Code.
F. The cash reserve shall not exceed 10% of the value of the net assets,
nor 30% in value of the gross assets, of World Bond Fund at the close of
business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by International Bond Fund
under the 1933 Act, containing a preliminary form of the Proxy Statement and
Prospectus, shall have become effective under the 1933 Act.
H. On the Closing Date, World Bond Fund shall have received a letter of
Andrew J. Donohue or other senior executive officer of OppenheimerFunds,
Inc. acceptable to World Bond Fund, stating that nothing has come to his or
her attention which in his or her judgment would indicate that as of the
Closing Date there were any material, actual or contingent liabilities of
International Bond Fund arising out of litigation brought against
International Bond Fund or claims asserted against it, or pending or, to the
best of his or her knowledge, threatened claims or litigation not reflected
in or apparent by the most recent audited financial statements and footnotes
thereto of International Bond Fund delivered to World Bond Fund. Such letter
may also include such additional statements relating to the scope of the
review conducted by such person and his or her responsibilities and
liabilities as are not unreasonable under the circumstances.
I. World Bond Fund shall acknowledge receipt of the Class A, Class B and
Class C shares of International Bond Fund.
12. World Bond Fund hereby represents and warrants that:
A. The financial statements of World Bond Fund as of October 31, 1999
(audited) and February 28, 2000 (unauditied) heretofore furnished to
International Bond Fund, present fairly the financial position, results of
operations, and changes in net assets of World Bond Fund as of that date, in
conformity with generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from October 31, 1999 through
the date hereof there have not been, and through the Closing Date there will
not be, any material adverse change in the business or financial condition
of World Bond Fund, it being agreed that a decrease in the size of World
Bond Fund due to a diminution in the value of its portfolio and/or
redemption of its shares shall not be considered a material adverse change;
B. Contingent upon approval of the Agreement and the transactions
contemplated thereby by World Bond Fund's shareholders, World Bond Fund
has authority to transfer all of the assets of World Bond Fund to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever;
C. The Prospectus, as amended and supplemented, contained in World Bond
Fund's Registration Statement under the 1933 Act, as amended, is true,
correct and complete, conforms to the requirements of the 1933 Act and does
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement, as amended,
was, as of the date of the filing of the last Post-Effective Amendment,
true, correct and complete, conformed to the requirements of the 1933 Act
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading;
D. There is no material contingent liability of World Bond Fund and no
material claim and no material legal, administrative or other proceedings
pending or, to the knowledge of World Bond Fund, threatened against World
Bond Fund, not reflected in such Prospectus;
E. Except for the Agreement, there are no material contracts outstanding to
which World Bond Fund is a party other than those ordinary in the conduct
of its business;
F. World Bond Fund is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts; and has all necessary and material Federal and state
authorizations to own all of its assets and to carry on its business as now
being conducted; and World Bond Fund that is duly registered under the Act
and such registration has not been rescinded or revoked and is in full force
and effect;
G. All Federal and other tax returns and reports of World Bond Fund
required by law to be filed have been filed, and all federal and other taxes
shown due on said returns and reports have been paid or provision shall have
been made for the payment thereof and to the best of the knowledge of World
Bond Fund no such return is currently under audit and no assessment has been
asserted with respect to such returns and to the extent such tax returns
with respect to the taxable year of World Bond Fund ended October 31, 1999
have not been filed, such returns will be filed when required and the amount
of tax shown as due thereon shall be paid when due; and
H. World Bond Fund has elected that World Bond Fund be treated as a
regulated investment company and, for each fiscal year of its operations,
World Bond Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and World Bond
Fund intends to meet such requirements with respect to its current taxable
year.
13. International Bond Fund hereby represents and warrants that:
A. The financial statements of International Bond Fund as of September 30,
2000 (audited) heretofore furnished to World Bond Fund, present fairly the
financial position, results of operations, and changes in net assets of
International Bond Fund, as of that date, in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding year; and that from September 30, 2000 through the date hereof
there have not been, and through the Closing Date there will not be, any
material adverse changes in the business or financial condition of
International Bond Fund, it being understood that a decrease in the size of
International Bond Fund due to a diminution in the value of its portfolio
and/or redemption of its shares shall not be considered a material or
adverse change;
B. The Prospectus, as amended and supplemented, contained in International
Bond Fund's Registration Statement under the 1933 Act, is true, correct and
complete, conforms to the requirements of the 1933 Act and does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Registration Statement, as amended, was, as of the date
of the filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the 1933 Act and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
C. Except for this Agreement, there is no material contingent liability of
International Bond Fund and no material claim and no material legal,
administrative or other proceedings pending or, to the knowledge of
International Bond Fund, threatened against International Bond Fund, not
reflected in such Prospectus;
D. There are no material contracts outstanding to which International Bond
Fund is a party other than those ordinary in the conduct of its business;
E. International Bond Fund is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts; International Bond Fund has all necessary and material
Federal and state authorizations to own all its properties and assets and to
carry on its business as now being conducted; the Class A, Class B and Class
C shares of International Bond Fund which it issues to World Bond Fund
pursuant to the Agreement will be duly authorized, validly issued,
fully-paid and non-assessable, will conform to the description thereof
contained in International Bond Fund's Registration Statement and will be
duly registered under the 1933 Act and in the states where registration is
required; and International Bond Fund is duly registered under the Act and
such registration has not been revoked or rescinded and is in full force and
effect;
F. All federal and other tax returns and reports of International Bond
Fund required by law to be filed have been filed, and all federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of International Bond Fund no such return is currently under audit
and no assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of International
Bond Fund ended September 30, 2000 have not been filed, such returns will be
filed when required and the amount of tax shown as due thereon shall be paid
when due;
G. International Bond Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations,
International Bond Fund has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company and
International Bond Fund intends to meet such requirements with respect to
its current taxable year;
H. International Bond Fund has no plan or intention (i) to dispose of any
of the assets transferred by World Bond Fund, other than in the ordinary
course of business, or (ii) to redeem or reacquire any of the Class A, Class
B and Class C shares issued by it in the reorganization other than pursuant
to valid requests of shareholders; and
I. After consummation of the transactions contemplated by the Agreement,
International Bond Fund intends to operate its business in a substantially
unchanged manner.
14. Each party hereby represents to the other that no broker or finder has
been employed by it with respect to the Agreement or the transactions
contemplated hereby. Each party also represents and warrants to the other
that the information concerning it in the Proxy Statement and Prospectus
will not as of its date contain any untrue statement of a material fact or
omit to state a fact necessary to make the statements concerning it therein
not misleading and that the financial statements concerning it will present
the information shown fairly in accordance with generally accepted
accounting principles applied on a basis consistent with the preceding year.
Each party also represents and warrants to the other that the Agreement is
valid, binding and enforceable in accordance with its terms and that the
execution, delivery and performance of the Agreement will not result in any
violation of, or be in conflict with, any provision of any charter, by-laws,
contract, agreement, judgment, decree or order to which it is subject or to
which it is a party. International Bond Fund hereby represents to and
covenants with World Bond Fund that, if the reorganization becomes
effective, International Bond Fund will treat each shareholder of World Bond
Fund who received any of International Bond Fund's shares as a result of the
reorganization as having made the minimum initial purchase of shares of
International Bond Fund received by such shareholder for the purpose of
making additional investments in shares of International Bond Fund,
regardless of the value of the shares of International Bond Fund received.
15. International Bond Fund agrees that it will prepare and file a
Registration Statement on Form N-14 under the 1933 Act which shall contain a
preliminary form of proxy statement and prospectus contemplated by Rule 145
under the 1933 Act. The final form of such proxy statement and prospectus is
referred to in the Agreement as the "Proxy Statement and Prospectus." Each
party agrees that it will use its best efforts to have such Registration
Statement declared effective and to supply such information concerning
itself for inclusion in the Proxy Statement and Prospectus as may be
necessary or desirable in this connection. World Bond Fund covenants and
agrees to liquidate and dissolve as soon as practicable to the extent
required under the laws of the State of Massachusetts, and, upon Closing, to
cause the cancellation of its outstanding shares.
16. The obligations of the parties shall be subject to the right of either
party to abandon and terminate the Agreement for any reason and there shall
be no liability for damages or other recourse available to a party not so
terminating this Agreement, provided, however, that in the event that a
party shall terminate this Agreement without reasonable cause, the party so
terminating shall, upon demand, reimburse the party not so terminating for
all expenses, including reasonable out-of-pocket expenses and fees incurred
in connection with this Agreement.
17. The Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all taken together shall constitute one
Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are merged
into the Agreement, which constitutes the entire contract between the
parties hereto. No amendment or modification hereof shall be of any force
and effect unless in writing and signed by the parties and no party shall be
deemed to have waived any provision herein for its benefit unless it
executes a written acknowledgment of such waiver.
19. International Bond Fund understands that the obligations of World Bond
Fund under the Agreement are not binding upon any Trustee or shareholder of
World Bond Fund personally, but bind only World Bond Fund and World Bond
Fund's property.
20. World Bond Fund understands that the obligations of International Bond
Fund under the Agreement are not binding upon any trustee or shareholder of
International Bond Fund personally, but bind only International Bond Fund
and International Bond Fund's property. World Bond Fund represents that it
has notice of the provisions of the Declaration of Trust of International
Bond Fund disclaiming shareholder and trustee liability for acts or
obligations of International Bond Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to be
executed and attested by its officers thereunto duly authorized on the date
first set forth above.
OPPENHEIMER WORLD BOND FUND
By:_________________________________________
Andrew Donohue
Secretary
OPPENHEIMER INTERNATIONAL BOND FUND
By: ________________________________________
Andrew J. Donohue
Secretary
<PAGE>
Oppenheimer World Bond Fund
Proxy For Special Shareholders Meeting To Be Held December 4, 2000
The undersigned shareholder of Oppenheimer World Bond Fund ("World Bond Fund"),
does hereby appoint Andrew J. Donohue, Robert Bishop, Scott Farrar and Brian W.
Wixted, and each of them, as attorneys-in-fact and proxies of the undersigned,
with full power of substitution, to attend the Special Meeting of Shareholders
of World Bond Fund to be held on December 4, 2000 at 6803 South Tucson Way,
Englewood, Colorado at 10:00 A.M., Mountain time, and at all adjournments
thereof, and to vote the shares held in the name of the undersigned on the
record date for said meeting on the Proposal specified on the reverse side. Said
attorneys-in-fact shall vote in accordance with their best judgment as to any
other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHO RECOMMENDS A VOTE FOR
THE PROPOSAL ON THE REVERSE SIDE. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS
INDICATED ON THE REVERSE SIDE OR FOR PROPOSAL IF NO CHOICE IS INDICATED.
Please mark your proxy, date and sign it on the reverse side and return it
promptly in the accompanying envelope, which requires no postage if mailed in
the United States.
The Proposal:
To approve or disapprove an Agreement and Plan of Reorganization between
World Bond Fund("World Bond Fund") and Oppenheimer International Bond Fund
("International Bond Fund"), and the transactions contemplated thereby,
including (a) the transfer of substantially all the assets of World Bond
Fund to International Bond Fund in exchange for Class A, Class B and Class C
shares of International Bond Fund, (b) the distribution of such shares of
International Bond Fund to the corresponding Class A, Class B and Class C
shareholders of World Bond Fund in complete liquidation of World Bond Fund
and (c) the cancellation of the outstanding shares of World Bond Fund.
FOR______ AGAINST______ ABSTAIN_______
Dated: _________________________________, 2000
(Month) (Day)
---------------------------------
Signature(s)
---------------------------------
Signature(s)
Please read both sides of this ballot.
<PAGE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as
custodian, attorney, executor, administrator, trustee, etc., please give your
full title as such. All joint owners should sign this proxy. If the account is
registered in the name of a corporation, partnership or other entity, a duly
authorized individual must sign on its behalf and give his or her title.
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
TO PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets of the
OPPENHEIMER WORLD BOND FUND
By and in exchange for Shares of the
OPPENHEIMER INTERNATIONAL BOND FUND
This Statement of Additional Information to this Prospectus/Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer World Bond Fund ("World Bond
Fund") for shares of Oppenheimer International Bond Fund ("International Bond
Fund").
This SAI consists of this Cover Page and the following documents: (i)
Annual and Semi-Annual Reports dated October 31, 1999 and April 30, 2000,
respectively, of World Bond Fund; (ii) the Annual Report dated September 30,
2000 of International Bond Fund; (iii) the Statement of Additional Information
of World Bond Fund; (iv) the Statement of Additional Information of
International Bond Fund; and (v) the pro forma financial statements for the
period September 30, 1999 through ________, 2000.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated October 23, 2000, relating to the
above-referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1.800.525.7048 or by writing OppenheimerFunds Services at
P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is October 23, 2000.
<PAGE>
OPPENHEIMER INTERNATIONAL BOND FUND
Supplement dated March 6, 2000 to the
Prospectus dated January 28, 2000
The Prospectus is changed by replacing the third paragraph of the section
entitled "How the Fund is Managed" on page 11 with the following:
Portfolio Managers. The portfolio managers of the Fund, Arthur P. Steinmetz
and Ruggero de'Rossi, are Vice Presidents of the Fund and the persons
principally responsible for the day-to-day management of the Fund's
investments. Mr. Steinmetz became a portfolio manager of the
Fund May 20, 1999, and Mr. de'Rossi on March 6, 2000. Mr.
Steinmetz is a Senior Vice President of the Manager. He joined the
Manager in 1986, and has been a portfolio manager of other Oppenheimer
funds since 1989. Mr. de'Rossi joined the Manager as a Vice President
and portfolio manager on March 6, 2000. Since 1990 he had been
associated with other international money management firms, most recently as
a Senior Vice President and Chief Emerging Markets Strategist for ING
Barings (7/98 - 3/2000) and Vice President and head of emerging
markets trading strategies for Citicorp Securities (5/95 -
7/98). Mr. Steinmetz and Mr. de'Rossi are also officers and portfolio
managers of other Oppenheimer funds.
March 6, 2000 PS0880.015
<PAGE>
Oppenheimer
INTERNATIONAL BOND FUND
Prospectus dated January 28, 2000
Oppenheimer International Bond Fund is
a mutual fund that seeks total return
as its primary goal. As a secondary
goal, it seeks income when consistent
with total return. It invests primarily
in foreign government and corporate
bonds, in both developed and emerging
markets.
This Prospectus contains
important information about the Fund's
objectives, its investment policies,
strategies and risks. It also contains
important information about how to buy
and sell shares of the Fund and other
account features. Please read this
Prospectus carefully before you invest
As with all mutual funds, the and keep it for future reference about Securities
and Exchange Commission has your account. not approved or disapproved the Fund's
securities nor has it determined that this Prospectus is accurate or complete.
It is a criminal offense to represent otherwise.
890
<PAGE>
Contents
ABOUT THE FUND
The Fund's Investment Objectives and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
--------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
--------------------------------------------------------------------------------
The Fund's Investment Objectives and Strategies
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? The Fund's primary objective is to
seek total return. As a secondary objective, the Fund seeks income when
consistent with total return.
WHAT DOES THE FUND INVEST IN? The Fund invests mainly in debt securities of
foreign government and corporate issuers. Those debt securities, generally
referred to as "bonds," include long-term and short-term government bonds,
participation interests in loans, corporate debt obligations, "structured" notes
and other debt obligations. They may include "zero coupon" or "stripped"
securities. Under normal market conditions, the Fund invests at least 65% of its
total assets in "bonds" and invests in at least three countries other than the
United States. The Fund does not limit its investments to securities of issuers
in a particular market capitalization or maturity range or rating category, and
can hold rated and unrated securities below investment grade.
The Fund invests in debt securities of issuers in both developed and
emerging markets throughout the world. These investments are more fully
explained in "About the Fund's Investments," below.
HOW DOES THE PORTFOLIO MANAGER DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund's portfolio manager analyzes the
overall investment opportunities and risks in individual national economies by
analyzing the business cycle in developed countries and political and exchange
rate factors of emerging markets. The overall strategy is to build a broadly
diversified portfolio of bonds, emphasizing government bonds in developed and
emerging markets, to help moderate the special risks of foreign investing. The
portfolio manager currently focuses on the factors below (which may vary in
particular cases and may change over time), looking for:
o Opportunities for higher yields than are available in U.S. markets,
o Overall country and currency diversification for the portfolio,
o Opportunities in government bonds in both developed and emerging markets.
The Fund's diversification strategies, with respect to securities of
different issuers, securities denominated in different currencies and securities
issued in different countries, are intended to reduce the volatility of the
value of the overall portfolio while seeking total return (the overall increase
in the value of the portfolio).
WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking total return in their investment over the long term, with the
opportunity for some income, from a fund that will invest mainly in foreign debt
securities. Those investors should be willing to assume the risks of short-term
share price fluctuations that are typical for a fund focusing on debt
investments in foreign securities, particularly those in emerging markets. Since
the Fund's income level will fluctuate, it is not designed for investors needing
an assured level of current
income. Because of its focus on long-term total return, the Fund may be
appropriate for a part of an investor's retirement plan portfolio. However, the
Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc., will cause the Fund to underperform other funds
having similar objectives.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a security might not make interest and principal payments on
the security as they become due. If the issuer fails to pay interest, the Fund's
income might be reduced, and if the issuer fails to repay principal, the value
of that bond and of the Fund's shares might fall. A downgrade in an issuer's
credit rating or other adverse news about an issuer can reduce the market value
of that issuer's securities.
o Special Risks of Lower-Grade Securities. The Fund can invest without
limit in securities below investment grade (commonly called "junk
bonds") to seek total return and higher income. Therefore the Fund's
credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities may be subject to
greater market fluctuations and greater risks of loss of income and
principal than investment-grade debt securities. Securities that are
(or that have fallen) below investment grade are exposed to a greater
risk that the issuers of those securities might not meet their debt
obligations. There may be less of a market for these securities,
making it harder to sell them at an acceptable price. These risks can
reduce the Fund's share prices and the income it earns.
RISKS OF FOREIGN INVESTING. While foreign securities offer special investment
opportunities, there are also special risks that can reduce the Fund's share
prices and returns. The change in value of a foreign currency against the U.S.
dollar will result in a change in the U.S. dollar value of securities
denominated in that foreign currency. Currency rate changes can also affect the
distributions the Fund makes from the income it receives from foreign securities
as foreign currency values change against the U.S. dollar. Foreign investing can
result in higher transaction and operating costs for the Fund. Foreign issuers
are not subject to the same accounting and disclosure requirements that U.S.
companies are subject to.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
o Special Risks of Emerging and Developing Markets. Securities in
emerging and developing markets present risks not found in more mature
markets. Those securities may be more difficult to sell at an
acceptable price and their prices may be more volatile than securities
of issuers in more developed markets. Settlements of trades may be
subject to greater delays so that the Fund may not receive the proceeds
of a sale of a security on a timely basis.
Emerging markets might have less developed trading markets, exchanges
and legal and accounting systems. Investments may be subject to greater
risks of government restrictions on withdrawing the sales proceeds of
securities from the country. Economies of developing countries may be
more dependent on relatively few industries that may be highly
vulnerable to local and global changes. Governments may be more
unstable and present greater risks of nationalization or restrictions
on foreign ownership of securities of local companies. These
investments may be substantially more volatile than debt securities of
issuers in the U.S. and other developed countries and may be very
speculative.
INTEREST RATE RISKS. The values of debt securities are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Fund's investments in debt securities. Also, if interest rates fall, the Fund's
investments in new securities at lower yields will reduce the Fund's income.
RISKS OF DERIVATIVE INVESTMENTS. The Fund can use derivatives to seek increased
returns or to try to hedge investment and interest rate risks. In general terms,
a derivative investment is one whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index. Options, futures,
structured notes and forward contracts are examples of derivatives the Fund
uses.
If the issuer of the derivative does not pay the amount due, the Fund can
lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could fall and the Fund could get less income than expected.
Some derivatives may be illiquid, making it difficult to sell them at an
acceptable price. Using derivatives can increase the volatility of the Fund's
share prices.
HOW RISKY IS THE FUND OVERALL? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its price per share. Particular
investments and investment strategies also have risks. These risks mean that you
can lose money by investing in the Fund. When you redeem your shares, they may
be worth more or less than what you paid for them. There is no assurance that
the Fund will achieve its investment objectives. In the short term, the values
of foreign debt securities, particularly those of issuers in emerging markets,
can be volatile, and the price of the Fund's shares can go up and down
substantially. The income from some of the Fund's investments may help cushion
the Fund's total return from changes in prices, but debt securities are subject
to credit and interest rate risks that can affect their values and income and
the share prices of the Fund. In the OppenheimerFunds spectrum, the Fund is
generally more aggressive and has more risks than bond funds that focus on U. S.
government securities and investment-grade bonds but is less aggressive than
funds that invest solely in emerging markets.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing
in the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the full calendar years since the Fund's inception
and by showing how the average annual total returns of the Fund's shares compare
to those of a broad-based market index. The Fund's past investment performance
is not necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 6.01% (4Q'99) and the lowest return (not annualized)
for a calendar quarter was -9.80% (3Q'98).
-------------------------------------------------------------
Average Annual Total
Returns for the
periods 1 Year Life of class*
ended December 31,
1999
-------------------------------------------------------------
-------------------------------------------------------------
Class A Shares 5.73% 6.98%
-------------------------------------------------------------
-------------------------------------------------------------
Salomon Brothers
Non- -5.07% 2.40%
U.S. World Gov't
Bond
Index
-------------------------------------------------------------
-------------------------------------------------------------
Class B Shares 5.31% 7.00%
-------------------------------------------------------------
-------------------------------------------------------------
Class C Shares 9.24% 7.30%
-------------------------------------------------------------
*Inception date of all classes: 6/15/95. Index performance is shown from
5/31/95. The Fund's average annual total returns include the applicable sales
charge: for Class A, the current maximum initial sales charge of 4.75%; for
Class B, the contingent deferred sales charges of 5% (1-year) and 2% (life of
class); and for Class C, the 1% contingent deferred sales charge for the 1-year
period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Salomon Brothers Non-U.S. Dollar World Government Bond Index is a
market-capitalization-weighted index that tracks performance of 13 government
bond markets in developed countries. The index performance reflects the
reinvestment of income but does not consider the effects of transaction costs.
Also, the index does not include corporate bonds or bonds from emerging markets,
and the Fund has investments that differ from those in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
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 meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
September 30, 1999.
Shareholder Fees (charges paid directly from your investment):
--------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Sales Charge
(Load) on purchases 4.75% None None
(as % of offering price)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as % of
the lower of the None1 5%2 1%3
original offering price
or redemption proceeds)
--------------------------------------------------------------------------------
4. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
5. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
6. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
-------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Management Fees 0.74% 0.74% 0.74%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Distribution and/or
Service (12b-1) Fees 0.24% 1.00% 1.00%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Other Expenses 0.27% 0.27% 0.27%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total Annual Operating 1.25% 2.01% 2.01%
Expenses
-------------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
--------------------------------------------------------------------------------
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $596 $853 $1,129 $1,915
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $704 $930 $1,283 $1,962
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $304 $630 $1,083 $2,338
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $596 $853 $1,129 $1,915
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $204 $630 $1,083 $1,962
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $204 $630 $1,083 $2,338
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 2. Class
B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different investments will vary over time based upon the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below. At times the
Fund may focus more on investing for growth with less emphasis on income, while
at other times it may have both growth and income investments to seek total
return. The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of securities of any
one issuer and by not investing too great a percentage of its assets in any one
issuer. Also, the Fund does not concentrate 25% or more of its total assets in
investments in the securities of any one foreign government or in the debt and
equity securities of companies in any one foreign country or in any one
industry.
The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned an equivalent
rating by the Manager. The Fund's investments may be above or below investment
grade in credit quality, and the Fund can invest without limit in
below-investment-grade debt securities, commonly called "junk bonds."
Foreign Debt Securities. The Fund's foreign debt investments can be denominated
in U.S. dollars or in foreign currencies and can include "Brady Bonds." Those
are U.S.-dollar denominated debt securities collateralized by zero-coupon U.S.
Treasury securities. They are typically issued by emerging markets countries and
are considered speculative securities with higher risks of default. The Fund
will buy foreign currency only in connection with the purchase and sale of
foreign securities and not for speculation.
Participation Interests in Loans. These securities represent an undivided
fractional interest in a loan obligation of a borrower. They are typically
purchased from banks or dealers that have made the loan or are members of the
loan syndicate. The loans may be to foreign or U.S. companies. They are subject
to the risk of default by the borrower. If the borrower fails to pay interest or
repay principal, the Fund can lose money on its investment. The Fund does not
invest more than 5% of its net assets in participation interests of any one
borrower.
Derivative Investments. The Fund can invest in a number of different kinds of
"derivative" investments. In the broadest sense, structured notes, options,
futures contracts, and other hedging instruments the Fund uses may be considered
"derivative investments." In addition to using derivatives for hedging, the Fund
may use other derivative investments because they offer the potential for
increased income and principal value.
o "Structured" Notes. The Fund buys "structured" notes, which are
specially-designed derivative debt investments whose principal payments
or interest payments are linked to the value of an index (such as a
currency or securities index) or commodity. The terms of the instrument
may be "structured" by the purchaser (the Fund) and the borrower
issuing the note.
The values of these notes will fall or rise in response to the changes
in the values of the underlying security or index. They are subject to
both credit and interest rate risks and therefore the Fund could
receive more or less than it originally invested when a note matures,
or it might receive less interest than the stated coupon payment if the
underlying investment or index does not perform as anticipated. The
prices of these notes may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment
at an acceptable price.
o Hedging. The Fund can buy and sell futures contracts, put and call
options, and forward contracts. These are all referred to as "hedging
instruments." The Fund is not required to hedge to seek its objectives.
The Fund does not use hedging instruments for speculative purposes, and
has limits on its use of them.
The Fund could hedge for a number of purposes. It might 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 might do so to try to manage its exposure to changing
interest rates. Forward contracts can be used to try to manage foreign
currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. In writing a put, there is a risk that the Fund may
be required to buy the underlying security at a disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's
return. The Fund could also experience losses if the price 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.
Portfolio Turnover. The Fund engages in short-term trading to seek its
objective. Portfolio turnover affects brokerage and transaction costs the Fund
pays. If the Fund realizes capital gains when it sells portfolio investments, it
must generally pay those gains out to shareholders, increasing their taxable
distributions. The Financial Highlights table at the end of this Prospectus
shows the Fund's portfolio turnover rates during recent fiscal years.
CAN THE FUND'S INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objectives are fundamental policies. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objectives, the Fund can use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have risks, although some are designed to help
reduce overall investment or market risks.
Other Debt Securities. Under normal market conditions, the Fund can invest (up
to 35% of its total assets) in debt securities issued by U.S. companies or the
U.S. government to seek the Fund's goals. However, these are not expected to be
a significant part of the Fund's normal long term investment strategy. The
Fund's investments in U.S. government securities can include U.S. Treasury
securities and securities issued or guaranteed by agencies or instrumentalities
of the U.S. government, such as collateralized mortgage obligations (CMOs) and
other mortgage-related securities. Mortgage-related securities are subject to
additional risks of unanticipated prepayments of the underlying mortgages, which
can affect the income stream to the Fund from those securities as well as their
values.
The Fund can also buy U.S. commercial paper, which is short-term corporate
debt, and asset-backed securities, which are interests in pools of consumer
loans and other trade receivables. Prepayments on the underlying loans may
reduce the Fund's income on the securities and reduce their values, as with
CMOs.
Zero-Coupon and "Stripped Securities. Some of the government and corporate debt
securities the Fund buys are zero-coupon bonds that pay no interest and are
issued at a substantial discount from their face value. "Stripped" securities
are the separate income or principal components of a debt security. Some CMOs or
other mortgage related securities may be stripped, with each component having a
different proportion of principal or interest payments. One class might receive
all the interest and the other all the principal payments. The values of these
stripped mortgage related securities are very sensitive to prepayments of
underlying mortgages.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. The Fund may
have to pay out the imputed income on zero coupon securities without receiving
the actual cash currently. Interest-only securities are particularly sensitive
to changes in interest rates.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have 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 (the Board can
increase that limit to 15%). Certain restricted securities that are eligible for
resale to qualified institutional purchasers may not be subject to that limit.
The Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.
Temporary Defensive Investments. For cash management purposes the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund may invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be short-term U. S.
government securities, highly-rated commercial paper, bank obligations or
repurchase agreements. To the extent the Fund invests defensively in these
securities, it may not achieve its primary investment objective of total return.
How the Fund Is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets the
fees the Fund pays 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 advisor since January 1960. The
Manager (including subsidiaries and affiliates) managed more than $120 billion
in assets as of December 31, 1999, including other Oppenheimer funds with more
than 5 million shareholder accounts. The Manager is located at Two World Trade
Center, 34th Floor, New York, New York 10048-0203.
Portfolio Manager. The portfolio manager of the Fund is Arthur P. Steinmetz. He
became the portfolio manager on May 20, 1999, and is the person principally
responsible for the day-to-day management of the Fund's portfolio. He is a Vice
President of the Fund and Senior Vice President of the Manager. He is an officer
and portfolio manager for other Oppenheimer funds. Mr. Steinmetz has been
employed by the Manager since 1986 and has been a portfolio manager since 1989.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines on additional assets as
the Fund grows: 0.75% of the first $200 million of average annual net assets of
the Fund, 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 average
annual net assets in excess of $1 billion. The Fund's management fee for its
last fiscal year ended September 30, 1999 was 0.74% of average annual net assets
for each class of shares.
--------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
--------------------------------------------------------------------------------
How to Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer, broker
or financial institution that has a sales agreement with the Distributor. 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, we recommend that you discuss your investment with a financial
advisor before you make a purchase to be sure that the Fund is appropriate for
you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor
may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department
at 1.800.525.7048 to notify the Distributor of the wire, and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
you pay for shares by electronic funds transfer from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below
for more details.
o Buying Shares Through 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 in the Asset
Builder Application and the Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments for as little as $25. You can make additional purchases of
at least $25 by telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans
and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum
applies. Additional purchases may be as little as $25.
o The minimum investment requirement does not apply to 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 reinvesting distributions from
unit investment trusts that have made arrangements with the
Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order and sends it to the Distributor.
Net Asset Value. The Fund calculates the net asset value of each class of shares
determined as of the close of The New York Stock Exchange, on each day the
Exchange is open for trading (referred to in this Prospectus as a "regular
business day"). The Exchange normally closes at 4:00 P.M., New York time, but
may close earlier on some days. All references to time in this Prospectus mean
"New York time".
The net asset value per share is determined 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. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained. Because foreign securities trade in markets and exchanges that operate
on U.S. holidays and weekends, the value of some of the Fund's foreign
investments might change significantly on those days, when investors cannot buy
or redeem shares.
The Offering Price. To receive the offering price for a particular day, in most
cases the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order is
received.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit it to
the Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that day's
offering price. Otherwise, the order will receive the next offering price that
is determined.
--------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or $500,000 for certain
retirement plans). The amount of that sales charge will vary depending on the
amount you invest. The sales charge rates are listed in "How Can You Buy Class A
Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within six years of buying them, you will normally pay a contingent
deferred sales charge. That contingent deferred sales charge varies depending on
how long you own your shares, as described in "How Can You Buy Class B Shares?"
below.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%, as described in "How Can You Buy 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 best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some 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.
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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below 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, compared to the effect over time of
higher class-based expenses on shares of Class B or Class C .
o Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively 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. That is because of the effect of
the Class B contingent deferred sales charge if you redeem within six
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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B shares
or $1 million or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000
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 appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not
detail all of the considerations in selecting a class of shares. You
should analyze your options carefully with your financial advisor
before making that choice.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B or Class C shareholders. Other features
may not be advisable (because of the effect of the contingent deferred sales
charge) for Class B or Class C shareholders. Therefore, you should carefully
review how you plan to use your investment account before deciding which class
of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and 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, may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
HOW CAN YOU BUY 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 will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
--------------------------------------------------------------------------------
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$100,000 or more
but less than 3.50% 3.63% 2.75%
$250,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
--------------------------------------------------------------------------------
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
aggregating $1 million or more or for certain purchases by particular types of
retirement plans described in the Appendix to the Statement of Additional
Information. The Distributor pays dealers of record commissions in an amount
equal to 1.0% of purchases of $1 million or more other than by those retirement
accounts. For those retirement plan accounts, the commission is 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, based on the cumulative purchases during the prior 12 months
ending with the current purchase. In either case, the commission will be paid
only on purchases that were not previously subject to a front-end sales charge
and dealer commission.10 That commission will not be paid on purchases of shares
in amounts of $1 million or more (including any rights of accumulation) by a
retirement plan that pays for the purchase with the redemption proceeds of Class
C shares of one or more Oppenheimer funds held by the plan for more than one
year.
10. No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
If you redeem any of those shares within an 18-month "holding period"
measured from the end of the calendar month of their purchase, a contingent
deferred sales charge (called the "Class A contingent deferred sales charge")
may be deducted from the redemption proceeds. That sales charge will be equal to
1.0% of the lesser of (1) the aggregate net asset value of the redeemed shares
at the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset value of
the redeemed shares. 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 purchases of Class A shares of all Oppenheimer funds you made that
were subject to the Class A contingent deferred sales charge.
Can You Reduce Class A Sales Charges? You may be eligible to buy Class A shares
at reduced sales charge rates under the Fund's "Right of Accumulation" or a
Letter of Intent, as described in "Reduced Sales Charges" in the Statement of
Additional Information:
HOW CAN YOU BUY 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. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
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 for the Class B contingent deferred sales
charge holding period:
--------------------------------------------------------------------------------
Contingent Deferred Sales Charge on
Years Since Beginning of Month in Which Redemptions in That Year
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. In applying the sales charge, 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. Class B shares automatically convert to
Class A shares 72 months after you purchase them. 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 any Class B shares you hold
convert, any other Class B shares that were acquired by reinvesting dividends
and distributions on the converted shares will also convert to Class A shares.
For further information on the conversion feature and its tax implications, see
"Class B Conversion" in the Statement of Additional Information.
HOW CAN YOU BUY 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 a holding period of 12 months from their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds. The Class C
contingent deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class C shares.
DISTRIBUTION AND SERVICE (12b-1) PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses all of those fees to
pay dealers, brokers, banks and other financial institutions quarterly for
providing personal service and maintenance of accounts of their customers that
hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to pay the
Distributor for its services and costs in distributing Class B and Class C
shares and servicing accounts. Under the plans, the Fund pays the Distributor an
annual asset-based sales charge of 0.75% per year on Class B shares and on Class
C shares. The Distributor also receives a service fee of 0.25% per year under
each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class. Because
these fees are paid out of the Fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares are sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor pays 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.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the
Transfer Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
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.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
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 only 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.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs, rollover IRAs and Education IRAs.
SEP-IRAs. These are Simplified Employee Pensions Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These plans are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and charitable
organizations.
401(k) Plans. These plans are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis. 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 account, please
call the Transfer Agent first, at 1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must include a
signature guarantee (although there may be other situations that also require a
signature guarantee):
o You wish to redeem more than $100,000 and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or name
o Shares are being redeemed by someone (such as an Executor) other than the
owners
Where Can You Have Your Signature Guaranteed The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions. Including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal
securities or government securities, or
o 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.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements apply to
distributions from retirement plans.
You must submit a withholding form with your redemption request to avoid delay
in getting your money and if you do not want tax withheld. If your employer
holds your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares in your
plan account.
HOW DO YOU SELL SHARES BY MAIL? Write a letter of instructions that includes: o
Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any special
payment instructions o Any share certificates for the shares you are selling o
The signatures of all registered owners exactly as the account is registered,
and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
Use the following address for requests by mail: Send courier or express mail
requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217-5270 Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular 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 account or under a share certificate
by telephone. o To redeem shares through a service representative, call
1.800.852.8457 o 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 sent to that bank account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by telephone
in any 7-day period. The check must be payable to all owners of record of the
shares and must be sent to the address on the account statement. This service is
not available within 30 days of changing the address on an account.
Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH 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.
CHECKWRITING. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank the checks are payable through or the Fund's bank or
custodian bank.
o Checkwriting privileges are not available for accounts holding shares that
are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account value.
Remember, your shares fluctuate in value and you should not write a check
close to the total account value.
o You may not write a check that would require the Fund to redeem shares that
were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase shares
subject to a Class A, Class B or Class C contingent deferred sales charge and
redeem any of those shares during the applicable holding period for the class of
shares you own, the contingent deferred sales charge will be deducted from the
redemption proceeds (unless you are eligible for a waiver of that sales charge
based on the categories listed in Appendix C to the Statement of Additional
Information and you advise the Transfer Agent of your eligibility for the waiver
when you place your redemption request).
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on: o the amount
of your account value represented by an increase in net asset
value over the initial purchase price
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
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 the holding period that applies to the class, and (3) shares
held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the Fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
CAN YOU SELL 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
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. Shares of the Fund can be purchased by exchange of shares of other
Oppenheimer funds on the same basis. To exchange shares, you must meet several
conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of both funds must offer the exchange privilege. o 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.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund 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. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
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.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or by
telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificates with the request.
|X| 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.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o 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
conforms to the policies described above. It must be received 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 seven
days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from
a "market timer" might require the Fund to sell securities at a
disadvantageous time and/or price.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that it believes will disadvantage it, or to refuse multiple
exchange requests submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so
by applicable law, but it may impose changes at any time for emergency
purposes.
o 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
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained 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 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. The Transfer Agent and the Fund will not be liable for
losses or expenses arising out of telephone instructions reasonably believed to
be genuine.
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. The redemption price, which
is the net asset value per share, will normally differ for each class of shares.
The redemption value of your shares may be more or less than their original
cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or by AccountLink (as elected by the shareholder) within seven days after the
Transfer Agent receives redemption instructions in proper form. However, under
unusual circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded within three business days
after redemption.
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 Federal Funds
wire or certified check, or arrange with your bank to provide telephone or
written assurance to the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the market
value of shares has dropped. In some cases involuntary redemptions may be made
to repay the Distributor for losses from the cancellation of share purchase
orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that the
redemption proceeds will be paid with liquid securities from the Fund's
portfolio.
"Backup withholding" of Federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if you
fail to furnish the Fund your correct, certified Social Security or Employer
Identification Number when you sign your application, or if you under-report
your income to the Internal Revenue Service.
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 intends to declare dividends separately for each class of
shares from net investment income on each regular business day and to pay those
dividends to shareholders monthly on a date selected by the Board of Trustees.
Daily dividends will not be declared or paid on newly-purchased shares until
Federal Funds are available to the Fund from the purchase payment for the
shares.
Dividends and distributions paid on Class A shares will generally be
higher than dividends for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends or distributions.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT ARE YOUR CHOICES FOR RECEIVING DISTRIBUTIONS? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving the other types of distributions by
check or having them sent to your bank account through AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank through
AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
If more than 50% of the Fund's assets are invested in foreign securities
at the end of any fiscal year, the Fund may elect under the Internal Revenue
Code to permit shareholders to take a credit or deduction on their federal
income tax returns for foreign taxes paid by the Fund.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Avoid "Buying a Distribution". If you buy shares on or just before the Fund
declares a capital gain distribution, you will pay the full price for the shares
and then receive a portion of the price back as a taxable capital gain.
Remember, There Can be Taxes on Transactions. Because the Fund's share price
fluctuates, you may have a capital gain or loss when you sell or exchange your
shares. 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. Any capital gain is
subject to capital gains tax.
Returns of Capital Can Occur. 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.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the fiscal years since the Fund's inception. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP, the
Fund's independent auditors, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.32
$5.51 $5.49 $5.10 $5.00
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58
.56 .52 .52 .15
Net realized and unrealized gain (loss) (.14)
(1.20) .08 .40 .10
----------------------------------------------------------------
Total income (loss)
from
investment operations .44
(.64) .60 .92 .25
---------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.53)
(.53) (.53) (.53) (.15)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and
distributions
to shareholders (.53)
(.55) (.58) (.53) (.15)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.23
$4.32 $5.51 $5.49 $5.10
----------------------------------------------------------------
----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 10.58%
(12.50)% 11.33% 18.82% 5.13%
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $102,236 $ 97,404
$114,847 $52,128 $3,984
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $101,948 $108,264
$ 89,112 $19,817 $2,566
---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 13.47%
11.09% 9.24% 9.60% 9.94%
Expenses, before voluntary assumption
and indirect expenses 1.26%
1.24%(4) 1.28%(4) 1.59%(4) 1.59%(4)
Expenses, net of voluntary assumption
and indirect expenses 1.25%
N/A N/A 1.49% 0.41%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year. 4. Expense ratio
reflects the effect of expenses paid indirectly by the Fund. 5. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
September 30, 1999, were $628,527,274 and $544,904,486, respectively.
28 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.31
$5.50 $5.48 $5.10 $5.00
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55
.52 .48 .48 .14
Net realized and unrealized gain (loss) (.14)
(1.20) .07 .39 .10
----------------------------------------------------------------
Total income (loss) from
investment operations .41
(.68) .55 .87 .24
-----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.50)
(.49) (.48) (.49) (.14)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and distributions
to shareholders (.50)
(.51) (.53) (.49) (.14)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.22
$4.31 $5.50 $5.48 $5.10
----------------------------------------------------------------
----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 9.79%
(13.16)% 10.52% 17.71% 4.92%
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $118,632 $119,998
$122,874 $45,207 $3,238
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $122,878 $128,789
$ 87,557 $17,891 $1,125
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 12.70%
10.33% 8.57% 8.81% 9.20%
Expenses, before voluntary assumption
and indirect expenses 2.02%
2.00%(4) 2.04%(4) 2.36%(4) 2.21%(4)
Expenses, net of voluntary assumption
and indirect expenses 2.01%
N/A N/A 2.26% 0.89%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year. 4. Expense ratio
reflects the effect of expenses paid indirectly by the Fund. 5. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
September 30, 1999, were $628,527,274 and $544,904,486, respectively.
29 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS C YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.31
$5.50 $5.48 $5.09 $5.00
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55
.52 .48 .48 .14
Net realized and unrealized gain (loss) (.14)
(1.20) .07 .39 .09
----------------------------------------------------------------
Total income (loss)
from
investment operations .41
(.68) .55 .87 .23
-----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.50)
(.49) (.48) (.48) (.14)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and
distributions
to shareholders (.50)
(.51) (.53) (.48) (.14)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.22
$4.31 $5.50 $5.48 $5.09
----------------------------------------------------------------
----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 9.80%
(13.16)% 10.52% 17.92% 4.73%
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,456
$27,636 $28,684 $10,282 $201
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,918
$29,336 $19,883 $ 4,039 $ 97
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 12.76%
10.33% 8.62% 8.76% 9.36%
Expenses, before voluntary assumption
and indirect expenses 2.02%
2.00%(4) 2.04%(4) 2.36%(4) 2.26%(4)
Expenses, net of voluntary assumption
and indirect expenses 2.01%
N/A N/A 2.25% 0.85%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1999, were $628,527,274 and $544,904,486, respectively.
30 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
For More Information About Oppenheimer International Bond Fund: The following
additional information about the Fund is available without charge upon request:
STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
--------------------------------------------------------------------------------
How to Get More Information:
--------------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1.800.525.7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can send us a request by e-mail or read or down-load documents on the
OppenheimerFunds web site: http://www.oppenheimerfunds.com You can also obtain
copies of the Statement of Additional Information and other Fund documents and
reports by visiting the SEC's Public Reference Room in Washington, D.C. (Phone
1.202.942.8090) or the EDGAR database on the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained after payment of a duplicating fee by
electronic request at the SEC's e-mail address: [email protected] or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-07255
PR0880.001.2000 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer International Bond Fund
Graphic material included in the Prospectus of Oppenheimer International
Bond Fund (the "Fund") under the heading: "Annual Total Return (Class A) (% as
of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for each of the four most recent calendar years, without deducting sales
charges. Set forth below is the relevant data point that will appear on the bar
chart:
Year
Ended: Annual Total Return:
12/31/96 19.29%
12/31/97 2.46%
12/31/98 -4.36%
12/31/99 11.00%
<PAGE>
Oppenheimer International Bond Fund
6803 South Tucson Way, Englewood, Colorado 80112
1.800.525.7048
Statement of Additional Information dated January 28, 2000,
revised April 4, 2000
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 28, 2000. It should be read together
with the Prospectus. You can obtain the Prospectus 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, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 7
Investment Restrictions............................................ 28
How the Fund is Managed ............................................... 30
Organization and History........................................... 30
Trustees and Officers.............................................. 31
The Manager........................................................ 37
Brokerage Policies of the Fund......................................... 38
Distribution and Service Plans......................................... 40
Performance of the Fund................................................ 44
About Your Account
How To Buy Shares...................................................... 49
How To Sell Shares..................................................... 58
How To Exchange Shares................................................. 64
Dividends, Capital Gains and Taxes..................................... 67
Additional Information About the Fund.................................. 69
Financial Information About the Fund
Independent Auditors' Report........................................... 70
Financial Statements................................................... 71
Appendix A: Ratings Definitions ....................................... A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
--------------------------------------------------------------------------------
A B O U T T H E F U N D
-------------------------------------------------------------------------------
Additional Information About the Fund's Investment
Policies and Risks
The investment objectives, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objectives.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation of
the issuer's historical operations, prospects for the industry of which the
issuer is part, the issuer's financial condition, its pending product
developments and business (and those of competitors), the effect of general
market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer.
|X| Foreign Securities. The Fund expects to invest primarily in foreign
securities. For the most part, these will be debt securities issued or
guaranteed by foreign companies or governments, including supra-national
entities. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt
securities issued or guaranteed by governments other than the U.S. government or
by foreign supra-national entities. They also include securities of companies
(including those that are located in the U.S. or organized under U.S. law) that
derive a significant portion of their revenue or profits from foreign
businesses, investments or sales, or that have a significant portion of their
assets abroad. They may be traded on foreign securities exchanges or in the
foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations, because they are not subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be
received in foreign currencies, the Fund will be required to compute its income
in U.S. dollars for distribution to shareholders, and therefore the Fund will
absorb the cost of currency
fluctuations. After the Fund has distributed income, subsequent foreign currency
losses may result in the Fund's having distributed more income in a particular
fiscal period than was available from investment income, which could result in a
return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and entities may or may not be supported by the full faith and
credit of the foreign government. The Fund may buy securities issued by certain
"supra-national" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. Examples are the
International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these supranational entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero coupon obligations that have the same maturity as
the Brady Bonds. Brady Bonds can be 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.
Those uncollateralized amounts constitute what is called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and 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. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
|_| Risks of Foreign Investing. Investments in foreign securities
may offer special opportunities for investing but also present special
additional risks and considerations not typically associated with investments in
domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in
foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. Government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than more developed foreign markets, such as those in Europe
and Canada, Australia, New Zealand and Japan. There may be even less liquidity
in their securities markets, and settlements of purchases and sales of
securities may be subject to additional delays. They are subject to greater
risks of limitations on the repatriation of income and profits because of
currency restrictions imposed by local governments. Those countries may also be
subject to the risk of greater political and economic instability, which can
greatly affect the volatility of prices of securities in those countries. The
Manager will consider these factors when evaluating securities in these markets,
because the selection of those securities must be consistent with the Fund's
goal of preservation of principal.
|_| Risks of Conversion to Euro. There may be transaction costs and
risks relating to the conversion of certain European currencies to the Euro that
commenced in January 1999. However, their current currencies (for example, the
franc, the mark, and the lira) will also continue in use until January 1, 2002.
After that date, it is expected that only the euro will be used in those
countries. A common currency is expected to confer some benefits in those
markets, by consolidating the government debt market for those countries and
reducing some currency risks and costs. But the conversion to the new currency
will affect the Fund operationally and also has potential risks, some of which
are listed below. Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market and greater
operational costs from converting to the new currency. This might
depress securities values.
o vendors the Fund depends on to carry out its business, such as its
Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between
the affected currencies and the need to update the Fund's contracts
could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| Debt Securities. The Fund can invest in a variety of debt
securities to seek its objectives. Foreign debt securities are subject to the
risks of foreign securities described above. In general, debt securities are
also subject to two additional types of risk: credit risk and interest rate
risk.
|_| Credit Risks. Credit risk relates to the ability of the issuer
to meet interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater extent
that lower-yield, higher-quality bonds.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., at least "BBB" by Standard & Poor's Ratings Group or Duff &
Phelps, Inc., or have comparable ratings by another nationally recognized
statistical rating organization.
In making investments in debt securities, the Manager may rely to
some extent on the ratings of ratings organizations or it may use its own
research to evaluate a security's credit-worthiness. If the securities are
unrated, to be considered part of the Fund's holdings of investment-grade
securities, they must be judged by the Manager to be of comparable quality
to bonds rated as investment grade by a rating organization.
|_| Interest Rate Risks. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting from the inverse
relationship between price and yield. For example, an increase in general
interest rates will tend to reduce the market value of already-issued
fixed-income investments, and a decline in general interest rates will tend to
increase their value. In addition, debt securities with longer maturities, which
tend to have higher yields, are subject to potentially greater fluctuations in
value from changes in interest rates than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund
buys them will not affect the interest payable on those securities, nor the cash
income from them. However, those price fluctuations will be reflected in the
valuations of the securities, and therefore the Fund's net asset values will be
affected by those fluctuations.
|_| Special Risks of Lower-Grade Securities. The Fund can invest
without limit in lower-grade debt securities, if the Manager believes it is
consistent with the Fund's objectives. Because lower-rated securities tend to
offer higher yields than investment grade securities, the Fund may invest in
lower grade securities if the Manager is trying to achieve greater income. In
some cases, the appreciation possibilities of lower-grade securities may be a
reason they are selected for the Fund's portfolio. However, these investments
will be made only when consistent with the Fund's overall goal of total return.
"Lower-grade" debt securities are those rated below "investment grade"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
considered part of the Fund's portfolio of lower-grade securities. The Fund can
invest in securities rated as low as "C" or "D" or which may be in default at
the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment grade
securities. The issuer's low creditworthiness may increase the potential for its
insolvency. An overall decline in values in the high yield bond market is also
more likely during a period of a general economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for high
yield bonds, adversely affecting the values of outstanding bonds as well as the
ability of issuers to pay interest or repay principal. In the case of foreign
high yield bonds, these risks are in addition to the special risk of foreign
investing discussed in the Prospectus and in this Statement of Additional
Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of these risks than non-convertible high yield bonds,
since stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. A description of the debt security ratings categories of the
principal rating organizations is included in Appendix A to this Statement of
Additional Information.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which
the Fund traded its portfolio securities during its last fiscal year. For
example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Fund's portfolio turnover rate will
fluctuate from year to year, and the Fund may continue to have a portfolio
turnover rate of more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objectives, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Zero Coupon Securities. The Fund may buy zero-coupon and delayed
interest securities, and "stripped" securities. Stripped securities are debt
securities whose interest coupons are separated from the security and sold
separately. The Fund can buy different types of zero-coupon or stripped
securities, including, among others, foreign debt securities and U.S. Treasury
notes or bonds that have been stripped of their interest coupons, U.S. Treasury
bills issued without interest coupons, and certificates representing interests
in stripped securities.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value. The buyer recognizes a rate of return
determined by the gradual appreciation of the security, which is redeemed at
face value on a specified maturity date. This discount depends on the time
remaining until maturity, as well as prevailing interest rates, the liquidity of
the security and the credit quality of the issuer. In the absence of threats to
the issuer's credit quality, the discount typically decreases as the maturity
date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to
a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other government agencies or corporate entities referred
to as "instrumentalities." The obligations of U.S. government agencies or
instrumentalities in which the Fund may invest may or may not be guaranteed or
supported by the "full faith and credit" of the United States. "Full faith and
credit" means generally that the taxing power of the U.S. government is pledged
to the payment of interest and repayment of principal on a security. If a
security is not backed by the full faith and credit of the United States, the
owner of the security must look principally to the agency issuing the obligation
for repayment. The owner might be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.
The Fund will invest in securities of U.S. government agencies and
instrumentalities only if the Manager is satisfied that the credit risk with
respect to such instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills
(maturities of one year or less when issued), Treasury notes (maturities of from
one to ten years), and Treasury bonds (maturities of more than ten years).
Treasury securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal Reserve
Bank, zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. These include interests in
pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series with different
interest rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have significant amounts of its assets invested in mortgage related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO will be reduced.
Additionally, the Fund may have to reinvest the prepayment proceeds in other
securities paying interest at lower rates, which could reduce the Fund's yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These are the prepayment risks
described above and can make the prices of CMOs very volatile when interest
rates change. The prices of longer-term debt securities tend to fluctuate more
than those of shorter-term debt securities. That volatility will affect the
Fund's share prices.
|X| Commercial (Privately-Issued) Mortgage Related Securities. The Fund
may invest in commercial mortgage related securities issued by private entities.
Generally these are multi-class debt or pass through certificates secured by
mortgage loans on commercial properties. They are subject to the credit risk of
the issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
|X| "Stripped" Mortgage Related Securities. The Fund may invest in
stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security's principal or interest payments. These are a form of derivative
investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially. The market for some of these securities may be limited, making it
difficult for the Fund to dispose of its holdings at an acceptable price.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
|X| When-Issued and Delayed-Delivery Transactions. The Fund may invest in
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield the Manager considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objectives and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or delayed-delivery basis, it records the
transaction on its books and reflects the value of the security purchased in
determining the Fund's net asset value. In a sale transaction, it records
the proceeds to be received. The Fund will identify on its books liquid
assets at least equal in value to the value of the Fund's purchase
commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge 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
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Participation Interests. The Fund may invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyers
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 borrower. 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. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor 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. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. 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 Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
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. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has 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 under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid 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 holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
|X| Forward Rolls. The Fund can enter into "forward roll" transactions
with respect to mortgage related securities. In this type of transaction, the
Fund sells a mortgage related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and having the same
coupon and maturity) at a later date at a set price. The securities that are
repurchased will have the same interest rate as the securities that are sold,
but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold.
Proceeds from the sale are invested in short-term instruments, such as
repurchase agreements. The income from those investments, plus the fees from the
forward roll transaction, are expected to generate income to the Fund in excess
of the yield on the securities that have been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books cash, U.S.
government securities or other high-grade debt securities in an amount equal to
the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities.
|X| Investments in Equity Securities. Under normal market conditions the
Fund can invest up to 35% of its assets in securities other than debt
securities, including equity securities of both foreign and U.S. companies.
However, it does not anticipate investing significant amounts of its assets in
these securities as part of its normal investment strategy. Equity securities
include common stocks, preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund's investments can include stocks of
companies in any market capitalization range, if the Manager believes the
investment is consistent with the Fund's objectives of total return and income.
Certain equity securities may be selected not only for their appreciation
possibilities but because they may provide dividend income.
|_| Risks of Investing in Stocks. Stocks fluctuate in price, and
their short-term volatility at times may be great. To the extent that the Fund
invests in equity securities, the value of the Fund's portfolio will be affected
by changes in the stock markets. Market risk can affect the Fund's net asset
value per share, which will fluctuate as the values of the Fund's portfolio
securities change. The prices of individual stocks do not all move in the same
direction uniformly or at the same time. Different stock markets may behave
differently from each other.
Other factors can affect a particular stock's price, such as poor earnings
reports by the issuer, loss of major customers, major litigation against the
issuer, or changes in government regulations affecting the issuer or its
industry. The Fund can invest in securities of large companies and mid-size
companies, but may also buy stocks of small companies, which may have more
volatile stock prices than large companies.
|_| Convertible Securities. The value of a convertible security is a
function of its "investment value" and its "conversion value." If the investment
value exceeds the conversion value, the security will behave more like a debt
security and the security's price will likely increase when interest rates fall
and decrease when interest rates rise. If the conversion value exceeds the
investment value, the security will behave more like an equity security. In that
case it will likely sell at a premium over its conversion value and its price
will tend to fluctuate directly with the price of the underlying security.
While some convertible securities are a form of debt security, in many
cases their conversion feature (allowing conversion into equity securities)
causes them to be regarded by the Manager more as "equity equivalents." As a
result, the rating assigned to the security has less impact on the Manager's
investment decision than in the case of non-convertible debt fixed income
securities.
To determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors: (4) 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,
(5) 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 conversion of the convertible securities),
and
(6) 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.
|_| Rights and Warrants. The Fund may invest up to 5% of its total
assets in warrants or rights. That limit does not apply to warrants and rights
the Fund has acquired as part of units of securities or that are attached to
other securities that the Fund buys. The Fund does not expect that it will have
significant investments in warrants and rights.
Warrants basically are options to purchase equity securities at specific
prices valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. 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.
|X| Loans of Portfolio Securities. To raise cash for liquidity purposes or
income, the Fund can lend its portfolio securities to brokers, dealers and other
types of financial institutions approved by the Fund's Board of Trustees. These
loans are limited to not more than 25% of the value of the Fund's net assets.
The Fund currently does not intend to engage in loans of securities in the
coming year, but if it does so, such loans will not likely exceed 5% of the
Fund's total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. Government or
its agencies or instrumentalities, 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. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
|X| Borrowing for Leverage. The Fund has the ability to borrow up to one
third of the value of its net assets from banks on an unsecured basis to invest
the borrowed funds in portfolio securities. This speculative technique is known
as "leverage." The Fund may borrow only from banks. Under current regulatory
requirements, borrowings can be made only to the extent that the value of the
Fund's assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings (including the proposed borrowing). If the value of the
Fund's assets fails to meet this 300% asset coverage requirement, the Fund will
reduce its bank debt within three days to meet the requirement. To do so, the
Fund might have to sell a portion of its investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more than that of funds that do not borrow. Currently, the Fund does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
principal are not made, the Fund could suffer losses on its investment or delays
in receiving payment.
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 related to 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 in the case of mortgage-backed
securities and CMOs, described above. Unlike mortgage-backed securities,
asset-backed securities typically do not have the benefit of a security interest
in the underlying collateral.
|X| Bank Obligations and Securities That Are Secured By Them. The Fund can
invest in bank obligations, including time deposits, certificates of deposit,
and bankers' acceptances. They must be either obligations of a domestic bank
with total assets of at least $1 billion or obligations of a foreign bank with
total assets of at least U.S. $1 billion. The Fund may also invest in
instruments secured by bank obligations (for example, debt which is guaranteed
by the bank). For purposes of this policy, the term "bank" includes commercial
banks, savings banks, and savings and loan associations that 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. They may or may not be 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.
Bankers' 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.
|X| Derivatives. The Fund can invest in a variety of derivative
investments to seek income or for hedging purposes. Some derivative investments
the Fund may use are the hedging instruments described below in this Statement
of Additional Information.
Among the derivative investments the Fund can invest in are "index-linked"
or "currency-linked" notes. Principal and/or interest payments on index-linked
notes depend on the performance of an underlying index. Currency-indexed
securities are typically short-term or intermediate-term debt securities. Their
value at maturity or the rates at which they pay income are determined by the
change in value of the U.S. dollar against one or more foreign currencies or an
index. In some cases, these securities may pay an amount at maturity based on a
multiple of the amount of the relative currency movements. This type of index
security offers the potential for increased income or principal payments but at
a greater risk of loss than a typical debt security of the same maturity and
credit quality.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
|X| Hedging. Although the Fund does not anticipate the extensive use of
hedging instruments, the Fund can use hedging instruments. It is not obligated
to use them in seeking its objectives. 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 could:
o sell futures contracts,
o buy puts on such futures or on securities, or
o write covered calls on securities or futures. Covered calls may also be
used to increase the Fund's income, but the Manager does not expect to
engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case the
Fund wouldl normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objectives
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate
to (1) broadly-based bond or stock indices (these are referred to as "financial
futures"), (2) commodities (these are referred to as "commodity futures"), (3)
debt securities (these are referred to as "interest rate futures"), and (4)
foreign currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index
futures. They may in some cases be based on stocks of issuers in a particular
industry or group of industries. A stock index assigns relative values to the
securities included in the index and its value fluctuates in response to the
changes in value of the underlying securities. A stock index cannot be purchased
or sold directly. Bond index futures are similar contracts based on the future
value of the basket of securities that comprise the index. These contracts
obligate the seller to deliver, and the purchaser to take, cash to settle the
futures transaction. There is no delivery made of the underlying securities to
settle the futures obligation. Either party may also settle the transaction by
entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
The Fund can invests a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. 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"). Initial margin payments will be deposited with the Fund's
Custodian bank 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 (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.
|_| Put and Call Options. The Fund can buy and sell certain kinds of
put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
|_| Writing Covered Call Options. The Fund may write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That means
the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
identifying liquid assets on the Fund's books to enable the Fund to satisfy its
obligations if the call is exercised. Up to 50% of the Fund's total assets may
be subject to calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case, the Fund would keep the cash premium.
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 calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
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 will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will 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 option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying an
equivalent dollar amount of liquid assets on the Fund's books. The Fund will
identify additional liquid assets on the Fund's books if the value of the
identified assets drops below 100% of the current value of the future. Because
of this segregation requirement, in no circumstances would the Fund's receipt of
an exercise notice as to that future 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. The Fund can sell put options on
securities, broadly-based securities indices, foreign currencies and futures. 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. The Fund will not write puts if, as a result, more than 50%
of the Fund's net assets would be required to be identified to cover such put
options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the identified assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay 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.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can purchase calls only on
securities, broadly-based securities indices, foreign currencies and futures. It
may do so to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then 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.
The Fund benefits only if it sells the call 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 for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts only on securities, broadly-based securities
indices, foreign currencies and futures, whether or not it owns 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 put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to 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.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put 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. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put 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.
|_| Buying and Selling Options on Foreign Currencies. The Fund can
buy and sell calls and puts on foreign currencies. They include puts and calls
that trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. The Fund
could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign
securities the Fund wants to acquire.
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 those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency 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 it can do so for additional cash consideration held in an
identified account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call 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. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in an identified account with the Fund's Custodian
bank.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. 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 investment.
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. It will not be able to realize any profit if the investment has
increased in value above the call price.
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. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money
on the hedging instruments and also experience a decline in the value of 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
securities will tend to move in the same direction as the indices upon which the
hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the
hedging instruments, the Fund might use hedging instruments in a greater
dollar amount than the dollar amount of portfolio securities being hedged.
It might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further 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 securities purchased.
|_| 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 "lock in" the U.S. dollar price
of a security denominated in a foreign currency that the Fund has bought or
sold, or to protect against possible losses from changes in the relative values
of the U.S. dollar and a foreign currency. The Fund limits its exposure in
foreign currency exchange contracts in a particular foreign currency to the
amount of its assets denominated in that currency or a closely-correlated
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.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among 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
the risk of 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.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund might enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in 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 the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it might enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar could suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its 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.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if 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 or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one 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. As another alternative,
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 contact price.
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as
a consequence of market movements between the date the forward contract is
entered into and the date it is sold. In some cases the Manager might decide
to sell the security and deliver foreign currency to settle the original
purchase obligation. If the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, the Fund might
have to purchase additional foreign currency on the "spot" (that is, cash)
market to settle the security trade. If the market value of the security
instead exceeds the amount of foreign currency the Fund is obligated to
deliver to settle the trade, the Fund might have to sell on the spot market
some of the foreign currency received upon the sale of the security. There
will be additional transaction costs on the spot market in those cases.
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 to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might 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. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs 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 brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each 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
will incur costs in doing so. 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 might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
|_| Interest Rate Swap Transactions. The Fund can enter into
interest rate swap agreements. 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 might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. The Fund will not enter into swaps with respect to more
than 25% of its total assets. Also, the Fund will identify liquid assets on the
Fund's books (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.
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 be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty 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 can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results 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 for each swap. It is measured by 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."
|_| Regulatory Aspects of Hedging Instruments. When using futures
and options on futures, the Fund is required to operate within certain
guidelines and restrictions with respect to the use of futures as established by
the Commodities Futures Trading Commission (the "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 Rule 4.5 adopted by the CFTC. The
Rule does not limit the percentage of the Fund's assets that may be used for
futures margin and related options premiums for a bona fide hedging position.
However, under the Rule, the Fund must limit its aggregate initial futures
margin and related options premiums to not more than 5% of the Fund's net assets
for hedging strategies that are not considered bona fide hedging strategies
under the Rule. Under the Rule, the Fund must also use short futures and options
on futures solely for bona fide hedging purposes within the meaning and intent
of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply 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 that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same Adviser as the Fund (or an Adviser that is an affiliate of the Fund's
Adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
|_| Tax Aspects of Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are 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," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining 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 those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for Federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized 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 that the 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, the following gains or losses are treated
as ordinary income or loss:
(3) 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, and
(4) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
|X| Temporary Defensive Investments. When market conditions are unstable,
or the Manager believes it is otherwise appropriate to reduce holdings in
stocks, the Fund can invest in a variety of debt securities for defensive
purposes. The Fund can also purchase these securities for liquidity purposes to
meet cash needs due to the redemption of Fund shares, or to hold while waiting
to invest cash received from the sale of other portfolio securities. The Fund
can buy:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic
or foreign companies) rated in the three top rating categories of a
nationally recognized rating organization,
o short-term debt obligations of corporate issuers, rated investment
grade (rated at least Baa by Moody's Investors Service, Inc. or at
least BBB by Standard & Poor's Corporation, or a comparable rating by
another rating organization), or unrated securities judged by the
Manager to have a comparable quality to rated securities in those
categories,
o certificates of deposit and bankers' acceptances of domestic and
foreign banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
o 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
o more than 50% of the outstanding shares.
The Fund's investment objectives are a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer
if more than 5% of its total assets would be invested in securities of
that issuer or if it would then own more than 10% of that issuer's
voting securities. That restriction applies to 75% of the Fund's total
assets. The limit does not apply to securities issued by the U.S.
Government or any of its agencies or instrumentalities.
o The Fund cannot lend money. However, it can invest in debt securities
and enter into delayed-delivery or when-issued transactions and forward
rolls or similar securities transactions. The Fund may also lend its
portfolio securities and may enter into repurchase agreements.
o The Fund cannot buy or sell real estate. However, the Fund can purchase
debt securities secured by real estate or interests in real estate or
issued by companies, including real estate investment trusts, which
invest in real estate or interests in real estate.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own
portfolio.
o The Fund cannot invest in the securities issued by any company for the
purpose of exercising management control of that company, except in
connection with a merger, consolidation, reorganization or acquisition
of assets.
o The Fund cannot invest in or hold securities of any issuer if officers
and Directors or Trustees of the Fund or the Manager individually
beneficially own more than 1/2 of 1% of the securities of that issuer
and together own more than 5% of the securities of that issuer.
o The Fund cannot mortgage, pledge or otherwise encumber, transfer or
assign any of its assets to secure a debt. However, this does not
prohibit the Fund from segregating its assets for premium and margin
payments in connection with any of the hedging instruments it uses.
o The Fund cannot buy securities on margin. However, the Fund can make
margin deposits in connection with its use of hedging instruments.
o The Fund cannot invest in oil, gas or other mineral exploration or
development programs or leases.
o The Fund cannot issue "senior securities," but this does not
prohibit certain investment activities for which assets of the Fund
are designated as segregated, or margin, collateral or escrow
arrangements are established, to cover the related obligations.
Examples of those activities include borrowing money, reverse
repurchase agreements, delayed-delivery and when-issued arrangements
for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
The Fund cannot concentrate investments. That means it cannot invest 25%
or more of its total assets in any one industry. The Fund will not invest 25% or
more of its total assets in government securities of any one foreign company or
in debt and equity securities issued by companies organized under the laws of
any one foreign country. Obligations of the U.S. government, its agencies and
instrumentalities are not considered to be part of an "industry" for the
purposes of this policy. For purposes of the Fund's policy not to concentrate
its investments, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in 1995.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. Although the Fund will
not normally hold annual meetings of its shareholders, 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.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares: Class A, Class B, and Class C. All classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one
class are different from interests of another class, and o votes as a class
on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. 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. It will also do so 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.
If the Trustees receive a request from at least 10 shareholders 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. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. Additionally, the
Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds11:
Oppenheimer Cash Reserves Oppenheimer Strategic Income Fund
Oppenheimer Champion Income Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L.P.
Oppenheimer Limited-Term Government Centennial California Tax-Exempt Trust
Fund
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap Centennial Money Market Trust
Fund
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of January 11, 2000, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue are trustees of that plan.
11. Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund or Panorama Series Fund, Inc.
Mr. Fossel and Mr. Bowen are not Trustees of Centennial New York Tax Exempt
Trust or Managing General Partners of Centennial America Fund, L.P. Mr.
Armstrong and Mr. Cameron are not Trustees of the Centennial funds, Oppenheimer
Cash Reserves, Oppenheimer Champion Income Fund, Oppenheimer Main Street Funds,
Inc. and Oppenheimer Real Asset Fund; in addition, Mr. Cameron is also not a
Trustee of Oppenheimer Limited-Term Government Fund, Oppenheimer Integrity Fund,
Oppenheimer High Yield Fund, Oppenheimer Municipal Fund, Oppenheimer Strategic
Income Fund or Panorama Series Fund, Inc.
Robert G. Avis*, Trustee, Age: 68.
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Trustee, Age: 85.
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
William L. Armstrong, Trustee, Age: 62.
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following private mortgage banking companies: Cherry Creek
Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994),
The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc.
(since 1997), and Ambassador Media Corporation (since 1984); Chairman of the
following private companies: Frontier Real Estate, Inc. (residential real estate
brokerage) (since 1994), Frontier Title (title insurance agency) (since 1995)
and Great Frontier Insurance (insurance agency) (since 1995); Director of the
following public companies: Storage Technology Corporation (computer equipment
company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production
company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly
Director of the following public companies: International Family Entertainment
(television channel) (1991 - 1997) and Natec Resources, Inc. (air pollution
control equipment and services company) (1991 - 1995); formerly U.S. Senator
(January 1979 - January 1991).
<PAGE>
George C. Bowen, Trustee, Age: 63
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice
President (since September 1987) and Treasurer (since March 1985) of the
Manager; Vice President (since June 1983) and Treasurer (since March 1985) of
the Distributor; Vice President (since October 1989) and Treasurer (since April
1986) of HarbourView Asset Management Corporation; Senior Vice President (since
February 1992), Treasurer (since July 1991) Assistant Secretary and a director
(since December 1991) of Centennial Asset Management Corporation; President,
Treasurer and a director of Centennial Capital Corporation (since June 1989);
Vice President and Treasurer (since August 1978) and Secretary (since April
1981) of Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant Treasurer
of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of Oppenheimer
Partnership Holdings, Inc. (since November 1989); Vice President and Treasurer
of Oppenheimer Real Asset Management, Inc. (since July 1996); Treasurer of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc (since
October 1997).
Edward L. Cameron, Trustee, Age: 61.
Spring Valley Road, Morristown, New Jersey 07960
Formerly (from 1974-1999) a partner with PricewaterhouseCoopers LLC (an
accounting firm) and Chairman, Price Waterhouse LLP Global Investment management
Industry Services Group (from 1994-1998).
Jon S. Fossel, Trustee, Age: 57.
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., the Manager's parent holding company, and
Shareholder Services, Inc. and Shareholder Financial Services, Inc., transfer
agent subsidiaries of the Manager.
Sam Freedman, Trustee, Age: 59.
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.,
Chairman, Chief Executive Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp. and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Trustee, Age: 70.
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company), self-employed consultant (securities matters).
C. Howard Kast, Trustee, Age: 78.
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee, Age: 78.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee, Age: 51.
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation, an investment adviser
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Ned M. Steel, Trustee, Age: 84.
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain, Chairman, Chief Executive Officer and Trustee*, Age: 66. 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager and
Chairman of the Board of Shareholder Services, Inc.
Ruggero de'Rossi, Vice President and Portfolio Manager; Age 36.
2 World Trade Center, New York, New York 10048
Vice President of the Manager (since 3/6/00); an officer of other Oppenheimer
funds. Prior to joining the Manager he was a Senior Vice President and Chief
Emerging Markets Debt and Currency Strategist of ING Barings, a global
investment bank (7/98 - 3/00); before that he was a Vice President, head of
emerging markets trading strategists at Citicorp Securities, after having run
the bank's proprietary trading activity on international fixed income and
investment banks with responsibility for International Fixed Income Strategy and
Derivatives.
Arthur P. Steinmetz, Vice President and Portfolio Manager, Age: 41.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since March 1993); an officer of other
Oppenheimer funds.
Andrew J. Donohue, Vice President and Secretary, Age: 49.
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of Oppenheimer Real Asset Management, Inc. (since July 1996);
General Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Robert G. Zack, Assistant Secretary, Age: 51.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Brian W. Wixted, Vice President, Treasurer and Assistant Secretary, Age: 40.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
|X| Remuneration of Trustees. The officers of the Fund and two Trustees of
the Fund (Ms. Macaskill and Mr. Swain) are affiliated with the Manager and
receive no salary or fee from the Fund. The remaining Trustees of the Fund
received the compensation shown below. The compensation from the Fund was paid
during its fiscal year ended September 30, 1999. The compensation from all of
the Denver-based Oppenheimer funds includes the compensation from the Fund and
represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1999.
--------------------------------------------------------------------------------
Total Compensation
Trustee's Name and Other Aggregate Compensation From all Denver-Based
Positions from Fund Oppenheimer Funds1
(22 Funds)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
William L. Armstrong2 $40 $14,542
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Robert G. Avis $257 $67,998
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
William A. Baker $262 $67,998
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
George C. Bowen $43 $23,879
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Edward Cameron2 $ 0 $ 2,430
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Jon. S. Fossel $260 $66,586
Review Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Sam Freedman
Audit and Review $279 $73,998
Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Raymond J. Kalinowski
Audit and Review $277 $73,248
Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
C. Howard Kast $294 $78,873
Audit and Review
Committee Chairman
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Robert M. Kirchner $259 $69,248
Audit Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ned M. Steel $257 $67,998
--------------------------------------------------------------------------------
1. For the 1999 calendar year. There were 22 investment companies included.
2. Mr. Armstrong and Mr. Cameron were not Trustees or Directors of the
Denver-based Oppenheimer funds prior to August 24, 1999 and December 14,
1999, respectively.
|X| Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds.
Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of January 11, 2000, the only persons who owned
of record or were known by the Fund to own beneficially 5% or more of the Fund's
outstanding securities of any class were the following: Merrill Lynch, Pierce &
Smith, 4800 Deer Lake Drive, E., Floor 3, Jacksonville, Florida 32246, which
owned 1,594,063.840 Class B shares (5.69% of the Class B shares then
outstanding) and 848,267.381 Class C shares (11.23% of the Class C shares then
outstanding) for the benefit of its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed-Income Portfolio Team provide the portfolio manager with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund with
adequate office space, facilities and equipment. It also requires the Manager to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective administration for the Fund. Those
responsibilities include 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.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories 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. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class.
--------------------------------------------------------------------------------
Fiscal Year ended 9/30: Management Fees Paid to OppenheimerFunds, Inc.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1997 $1,465,1811
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 $1,978,423
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $1,886,864
--------------------------------------------------------------------------------
1. After a reduction in the management fee in the amount of $41,927 pursuant to
a voluntary waiver of expenses by the Manager that is no longer in effect.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment 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 under the
agreement.
The agreement permits the Manager to act as investment Adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in connection with
other investment companies for which it may act as investment Adviser or general
distributor. If the Manager shall no longer act as investment Adviser to the
Fund, the Manager may withdraw the right of the Fund to use the name
"Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
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. The Manager may employ broker-dealers that the Manager thinks in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" means prompt and reliable execution at the most
favorable price obtainable. The Manager need not seek competitive commission
bidding. However, it is expected to be aware of the current rates of eligible
brokers and to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund as established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) 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 charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided.
Subject to those considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies for which the Manager or an affiliate serves
as investment Adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to those
of the Fund. Those other funds may purchase or sell the same securities as the
Fund at the same time as the Fund, which could affect the supply and price of
the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of 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 the
Manager determines that a better price or execution can be obtained by using the
services of a broker. Purchases of portfolio 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 investment advisory agreement permits the Manager to allocate brokerage
for research services. 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. The investment research received for the commissions of those other
accounts may be useful both to the Fund and one or more of the Manager's other
accounts. Investment research may be supplied to the Manager by a third party at
the instance of a broker through which trades are placed.
Investment research services include information and analysis on particular
companies and industries as well as market or economic trends and portfolio
strategy, 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 permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
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 Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and supplements
the research activities of the Manager. That research provides additional views
and comparisons for consideration, and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board about the commissions paid to brokers furnishing such services,
together with the Manager's representation that the amount of such commissions
was reasonably related to the value or benefit of such services.
--------------------------------------------------------------------------------
Fiscal Year Ended 9/30: Total Brokerage Commissions Paid by the Fund1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1997 $4,969
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 $31,991
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $71,0902
--------------------------------------------------------------------------------
2. Amounts do not include spreads or concessions on principal transactions
on a net trade basis.
3. In the fiscal year ended 9/30/99, the amount of transactions directed to
brokers for research services was $297,086 and the amount of the commissions
paid to broker-dealers for those services was $1,493.
Distribution and Service Plans
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 different classes of shares. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
--------------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
9/30: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1997 $1,124,978 $273,182 $23,126 $3,225,657 $209,570
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 $758,818 $197,195 $45,052 $2,036,881 $145,913
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $427,421 $118,394 $41,586 $ $ 83,883
887,632
--------------------------------------------------------------------------------
5. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
--------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Deferred Sales Deferred Sales Deferred Sales Charges
Year Ended Charges Retained by Charges Retained by Retained by Distributor
9/30 Distributor Distributor
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $266 $435,700 $8,730
--------------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees, including a
majority of the Independent Trustees12, cast in person at a meeting called for
the purpose of voting on that plan. The shareholder votes for the plans were
cast by the Manager as the sole initial holder of each class of shares of the
Fund.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time may use their own
resources (at no direct cost to the Fund) to make payments to brokers, dealers
or other financial institutions for distribution and administrative services
they perform. The Manager may use its profits from the advisory fee it receives
from the Fund. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect
from year to year but only if the Fund's Board of Trustees and its Independent
Trustees specifically vote annually to approve its continuance. Approval must be
by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under a plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares of the Fund automatically convert into
Class A shares after six years, the Fund must obtain the approval of both Class
A and Class B shareholders for a proposed material amendment to the Class A Plan
that would materially increase payments under the Plan. That approval must be by
a "majority" (as defined in the Investment Company Act) of the shares of each
Class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
12. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not have
any direct or indirect financial interest in the operation of the distribution
plan or any agreement under the plan.
Each Plan states that while it is in effect, the selection and nomination of
those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services 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. While the plan
permits the Board to authorize payments to the Distributor to reimburse itself
for services under the plan, the Board has not yet done so. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets consisting of Class A shares held in the
accounts of the recipients or their customers.
For the fiscal period ended September 30, 1999 payments under the Class A
Plan totaled $248,547, all of which was paid by the Distributor to recipients.
That included $15,717 paid to an affiliate of the Distributor's parent company.
Any unreimbursed expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A Plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
|X| Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid. The types of services that
Recipients provide are similar to the services provided under the Class A
service plan, described above.
The Class B and the Class C Plans permit the Distributor to retain both the
asset-based sales charges and the service fees or to pay recipients the service
fee on a quarterly basis, without payment in advance. However, the Distributor
currently intends to pay the service fee to recipients in advance for the first
year after the shares are purchased. After the first year shares are
outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. It pays the asset-based sales charge as
an ongoing commission to the recipient on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. The payments are made to the Distributor in recognition that the
Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C shares,
and o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
-------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the
Fiscal Year Ended 9/30/99
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class: Total Payments Amount Retained Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Expenses Under of Net Assets
Under Plan by Distributor Plan of Class
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B $1,228,808 $1,008,649 $5,605,885 4.73%
Plan
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C $ 289,134 $ 154,968 $ 554,577 1.88%
Plan
-------------------------------------------------------------------------------
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield," "dividend
yield," "average annual total return," "cumulative total return," "average
annual total return at net asset value" and "total return at net asset value."
An explanation of how yields and total returns are calculated is set forth
below. The charts below show the Fund's performance as of the Fund's most recent
fiscal year end. You can obtain current performance information by calling the
Fund's Transfer Agent at 1-800-525-7048 or by visiting the OppenheimerFunds
Internet web site at http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown 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 (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
o Yields and total 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. Your account's performance
will vary from the model performance data if your dividends
are received in cash, or you buy or sell shares during the period, or
you bought your shares at a different time and price than the shares
used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other government
agency.
o The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily
basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred
to just as "yield") is shown for a class of shares for a stated 30-day period.
It 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 for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
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 for a particular 30-day period may differ from
the yield for other periods. 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. 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 any
30-day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each
class of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown
below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
-----------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 9/30/99
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Standardized Yield Dividend Yield
Class of
Shares
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A 16.21% 15.42% 13.69% 13.05%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B 15.43% N/A 13.03% N/A
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C 15.43% N/A 13.02% N/A
-----------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
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 without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) 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 Fund's Total Returns for the Periods Ended
9/30/99
----------------------------------------------------------------
----------------------------------------------------------------
Cumulative Total Average Annual Total
Class of Returns (Life of Returns
Shares Class)
----------------------------------------------------------------
----------------------------------------------------------------
1-Year Life-of-Class
----------------------------------------------------------------
----------------------------------------------------------------
After Without After Without After Without
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------
----------------------------------------------------------------
Class A 28.17%1 34.57%1 5.33% 10.58% 5.95%1 7.16%1
----------------------------------------------------------------
----------------------------------------------------------------
Class B 28.44%2 30.13%2 4.90% 9.79% 6.01%2 6.33%2
----------------------------------------------------------------
----------------------------------------------------------------
Class C 30.14%3 30.14%3 8.82% 9.80% 6.33%3 6.33%3
----------------------------------------------------------------
3. Inception of Class A: 6/15/95
4. Inception of Class B: 6/15/95
3. Inception of Class C: 6/15/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is 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 in categories based on
investment style. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|X| Morningstar Rankings. From time to time the Fund may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the taxable bond funds category.
Morningstar star proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk measures a fund's
(or class's) performance below the 90-day U.S. Treasury bill returns. Risk and
investment return are combined to produce star rankings reflecting performance
relative to the other funds in a fund's category. Five stars is the "highest"
ranking (top 10% of funds in a category), 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%). The current star ranking is the
fund's (or class's) overall rating, which is the fund's 3-year rating, or its
combined 3- , 5- and 10-year rating (weighted 60%/40% respectively), or its
combined 3-, 5-, and 10-year rating (weighted 40%/30%/30%, respectively),
depending on the inception date of the fund (or class). Rankings are subject to
change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star rankings. Those total
return rankings are percentages from one percent to one hundred percent and are
not risk adjusted. For example, if a fund is in the 94th percentile, that means
that 94% of the funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include 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 or insured 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. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the
Manager or Transfer Agent, and of 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
and investor services by third parties may include comparisons of their
services to those provided by other mutual fund families selected by the
rating or ranking services. They may be based upon the opinions of the
rating or ranking service itself, using its research or judgment, or based
upon surveys of investors, brokers, shareholders or others.
--------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
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How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day you
instruct the Distributor to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Distributor is
instructed to initiate the ACH transfer 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. The proceeds of ACH transfers are normally received by the Fund 3
days after the transfers are initiated. If the proceeds of the ACH transfer are
not received on a timely basis, the Distributor reserves the right to cancel the
purchase order. 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 Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| 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:
o Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and
o 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, and
o 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.
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.
The Distributor will add the value, at current offering price, of the shares you
previously purchased and currently own to the value of current purchases to
determine the sales charge rate that applies. The reduced sales charge will
apply only to current purchases. You must request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer Capital Preservation Fund Oppenheimer MidCap Fund Oppenheimer
Champion Income Fund Oppenheimer Multiple Strategies Fund Oppenheimer
Convertible Securities Fund Oppenheimer Municipal Bond Fund Oppenheimer
Developing Markets Fund Oppenheimer New York Municipal Fund Oppenheimer
Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund Oppenheimer
Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund Oppenheimer
Discovery Fund Oppenheimer Quest Balanced Value Fund Oppenheimer Enterprise Fund
Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Equity Income Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund Oppenheimer
Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund Oppenheimer Global
Fund Oppenheimer Quest Value Fund, Inc. Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund. Oppenheimer Gold & Special Minerals Oppenheimer
Senior Floating Rate Fund Fund Oppenheimer Growth Fund Oppenheimer Strategic
Income Fund Oppenheimer High Yield Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Insured Municipal Fund Oppenheimer Trinity Core Fund Oppenheimer
Intermediate Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer
International Bond Fund Oppenheimer Trinity Value Fund Oppenheimer International
Growth Fund Oppenheimer U.S. Government Trust Oppenheimer International Small
Oppenheimer World Bond Fund Company Fund Oppenheimer Large Cap Growth Fund
Limited-Term New York Municipal Fund Oppenheimer Limited-Term Government
Rochester Fund Municipals Fund
<PAGE>
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A 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. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may 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 of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) 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 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total 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 Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent 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.
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.
|X| 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 offering price adjusted for a $50,000
purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended 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. That sales charge adjustment will apply to any
shares redeemed prior to the completion of the Letter. If the
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:
(d) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(e) Class B shares of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and
(f) Class A or Class B shares acquired by exchange of either (1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or your can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset
Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. Under current interpretations of applicable
federal income tax law by the Internal Revenue Service, the conversion of Class
B shares to Class A shares after six years is not treated as a taxable event for
the shareholder. If those laws or the IRS interpretation of those laws should
change, the automatic conversion feature may be suspended. In the event, no
further conversions of Class B shares would occur while that 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
shareholder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
|X| Allocation of Expenses. 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of the
Fund's portfolio securities may change significantly on those days, when
shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ are
valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which they are
traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are
valued at the last reported sale price preceding the valuation date if
it is within the spread of the closing "bid" and "asked" prices on the
valuation date or, if not, at the closing "bid" price on the valuation
date.
o Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last trading session
on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis of
reasonable inquiry, from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days
are valued based on the mean between the "bid" and "asked" prices determined
by a portfolio pricing service approved by the Fund's Board of Trustees or
obtained by the Manager from two active market makers in the security on the
basis of reasonable inquiry.
o The following securities 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 by the Manager from two active market
makers in the security on the basis of reasonable inquiry:
(4) debt instruments that have a maturity of more than 397 days when issued, (5)
debt instruments that had a maturity of 397 days or less when issued and have
a remaining maturity of more than 60 days, and
(6) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
o The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
(3) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(4) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available
market quotations are valued at fair value determined under the Board's
procedures. If the Manager is unable to locate two market makers willing to
give quotes, a security may be priced at the mean between the "bid" and
"asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium
received is included in the Fund's Statement of Assets and Liabilities as an
asset. An equivalent credit is included in the liability section. The 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 or put
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
received 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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus.
The information below provides additional information about the procedures and
conditions for redeeming shares.
Checkwriting. When a check is presented to the Bank for clearance, the Bank will
ask the Fund to redeem a sufficient number of full and fractional shares in the
shareholder's account to cover the amount of the check. This enables the
shareholder to continue receiving dividends on those shares until the check is
presented to the Fund. Checks may not be presented for payment at the offices of
the Bank or the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The Fund
reserves the right to amend, suspend or discontinue offering checkwriting
privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege, by signing
the Account Application or by completing a Checkwriting card, each individual
who signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2)for accounts for corporations, partnerships, trusts and other
entities, represents that they are an officer, general partner,
trustee or other fiduciary or agent, as applicable, duly authorized
to act on behalf of the registered owner(s);
(3)authorizes the Fund, its Transfer Agent and any bank through which
the Fund's drafts (checks) are payable to pay all checks drawn on
the Fund account of such person(s) and to redeem a sufficient amount
of shares from that account to cover payment of each check;
(4)specifically acknowledges that if they choose to permit checks to
be honored if there is a single signature on checks drawn against
joint accounts, or accounts for corporations, partnerships, trusts
or other entities, the signature of any one signatory on a check
will be sufficient to authorize payment of that check and redemption
from the account, even if that account is registered in the names of
more than one person or more than one authorized signature appears
on the Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6)acknowledges and agrees that neither the Fund nor its bank shall
incur any liability for that amendment or termination of
checkwriting privileges or for redeeming shares to pay checks
reasonably believed by them to be genuine, or for returning or not
paying checks that have not been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A shares
on which a contingent deferred sales charge was paid, or
o 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 in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. 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.
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.
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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
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 will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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 or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 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:
(4) state the reason for the distribution;
(5) state the owner's awareness of tax penalties if the distribution is
premature; and
(6) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary 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 and submitted to the Transfer Agent
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, 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 on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
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. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these 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
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information).
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions that apply to such plans, as
stated below. These provisions may be amended from time to time by the Fund
and/or the Distributor. When adopted, any amendments will automatically
apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed
instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. 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. You can obtain a current list showing
which funds offer which classes by calling the Distributor at
1.800.525.7048.
o All of the Oppenheimer funds currently offer Class A, B and 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, and Centennial America Fund, L.P., which only offer Class A
shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o 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.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y shares
of Oppenheimer Real Asset Fund may not be exchanged for shares of any Class M
Shares of Oppenheimer Convertible Securities Fund may be exchanged only for
Class A shares of other Oppenheimer funds. They may not be acquired by
exchange of shares of any class of any other Oppenheimer funds except Class A
shares of Oppenheimer Money Market Fund or Oppenheimer Cash Reserves acquired
by exchange of Class M shares.
o Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares
of Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged for Class A shares of Senior
Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
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 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. 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. If requested, they must
supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other 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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class
of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
|X| Processing 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 Fund may refuse the
request. When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund has no fixed dividend rate. There can be no assurance as to the
payment of any dividends or the realization of any capital gains. The dividends
and distributions paid by a class of shares will 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. Dividends are
calculated in the same manner, at the same time, and on the same day for each
class of shares. However, dividends on Class B and Class C shares are expected
to be lower than dividends on Class A shares. That is because of the effect of
the asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in the net asset values
of the different classes of shares.
Dividends, distributions and 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. Reinvestment will be made as promptly as possible after the
return of such checks to the Transfer Agent, to enable the investor to earn
a return
on otherwise idle funds. Unclaimed accounts may be subject to state
escheatment laws, and the Fund and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good
faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
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. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from 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.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1
through December 31 of that year and 98% of its capital gains realized in
the period from November 1 of the prior year through October 31 of the
current year. If it does not, the Fund must pay an excise tax on the amounts
not distributed. It is presently anticipated that the Fund will meet those
requirements. However, the Board of Trustees and the Manager might determine
in a particular year that it would be in the best interests of shareholders
for the Fund not to make such distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
The 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). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
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 above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
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 also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as 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 numbers shown on the back cover.
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. 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. Those
uninsured balances at times may be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and for certain other funds
advised by the Manager and its affiliates.
<PAGE>
A-6
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INDEPENDENT AUDITORS' REPORT
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER INTERNATIONAL BOND
FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer International Bond Fund as of
September 30, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1999
and September 30, 1998, and the financial highlights for the period June 15,
1995, to September 30, 1999. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
International Bond Fund as of September 30, 1999, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1999
FINANCIALS
13 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
MORTGAGE-BACKED OBLIGATIONS--1.0%
Nykredit AS, 7% Cv. Bonds, 10/1/29 [DKK] (Cost
$2,624,089) 18,690,000 $ 2,599,924
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--0.7%
Federal National Mortgage Assn. Sr. Unsub. Medium-Term Nts.,
6.50%, 7/10/02
[AUD]
1,310,000 864,779
-------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Sr. Unsub. Nts., 6.375%, 8/15/07
[AUD] 1,365,000 867,944
-----------
Total U.S. Government Obligations (Cost
$1,667,637) 1,732,723
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--58.7%
-------------------------------------------------------------------------------------------------------------------
ARGENTINA--5.5%
Argentina (Republic of) Bonds, Bonos de Consolidacion de
Deudas, Series I, 2.828%, 4/1/07(2)
[ARP] 5,096,437 3,390,992
-------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Global Unsec. Unsub. Bonds,
Series BGL5, 11.375%,
1/30/17 2,450,000
2,309,125
-------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Nts., Series REGS, 11.75%, 2/12/07
[ARP] 7,425,000 6,349,645
-------------------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Series PBA1, 2.828%, 4/1/07(2)
[ARP] 2,681,784 1,667,202
-----------
13,716,964
-------------------------------------------------------------------------------------------------------------------
BRAZIL--5.7%
Brazil (Federal Republic of) Bonds, 11.625%,
4/15/04 520,000 486,226
-------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Capitalization Bonds, 20 yr., 8%,
4/15/14 8,797,260 5,509,285
-------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Conversion Bonds, 5.938%,
4/15/12(2) 8,342,000 5,026,055
-------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Interest Due & Unpaid Bonds, 6.50%,
1/1/01(2) 2,127,654 2,063,824
-------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Unsec. Bonds, 9.375%,
4/7/08 1,530,000 1,204,875
-----------
14,290,265
-------------------------------------------------------------------------------------------------------------------
BULGARIA--1.8%
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.75%,
7/28/12(3)
7,255,000 4,570,650
-------------------------------------------------------------------------------------------------------------------
CANADA--1.5%
Canada (Government of) Bonds, Series J24, 10.25%,
2/1/04 4,650,000 3,714,652
-------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.4%
Colombia (Republic of) Nts., 7.25%,
2/23/04 665,000 536,315
-------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) Unsec. Bonds, 10.875%,
3/9/04 560,000 552,168
-----------
1,088,483
-------------------------------------------------------------------------------------------------------------------
ECUADOR--0.1%
Ecuador (Republic of) Debs.,
2/27/15(4) 110,613
18,528
-------------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Past Due Interest Bonds,
2/27/15(4) 948,945 158,948
-----------
177,476
</TABLE>
14 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
GERMANY--3.6%
Germany (Republic of) Bonds:
6.25%, 4/26/06
[EUR]
952,484 $1,090,476
6.75%, 5/13/04
[DEM]
510,000 591,490
Series 98, 5.25%, 1/4/08
[DEM] 4,645,000
4,982,048
Zero Coupon, 5.66%,
7/4/27(5)[EUR]
5,000,000 989,385
-------------------------------------------------------------------------------------------------------------------
Germany (Republic of) Stripped Bonds, Series JA24,
Zero Coupon, 5.54%,
1/4/24(5)[EUR]
5,865,000 1,472,157
-----------
9,125,556
-------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN--1.7%
United Kingdom Treasury Bonds, 10%, 9/8/03
[GBP] 2,285,000 4,233,562
-------------------------------------------------------------------------------------------------------------------
INDONESIA--0.4%
Bank Negara Indonesia Unsec. Nts., 6.405%,
10/25/01(2) 1,000,000 765,000
-------------------------------------------------------------------------------------------------------------------
Perusahaan Listr, 17% Nts., 8/21/01(6) [IDR]
2,000,000,000 125,673
-------------------------------------------------------------------------------------------------------------------
PT Hutama Karya Promissory Nts., Zero Coupon, 4/9/99(4,6) [IDR]
5,000,000,000 164,572
-----------
1,055,245
-------------------------------------------------------------------------------------------------------------------
ITALY--3.4%
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali:
9.50%, 2/1/06
[EUR]
5,330,000 7,040,501
10.50%, 9/1/05
[EUR]
1,044,254 1,427,309
-----------
8,467,810
-------------------------------------------------------------------------------------------------------------------
IVORY COAST--1.8%
Ivory Coast (Government of) Front Loaded Interest Reduction Bonds:
2%, 3/29/18(3)
[FRF]
21,325,000 701,114
2%,
3/29/18(3)
6,915,000 1,417,575
-----------
Ivory Coast (Government of) Past Due Interest Bonds, Series F,
1.90%, 3/29/18(3)
[FRF]
55,748,000 2,353,298
-----------
4,471,987
-------------------------------------------------------------------------------------------------------------------
JAPAN--2.3%
Japan (Government of) Bonds, Series 141, 6.50%, 6/20/01 [JPY]
545,000,000 5,658,336
-------------------------------------------------------------------------------------------------------------------
JORDAN--2.0%
Hashemite (Kingdom of Jordan) Bonds, Series DEF, 5.50%,
12/23/23(3) 890,000 539,563
-------------------------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.188%,
12/23/23(2) 6,815,000 4,463,825
-----------
5,003,388
</TABLE>
15 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
MEXICO--3.7%
Mexican Williams Sr. Nts., 5.83%, 11/15/08(2,8)
$ 500,000 $ 442,500
-------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos Debs., 14.50%, 3/31/06(6)
[GBP] 1,280,000 2,382,076
-------------------------------------------------------------------------------------------------------------------
United Mexican States Bonds, 11.375%,
9/15/16 6,000,000 6,345,000
-----------
9,169,576
-------------------------------------------------------------------------------------------------------------------
MOROCCO--0.0%
Morocco (Kingdom of) Loan Participation Agreement, Tranche A,
2.018%, 1/1/09(2)
[JPY]
18,095,235 126,299
-------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--0.7%
New Zealand (Government of) Bonds, 7%, 7/15/09
[NZD] 3,265,000 1,692,902
-------------------------------------------------------------------------------------------------------------------
NIGERIA--1.0%
Nigeria (Federal Republic of) Promissory Nts., Series RC, 5.092%,
1/5/10 4,092,394 2,401,151
-------------------------------------------------------------------------------------------------------------------
NORWAY--4.0%
Norway (Government of) Bonds, 9.50%, 10/31/02
[NOK] 69,930,000 9,926,858
-------------------------------------------------------------------------------------------------------------------
PANAMA--0.7%
Panama (Republic of) Interest Reduction Bonds, 4.25%,
7/17/14(2) 625,000 453,125
-------------------------------------------------------------------------------------------------------------------
Panama (Republic of) Past Due Interest Debs., 5.819%,
7/17/16(2) 1,824,725 1,309,241
-----------
1,762,366
-------------------------------------------------------------------------------------------------------------------
PERU--1.9%
Peru (Republic of) Sr. Nts., Zero Coupon, 4.53%,
2/28/16(5) 11,209,525 4,794,314
-------------------------------------------------------------------------------------------------------------------
POLAND--0.4%
Poland (Republic of) Bonds, 12%, 6/12/01
[PLZ] 4,800,000 1,137,181
-------------------------------------------------------------------------------------------------------------------
RUSSIA--1.7%
Russia (Government of) Principal Loan Debs., Series 24 yr.,
12/15/20(4) 17,760,000 1,653,900
-------------------------------------------------------------------------------------------------------------------
Russia (Government of) Sr. Unsec. Unsub. Nts., 11.75%,
6/10/03 720,000 379,080
-------------------------------------------------------------------------------------------------------------------
Russia (Government of) Unsec. Bonds, 11%,
7/24/18 2,565,000 1,083,713
-------------------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%,
7/24/05
1,775,000 736,625
12.75%,
6/24/28
720,000 340,416
-----------
4,193,734
</TABLE>
16 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
SLOVAKIA--1.0%
Slovenska Sporitelna AS Bank Sub. Nts., 6.61%, 12/20/06(2)
$ 1,800,000 $ 1,350,000
-------------------------------------------------------------------------------------------------------------------
Vseobenona Uverova Banka Unsec. Sub. Nts., 7.011%,
12/28/06(2) 1,640,000 1,164,400
-----------
2,514,400
-------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--2.2%
South Africa (Republic of) Bonds:
Series 153, 13%, 8/31/10
[ZAR] 28,724,000
4,277,147
Series 175, 9%, 10/15/02
[ZAR] 8,100,000
1,199,214
-----------
5,476,361
-------------------------------------------------------------------------------------------------------------------
SPAIN--1.8%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
8.80%, 4/30/06
[EUR]
1,700,000 2,187,989
10%, 2/28/05
[EUR]
1,760,000 2,325,802
-----------
4,513,791
-------------------------------------------------------------------------------------------------------------------
THE NETHERLANDS--2.4%
The Netherlands (Government of) Bonds:
6%, 1/15/06
[EUR]
1,070,000 1,206,214
7.75%, 3/1/05
[EUR]
3,950,000 4,797,798
-----------
6,004,012
-------------------------------------------------------------------------------------------------------------------
TURKEY--2.6%
Turkey (Republic of) Treasury Bills, Zero Coupon,
78.57%, 8/23/00(5) [TRL]
5,610,000,000,000 6,625,225
-------------------------------------------------------------------------------------------------------------------
VENEZUELA--3.6%
Venezuela (Republic of) Disc. Bonds, Series DL,
6.312%,
12/18/07(2)
9,452,804 7,337,739
-------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Front-Loaded Interest Reduction Bonds,
Series A, 6.875%,
3/31/07(2)
892,857 676,339
-------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Unsec. Bonds, 9.25%,
9/15/27 1,350,000 891,000
-----------
8,905,078
-------------------------------------------------------------------------------------------------------------------
VIETNAM--0.8%
Vietnam (Government of) Bonds, 3%,
3/12/28(2) 7,095,000 1,995,469
-----------
Total Foreign Government Obligations (Cost
$155,782,210) 146,813,091
</TABLE>
17 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
LOAN PARTICIPATIONS--6.6%
Algeria (Republic of) Reprofiled Debt Loan Participation Nts.:
Tranche 1, 1.063%, 9/4/06(2)
[JPY] 56,945,454 $
248,705
Tranche 1, 6.812%,
9/4/06(2,6)
6,854,363 5,106,501
Tranche A, 2.175%, 3/4/00(2)
[JPY] 9,490,909
86,468
Tranche A, 7.50%,
3/4/00(2,6)
179,424 176,060
-------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts.,
6.615%, 1/22/01(6) [JPY]
286,100,000 2,586,374
-------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing
Agreement Nts., Tranche A, 6.125%,
10/16/00(2,6) 49,999 47,625
-------------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation
Agreement, Tranche B, 5.906%,
1/1/09(2,6) 1,674,000 1,514,970
-------------------------------------------------------------------------------------------------------------------
Panama Working Capital Loan Sinking Fund Nts.,
5.597%,
1/13/00(2,6)
250,000 228,750
-------------------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 3 yr., 9.156%,
8/25/01(2,6) 1,670,000
1,411,150
Series 4 yr., 9.406%,
8/25/02(2,6)
890,000 725,350
-------------------------------------------------------------------------------------------------------------------
PT Lippo Bank Nts.:
8.906%,
8/25/00(2,6)
1,050,000 934,500
9.156%,
8/25/01(2,6)
1,575,000 1,330,875
9.406%,
8/25/02(2,6)
350,000 285,250
-------------------------------------------------------------------------------------------------------------------
Trinidad & Tobago Loan Participation Agreement:
Tranche A, 1.148%, 9/30/00(2,6)
[JPY] 46,763,636 399,689
Tranche B, 1.148%, 9/30/00(2,6) [JPY]
155,863,426 1,332,166
-----------
Total Loan Participations (Cost
$14,825,954) 16,414,433
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--12.3%
-------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.3%
Reliance Industries Ltd.:
10.25% Unsec. Debs., Series B,
1/15/2097 3,900,000 3,126,412
10.25% Unsec. Nts., Series B,
1/15/20977 250,000 200,411
-----------
3,326,823
-------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--0.0%
TAG Heuer International SA, 12% Sr. Sub. Nts.,
12/15/05(6,8) 70,000 77,987
-------------------------------------------------------------------------------------------------------------------
ENERGY--0.5%
Empresa Electrica del Norte Grande SA, 7.75%
Bonds,
3/15/06(6,8)
2,310,000 1,229,992
-------------------------------------------------------------------------------------------------------------------
FINANCIAL--6.8%
Aktiebolaget Spintab, 5.50% Bonds, Series 169, 9/17/03
[SEK] 13,800,000 1,655,083
-------------------------------------------------------------------------------------------------------------------
Allgemeine Hypotheken Bank AG, 5% Sec. Nts.,
Series 501, 9/2/09
[EUR]
1,400,000 1,425,023
-------------------------------------------------------------------------------------------------------------------
Bakrie Investindo:
Zero Coupon Promissory Nts., 3/16/99(4,6) [IDR]
5,990,000,000 107,540
Zero Coupon Promissory Nts., 7/10/1998(4,6) [IDR]
2,000,000,000 35,907
</TABLE>
18 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
FINANCIAL CONTINUED
Bayerische Vereinsbank AG, 5% Sec. Nts.,
Series 661, 7/28/04
[DEM] 4,990,208
$ 5,365,592
-------------------------------------------------------------------------------------------------------------------
Dresdner Funding Trust II, 5.79% Sub. Nts.,
6/30/11(6,8)
[EUR]
2,670,000 2,622,037
-------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
6.875% Sr. Unsec. Nts., 6/7/02
[GBP] 2,370,000 3,917,790
-------------------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50%
Gtd. Nts.,
3/29/04(4,6)
365,000 12,775
-------------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
11% Nts.,
6/18/03(4,6)
500,000 65,000
11% Nts.,
7/2/03(4,6)
1,000,000 130,000
20% Nts., 3/6/00(4) [IDR]
3,000,000,000 46,679
24% Nts., 6/16/03(4) [IDR]
2,000,000,000 31,119
24% Nts., 6/19/03(4) [IDR]
4,107,500,000 63,911
-------------------------------------------------------------------------------------------------------------------
SanLuis Corp., SA de CV, 8.875% Sr. Unsec.
Nts.,
3/18/08
1,770,000 1,500,075
-----------
16,978,531
-------------------------------------------------------------------------------------------------------------------
HOUSING--0.5%
Internacional de Ceramica SA, 9.75% Unsec
Unsub. Nts.,
8/1/02(7,9,10)
700,000 563,500
-------------------------------------------------------------------------------------------------------------------
Internacional de Ceramica SA, 9.75% Unsec
Unsub. Nts.,
8/1/02
750,000 603,750
-----------
1,167,250
-------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.0%
Mechala Group Jamaica Ltd., 12% Bonds,
2/15/02(4,6,8)
250,000 93,125
-------------------------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS--2.9%
Netia Holdings BV, 0%/11% Sr. Disc. Nts.,
11/1/07(11)
[DEM]
1,300,000 440,657
-------------------------------------------------------------------------------------------------------------------
Netia Holdings II BV, 13.50% Sr. Nts.,
6/15/09(7)
[EUR]
2,650,000 2,804,611
-------------------------------------------------------------------------------------------------------------------
NTL, Inc., 9.50% Sr. Unsec. Unsub. Nts., Series B,
4/1/08
[GBP]
580,000 940,874
-------------------------------------------------------------------------------------------------------------------
Telewest Communications plc, 0%/9.875% Sr. Nts.,
4/15/09(7,11)
[GBP]
3,110,000 3,073,115
-----------
7,259,257
-------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.3%
General Motors Acceptance Corp., 6.875% Nts., Series EC,
9/9/04
[GBP]
430,000 696,447
-----------
Total Corporate Bonds and Notes (Cost
$35,178,491) 30,829,412
</TABLE>
19 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
STRUCTURED INSTRUMENTS--12.5%
Citibank (New York) Mexican Linked Nts.:
27.40%, 9/20/01
$ 2,775,000 $ 2,769,450
28.60%,
9/13/01
2,570,000 2,564,860
-------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Indonesian Rupiah Linked Nts., 13.86%,
8/3/00 2,220,000 1,777,110
Indonesian Rupiah Linked Nts., 13.667%,
6/30/00 2,665,000 2,097,355
New York, Philippine Peso/Japanese Yen Linked Nts.,
10.55%,
5/12/00
2,600,000 2,097,420
Russian OFZ Linked Nts.:
25%, 2/6/02(2)
[RUR]
625,200 2,029
25%, 5/22/02(2)
[RUR]
625,200 1,920
25%, 6/5/02(2)
[RUR]
625,200 1,930
25%, 9/18/02(2)
[RUR]
625,200 1,823
25%, 10/9/02(2)
[RUR]
625,200 1,779
25%, 1/22/03(2)
[RUR]
625,200 1,670
25%, 2/5/03(2)
[RUR]
625,200 1,685
25%, 5/21/03(2)
[RUR]
625,200 1,630
25%, 6/4/03(2)
[RUR]
625,200 1,623
25%, 9/17/03(2)
[RUR]
625,200 1,598
25%, 10/8/03(2)
[RUR]
625,200 1,563
25%, 1/21/04(2)
[RUR]
625,200 1,494
-------------------------------------------------------------------------------------------------------------------
Deutsche Morgan Grenfell, Russian OFZ Linked Nts.,
Zero Coupon, 187.65%, 12/15/01(5)
[RUR] 2,143,000 3,864
-------------------------------------------------------------------------------------------------------------------
Hong Kong & Shanghai Banking Corp. Linked Receipt Nts.,
Linked to the Korean Exchange Bank Floating Nts.
due 12/23/99, Zero Coupon, 13.32%,
12/28/99(5) 2,900,000 2,831,125
-------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. Russian OFZ Linked Nts.:
Series L, 25%, 2/6/02(2)
[RUR] 566,080
10,812
Series L, 25%, 5/22/02(2)
[RUR] 566,080
10,229
Series L, 25%, 6/5/02(2)
[RUR] 566,080
10,274
Series L, 25%, 9/18/02(2)
[RUR] 566,080
9,713
Series L, 25%, 10/9/02(2)
[RUR] 566,080
9,473
Series L, 25%, 1/22/03(2)
[RUR] 566,080
8,888
Series L, 25%, 2/5/03(2)
[RUR] 566,080
8,973
Series L, 25%, 5/21/03(2)
[RUR] 566,080
8,681
Series L, 25%, 6/4/03(2)
[RUR] 566,080
8,636
Series L, 25%, 9/17/03(2)
[RUR] 566,080
8,513
Series L, 25%, 10/8/03(2)
[RUR] 566,080
8,210
Series L, 25%, 1/21/04(2)
[RUR] 566,080
7,986
Series L, Zero Coupon, 53.77%, 12/15/01(5)
[RUR] 1,940,000 20,588
-------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. Turkey Treasury Bond Linked Nts.:
81%, 1/9/01(2) [TRL]
1,926,700,000,000 4,455,825
85.25%, 1/7/01(2) [TRL]
1,110,000,000,000 2,567,066
87.165%, 1/7/01(2) [TRL]
541,348,794,013 1,237,731
</TABLE>
20 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
STRUCTURED INSTRUMENTS CONTINUED Standard Chartered Bank:
Argentine Peso Linked Nts., 13.512%, 3/10/00
$ 2,612,000 $ 2,632,635
Argentine Peso Linked Nts., 16.10%,
3/3/00 1,300,000 1,312,740
Indian Rupee/Japanese Yen Linked Nts.,
Zero Coupon, 12.73%,
8/17/01(5) 3,525,000
2,586,998
Indonesian Rupiah Linked Nts., 18.19%,
8/18/00 1,300,000 1,251,250
Philippine Peso/Japanese Yen Linked Nts.,
16.04%,
5/10/00
1,300,000 974,350
-----------
Total Structured Instruments (Cost
$34,690,328) 31,311,499
DATE
STRIKE CONTRACTS
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
European Monetary Unit Call Opt. 10/4/99 EUR
1.078 26,840,000 66,832
-------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Put Opt. 1/11/00 HKD
7.894 22,497,900 2,025
-------------------------------------------------------------------------------------------------------------------
Japanese Yen Call Opt. 10/6/99 JPY 100.000
259,000,000 --
-------------------------------------------------------------------------------------------------------------------
Japanese Yen Call Opt. 10/27/99 JPY 106.600
128,000,000 25,728
-------------------------------------------------------------------------------------------------------------------
Japanese Yen Call Opt. 10/20/99 JPY 108.500
533,000,000 15,457
-------------------------------------------------------------------------------------------------------------------
Mexican Peso Put Opt.6 10/8/99 MXN
11.000 29,810,000 2,981
-----------
Total Options Purchased (Cost
$778,039) 113,023
FACE
AMOUNT(1)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--3.8%
Repurchase agreement with PaineWebber, Inc., 5.29%,
dated 9/30/99, to be repurchased at $9,401,381 on 10/1/99,
collateralized by U.S. Treasury Bills, 12/23/99--7/20/00, with
a value of $8,629,184, U. S. Treasury Nts., 7.875%, 11/15/04,
with a value of $964,883 (Cost $9,400,000)
$ 9,400,000 9,400,000
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$254,946,748) 95.6% 239,214,105
-------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF
LIABILITIES 4.4
11,110,186
----------- -----------
NET
ASSETS
100.0% $250,324,291
----------- -----------
----------- -----------
</TABLE>
21 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS CONTINUED
--------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
ARP Argentine Peso IDR Indonesian Rupiah
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar MXN Mexican Nuevo Peso
DEM German Mark NOK Norwegian Krone
DKK Danish Krone NZD New Zealand Dollar
EUR Euro PLZ Polish Zloty
FRF French Franc RUR Russian Ruble
GBP British Pound Sterling SEK Swedish Krona
HKD Hong Kong Dollar TRL Turkish Lira
2. Represents the current interest rate for a variable rate security.
3. Represents the current interest rate for an increasing rate security.
4. Non-income-producing--issuer is in default.
5. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
6. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
7. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $6,641,637 or 2.65% of the Fund's net
assets as of September 30, 1999.
8. Securities with an aggregate market value of $479,250 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
9. A sufficient amount of liquid assets has been designated to cover outstanding
written options, as follows:
<TABLE>
<CAPTION>
FACE CONTRACTS EXPIRATION
EXERCISE PREMIUM MARKET VALUE
SUBJECT TO PUT DATE
PRICE RECEIVED SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Mexican Nuevo Peso Put Option 29,810,000 10/8/99 MXN
11.00 $ 66,937 $ --
Polish Zloty Put Option 22,273,537 11/4/99 PLZ
4.18 121,790 54,080
----------------------------
$188,727 $54,080
----------------------------
----------------------------
</TABLE>
10. A sufficient amount of securities has been designated to cover outstanding
foreign currency exchange contracts. See Note 5 of Notes to Financial
Statements.
11. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
22 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS CONTINUED
DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC DIVERSIFICATION, AS A
PERCENTAGE OF TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
GEOGRAPHIC DIVERSIFICATION MARKET VALUE PERCENT
----------------------------------------------------------------------------------------
<S> <C>
<C>
Germany $ 18,538,210
7.7%
Argentina 17,662,338
7.4
Mexico 17,171,211
7.2
United States 15,068,133
6.3
Turkey 14,885,847
6.2
Brazil 14,290,265
6.0
Indonesia 11,361,016
4.7
Norway 9,926,858
4.1
Venezuela 8,905,079
3.7
Italy 8,467,809
3.5
Algeria 8,204,107
3.4
Great Britain 7,306,678
3.1
The Netherlands 6,004,012
2.5
India 5,913,820
2.5
Japan 5,658,336
2.4
South Africa 5,476,361
2.3
Jordan 5,003,388
2.1
Peru 4,794,314
2.0
Bulgaria 4,570,650
1.9
Spain 4,513,792
1.9
Ivory Coast 4,471,986
1.9
Poland 4,382,450
1.8
Russia 4,349,319
1.8
Canada 3,714,652
1.6
Philippines 3,071,770
1.3
Korea, Republic of (South) 2,831,125
1.2
Denmark 2,599,924
1.1
Slovakia 2,514,400
1.1
Nigeria 2,401,151
1.0
Vietnam 1,995,469
0.8
Panama 1,991,116
0.8
Australia 1,732,723
0.7
Trinidad & Tobago 1,731,855
0.7
New Zealand 1,692,902
0.7
Sweden 1,655,083
0.7
Morocco 1,641,269
0.7
Chile 1,229,992
0.5
Colombia 1,088,482
0.5
Ecuador 177,476
0.1
Jamaica 140,750
0.1
Switzerland 77,987
0.0
--------------------------------
Total $239,214,105
100.0%
--------------------------------
--------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
23 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<S>
<C>
ASSETS
Investments, at value (cost $254,946,748)--see accompanying statement
$ 239,214,105
----------------------------------------------------------------------------------------------------
Cash
195,474
----------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency exchange contracts--Note
5 1,271,564
----------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and principal
paydowns 6,194,641
Investments
sold 5,428,257
Shares of beneficial interest
sold 1,718,895
Daily variation on futures contracts--Note
6 99,997
Other
302,339
---------------
Total
assets
254,425,272
----------------------------------------------------------------------------------------------------
LIABILITIES
Unrealized depreciation on foreign currency exchange contracts--Note
5 139,602
----------------------------------------------------------------------------------------------------
Options written, at value (premiums received $188,727)--
see accompanying statement--Note
7 54,080
----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments
purchased 1,717,292
Dividends
1,289,101
Shares of beneficial interest
redeemed 564,799
Distribution and service plan
fees 148,440
Closed foreign currency exchange
contracts 75,197
Transfer and shareholder servicing agent
fees 37,037
Daily variation on futures contracts--Note
6 10,507
Other
64,926
---------------
Total
liabilities
4,100,981
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
NET
ASSETS
$250,324,291
---------------
---------------
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in
capital
$317,506,115
----------------------------------------------------------------------------------------------------
Undistributed net investment
income 744,959
----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (53,337,044)
----------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign
currencies (14,589,739)
---------------
Net
assets
$250,324,291
---------------
---------------
</TABLE>
24 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
<S>
<C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$102,236,116 and 24,151,631 shares of beneficial interest
outstanding) $4.23
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering
price) $4.44
-------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $118,632,046
and 28,102,977 shares of beneficial interest
outstanding) $4.22
-------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $29,456,129
and 6,980,102 shares of beneficial interest
outstanding) $4.22
</TABLE>
See accompanying Notes to Financial Statements.
25 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended September 30, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<S>
<C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $89,821)
$ 37,345,712
----------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of
$1,627) 9,222
---------------
Total
income
37,354,934
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
EXPENSES
Management fees--Note
4 1,886,864
----------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class
A
248,547
Class
B
1,228,808
Class
C
289,134
----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note
4 414,642
----------------------------------------------------------------------------------------------------
Shareholder
reports 127,249
----------------------------------------------------------------------------------------------------
Custodian fees and
expenses 68,597
----------------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 18,327
----------------------------------------------------------------------------------------------------
Trustees'
compensation
2,423
----------------------------------------------------------------------------------------------------
Other
78,633
---------------
Total
expenses
4,363,224
Less expenses paid indirectly--Note
1 (40,358)
---------------
Net
expenses
4,322,866
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME 33,032,068
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments
(12,342,461)
Closing of futures
contracts (1,258,647)
Closing and expiration of option contracts written--Note
7 1,080,328
Foreign currency
transactions (13,602,130)
---------------
Net realized
loss (26,122,910)
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
15,641,368
Translation of assets and liabilities denominated in foreign
currencies 1,895,302
---------------
Net
change
17,536,670
---------------
Net realized and unrealized
loss (8,586,240)
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $24,445,828
---------------
---------------
</TABLE>
See accompanying Notes to Financial Statements.
26 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1999 1998
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
OPERATIONS
Net investment income $
33,032,068 $ 28,345,575
----------------------------------------------------------------------------------------------------------------
Net realized loss
(26,122,910) (32,072,921)
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
17,536,670 (33,393,415)
--------------------------------------
Net increase (decrease) in net assets resulting from operations
24,445,828 (37,120,761)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment
income:
Class A
(12,490,131) (11,278,509)
Class B
(14,069,900) (12,501,126)
Class C
(3,315,800) (2,851,020)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class
A
-- (464,690)
Class
B
-- (544,637)
Class
C
-- (123,007)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A
7,013,720 8,857,621
Class B
1,272,305 28,481,664
Class C
2,430,203 6,178,227
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
NET ASSETS
Total increase (decrease)
5,286,225 (21,366,238)
----------------------------------------------------------------------------------------------------------------
Beginning of period
245,038,066 266,404,304
--------------------------------------
End of period (including undistributed net investment
income of $744,959 and $1,061,401, respectively)
$250,324,291 $245,038,066
--------------------------------------
--------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
27 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.32
$5.51 $5.49 $5.10 $5.00
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58
.56 .52 .52 .15
Net realized and unrealized gain (loss) (.14)
(1.20) .08 .40 .10
----------------------------------------------------------------
Total income (loss)
from
investment operations .44
(.64) .60 .92 .25
---------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.53)
(.53) (.53) (.53) (.15)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and
distributions
to shareholders (.53)
(.55) (.58) (.53) (.15)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.23
$4.32 $5.51 $5.49 $5.10
----------------------------------------------------------------
----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 10.58%
(12.50)% 11.33% 18.82% 5.13%
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $102,236 $ 97,404
$114,847 $52,128 $3,984
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $101,948 $108,264
$ 89,112 $19,817 $2,566
---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 13.47%
11.09% 9.24% 9.60% 9.94%
Expenses, before voluntary assumption
and indirect expenses 1.26%
1.24%(4) 1.28%(4) 1.59%(4) 1.59%(4)
Expenses, net of voluntary assumption
and indirect expenses 1.25%
N/A N/A 1.49% 0.41%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year. 4. Expense ratio
reflects the effect of expenses paid indirectly by the Fund. 5. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
September 30, 1999, were $628,527,274 and $544,904,486, respectively.
See accompanying Notes to Financial Statements
28 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.31
$5.50 $5.48 $5.10 $5.00
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55
.52 .48 .48 .14
Net realized and unrealized gain (loss) (.14)
(1.20) .07 .39 .10
----------------------------------------------------------------
Total income (loss) from
investment operations .41
(.68) .55 .87 .24
-----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.50)
(.49) (.48) (.49) (.14)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and distributions
to shareholders (.50)
(.51) (.53) (.49) (.14)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.22
$4.31 $5.50 $5.48 $5.10
----------------------------------------------------------------
----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 9.79%
(13.16)% 10.52% 17.71% 4.92%
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $118,632 $119,998
$122,874 $45,207 $3,238
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $122,878 $128,789
$ 87,557 $17,891 $1,125
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 12.70%
10.33% 8.57% 8.81% 9.20%
Expenses, before voluntary assumption
and indirect expenses 2.02%
2.00%(4) 2.04%(4) 2.36%(4) 2.21%(4)
Expenses, net of voluntary assumption
and indirect expenses 2.01%
N/A N/A 2.26% 0.89%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year. 4. Expense ratio
reflects the effect of expenses paid indirectly by the Fund. 5. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
September 30, 1999, were $628,527,274 and $544,904,486, respectively.
See accompanying Notes to Financial Statements
29 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS C YEAR ENDED SEPTEMBER 30, 1999
1998 1997 1996 1995(1)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $4.31
$5.50 $5.48 $5.09 $5.00
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55
.52 .48 .48 .14
Net realized and unrealized gain (loss) (.14)
(1.20) .07 .39 .09
----------------------------------------------------------------
Total income (loss)
from
investment operations .41
(.68) .55 .87 .23
-----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.50)
(.49) (.48) (.48) (.14)
Distributions from net realized gain --
(.02) (.05) -- --
----------------------------------------------------------------
Total dividends and
distributions
to shareholders (.50)
(.51) (.53) (.48) (.14)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.22
$4.31 $5.50 $5.48 $5.09
----------------------------------------------------------------
----------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 9.80%
(13.16)% 10.52% 17.92% 4.73%
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,456
$27,636 $28,684 $10,282 $201
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,918
$29,336 $19,883 $ 4,039 $ 97
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 12.76%
10.33% 8.62% 8.76% 9.36%
Expenses, before voluntary assumption
and indirect expenses 2.02%
2.00%(4) 2.04%(4) 2.36%(4) 2.26%(4)
Expenses, net of voluntary assumption
and indirect expenses 2.01%
N/A N/A 2.25% 0.85%
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 285%
446% 280% 273% 122%
</TABLE>
1. For the period from June 15, 1995 (commencement of operations) to September
30, 1995. 2. Assumes a $1,000 hypothetical initial investment on the business
day before the first day of the fiscal period (or inception of offering), 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. 3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1999, were $628,527,274 and $544,904,486, respectively.
See accompanying Notes to Financial Statements
30 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer International Bond Fund (the Fund) is a registered investment
company organized as a Massachusetts Business Trust with a single series of the
same name. The Fund is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek total return. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class
B and Class C shares. Class A shares are sold with a front-end sales charge on
investments up to $1 million. Class B and Class C shares may be subject to a
contingent deferred sales charge (CDSC). All classes of shares have identical
rights to earnings, assets and voting privileges, except that each class has its
own expenses directly attributable to that class and exclusive voting rights
with respect to matters affecting that class. Classes A, B and C have separate
distribution and/or service plans. 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.
--------------------------------------------------------------------------------
SECURITIES 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
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 an
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. Foreign currency exchange contracts are valued based on the
closing prices of the foreign 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 is used.
--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes may be leveraged, which increases the notes'
volatility relative to the face of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of September 30, 1999, the market value of these
securities comprised 12.50% of the Fund's net assets and resulted in realized
and unrealized losses of $4,894,003. The Fund also hedges a portion of the
foreign currency exposure generated by these securities, as discussed in Note 5.
31 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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. As of September 30, 1999, securities with an
aggregate market value of $2,581,104, representing 1.03% 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 foreign 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.
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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 to shareholders. Therefore, no federal
income or excise tax provision is required. As of September 30, 1999, the Fund
had available for federal tax purposes an unused capital loss carryover of
approximately $27,469,000, which expires between 2006 and 2007.
32 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its 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 fiscal year in which the income or realized gain was recorded by
the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended September 30, 1999, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $3,472,679. Accumulated net
realized loss on investments was decreased by the same amount.
--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of 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. Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on payment-in-kind
debt instruments is accrued as income at the coupon rate and a market adjustment
is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
33 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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, 1999 YEAR ENDED SEPTEMBER 30,
1998
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Sold 11,247,933 $ 48,852,991 11,871,238 $ 60,193,894
Dividends and/or
distributions reinvested 1,806,309 7,837,034 1,567,641 7,767,951
Redeemed (11,446,723) (49,676,305) (11,744,939) (59,104,224)
-----------------------------------------------------------
Net increase 1,607,519 $ 7,013,720 1,693,940 $ 8,857,621
-----------------------------------------------------------
-----------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------
CLASS B
<S> <C> <C> <C> <C>
Sold 7,369,029 $ 32,003,600 12,461,105 $ 62,756,778
Dividends and/or
distributions reinvested 1,549,542 6,704,118 1,334,005 6,596,728
Redeemed (8,655,920) (37,435,413) (8,302,252) (40,871,842)
-----------------------------------------------------------
Net increase 262,651 $ 1,272,305 5,492,858 $ 28,481,664
-----------------------------------------------------------
-----------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------
CLASS C
<S> <C> <C> <C> <C>
Sold 2,727,759 $ 11,829,225 3,210,030 $ 16,168,643
Dividends and/or
distributions reinvested 450,539 1,948,375 387,861 1,917,981
Redeemed (2,613,007) (11,347,397) (2,401,923) (11,908,397)
-----------------------------------------------------------
Net increase 565,291 $ 2,430,203 1,195,968 $ 6,178,227
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of September 30, 1999, net unrealized depreciation on securities and options
written of $15,597,996 was composed of gross appreciation of $5,185,272, and
gross depreciation of $20,783,268.
34 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for an annual fee of
0.75% of the first $200 million of average annual net assets of the Fund, 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 average annual net assets
in excess of $1 billion. The Fund's management fee for the year ended September
30, 1999 was 0.74% of average annual net assets for each class of shares.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS
B ON CLASS C
SALES CHARGES SALES CHARGES SHARES
SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED
BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1)
DISTRIBUTOR(1) DISTRIBUTOR(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
September 30, 1999 $427,421 $118,394 $41,586
$887,632 $83,883
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS
B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED
CONTINGENT DEFERRED
SALES CHARGES SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
RETAINED BY DISTRIBUTOR
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1999 $--
$435,700 $8,730
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
35 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended September 30, 1999, payments under
the Class A Plan totaled $248,547, all of which was paid by the Distributor to
recipients. That included $15,717 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and from the Fund under the plans. If either the
Class B or the Class C 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 shares before the plan was terminated. The plans
allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended September 30, 1999,
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S
DISTRIBUTOR'S
AGGREGATE
UNREIMBURSED
UNREIMBURSED
EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF
NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $1,228,808 $1,008,649
$5,605,885 4.73%
Class C Plan 289,134 154,968
554,577 1.88
</TABLE>
36 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
5. 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
foreign 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.
As of September 30, 1999, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
VALUATION
CONTRACT AS OF
EXPIRATION AMOUNT
SEPTEMBER UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000'S) 30,
1999 APPRECIATION DEPRECIATION
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
CONTRACTS TO PURCHASE
Euro (EUR) 11/19/99 EUR 2,481 $
2,653,276 $ 54,716 $ --
Euro (EUR) 11/24/99 EUR 2,430
2,599,383 52,572 --
Japanese Yen (JPY) 10/4/99 JPY 1,725,000
16,211,683 1,056,522 --
-----------------------------
1,163,810 --
-----------------------------
CONTRACTS TO SELL
Australian Dollar (AUD) 11/17/99 AUD 1,450
947,010 -- 5,771
British Pound Sterling (GBP) 10/12/99 GBP 3,505
5,772,481 -- 93,961
British Pound Sterling (GBP) 11/29/99 GBP 1,480
2,437,606 -- 3,213
British Pound Sterling (GBP) 11/19/99 GBP 1,600
2,635,217 -- 36,657
Japanese Yen (JPY) 11/24/99 JPY 262,829
2,489,801 157,010 --
New Zealand Dollar (NZD) 11/15/99 NZD 3,320
1,716,077 50,744 --
-----------------------------
107,754 139,602
-----------------------------
Total Unrealized Appreciation and
Depreciation $1,271,564 $139,602
-----------------------------
-----------------------------
</TABLE>
37 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
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 (initial margin) in an amount 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 may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
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.
As of September 30, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
VALUATION AS OF
UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30,
APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS 1999
(DEPRECIATION)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS TO PURCHASE
Euro-German Foreign Government 12/8/99 384 $42,875,367
$ (75,764)
U.S. Long Bond 12/20/99 49
5,582,938 (80,774)
U.S. Treasury 10 yr. 12/20/99 1
110,125 266
----------
(156,272)
----------
CONTRACTS TO SELL
U.K. Long Gilt 12/24/99 11
1,928,438 44,746
----------
$(111,526)
----------
----------
</TABLE>
38 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered 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.
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 note
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, 1999, was as follows:
<TABLE>
<CAPTION>
CALL
OPTIONS PUT OPTIONS
-----------------------------------------------------------------------------------------
NUMBER OF AMOUNT OF
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
OPTIONS PREMIUMS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Options outstanding as of
September 30, 1998 1,783,440,000 $ 404,348
2,105,362,820 $ 318,516
Options written 2,687,021,594 1,262,262
2,240,924,421 1,734,986
Options closed or expired (2,686,295,380) (935,602)
(4,281,896,081) (1,324,600)
Options exercised (1,784,166,214) (731,008)
(12,307,623) (540,175)
-----------------------------------------------------------------------------------------
Options outstanding as of
September 30, 1999 -- $ --
52,083,537 $ 188,727
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
39 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
8. ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 1999, investments in securities included issues that are
illiquid or restricted. Restricted 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. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of September 30, 1999, was $23,128,925,
which represents 9.24% of the Fund's net assets, of which $77,987 is considered
restricted. Information concerning restricted securities is as follows:
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SEPTEMBER 30,
SECURITY ACQUISITION DATE
COST PER UNIT 1999
---------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
BONDS
Tag Heuer International SA, 12% Sr. Sub. Nts.,
12/15/05
5/14/96 105.25% 111.41%
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
9. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended September 30,
1999.
40 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>
Appendix A
--------------------------------------------------------------------------------
RATINGS DEFINITIONS
--------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
--------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They 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 are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
--------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being made
on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the due
date. The rating may also be used if a bankruptcy petition has been filed or
similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and are
extremely speculative. "DDD" designates the highest potential for recovery of
amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
-------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free U.S.
Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
--------------------------------------------------------------------------------
Industry Classifications
--------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-20
Appendix C
--------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
--------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (7) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue Code, (8)
non-qualified deferred compensation plans, (9) employee benefit plans3 (10)
Group Retirement Plans4 (11) 403(b)(7) custodial plan accounts (12) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
--------------
5. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
6. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
7. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
8. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."13 This waiver provision applies to:
13. However, that commission will not be paid on purchases of shares in amounts
of $1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases by a Retirement Plan (other than an IRA or 403(b)(7)
custodial plan) that:
(4) buys shares costing $500,000 or more, or
(5) has, at the time of purchase, 100 or more eligible employees or total plan
assets of $500,000 or more, or
(6) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(3) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those purchases,
or
(4) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements with
the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(4) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan. On
the date the plan sponsor signs the record-keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets invested
in (a) mutual funds, other than those advised or managed by Merrill Lynch
Asset Management, L.P. ("MLAM"), that are made available under a Service
Agreement between Merrill Lynch and the mutual fund's principal underwriter
or distributor, and (b) funds advised or managed by MLAM (the funds
described in (a) and (b) are referred to as "Applicable Investments").
(5) The record keeping for the Retirement Plan is performed on a daily valuation
basis by a record keeper whose services are provided under a contract or
arrangement between the Retirement Plan and Merrill Lynch. On the date the
plan sponsor signs the record keeping service agreement with Merrill Lynch,
the Plan must have $3 million or more of its assets (excluding assets
invested in money market funds) invested in Applicable Investments.
(6) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs that
agreement, the Plan has 500 or more eligible employees (as determined by
the Merrill Lynch plan conversion manager). Purchases by a Retirement Plan
whose record keeper had a cost-allocation agreement with the Transfer Agent
on or before May 1, 1999.
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. 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 (and no commissions are paid by the Distributor on such
purchases): |_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates,
and retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts, uncles,
nieces and nephews; relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included.
|_| 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 which are
identified as such 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, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares for
their own accounts may also purchase shares without sales charge but only
if their accounts are linked to a master account of their investment
advisor or financial planner on the books and records of the broker, agent
or financial intermediary with which the Distributor has made such special
arrangements . Each of these investors may be charged a fee by the broker,
agent or financial intermediary for purchasing shares.
|_| 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 (or its successor) is the
investment advisor (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.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent
or other financial intermediary that has made special arrangements with
the Distributor for those purchases.
|_| 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 Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan 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, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. 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 sales charges (and no commissions are paid by the Distributor on such
purchases): |_| 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 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 through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days 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 shares of
the Fund, and the Distributor may require evidence of qualification for
this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. 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:
|_| To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(9) 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.
(10) To return excess contributions.
(11) To return contributions made due to a mistake of fact.
(12) Hardship withdrawals, as defined in the plan.14
14. This provision does not apply to IRAs.
(13) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(14) To meet the minimum distribution requirements of the Internal Revenue
Code.
(15) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(16) For loans to participants or beneficiaries.
(17) Separation from service.15
15. This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions, if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. 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.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an
|_| Oppenheimer fund in amounts of $1 million or more held by the
Retirement Plan for more than one year, if the redemption proceeds are
invested in Class A shares of one or more Oppenheimer funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(15) 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 in an Oppenheimer fund.
(16) To return excess contributions made to a participant's account.
(17) To return contributions made due to a mistake of fact.
(18) To make hardship withdrawals, as defined in the plan.16
16. This provision does not apply to IRAs.
(19) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(20) To meet the minimum distribution requirements of the Internal Revenue Code.
(21) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(22) For loans to participants or beneficiaries.17
17. This provision does not apply to loans from 403(b)(7) custodial plans.
(23) On account of the participant's separation from service.18
18. This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
(24) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) offered as an investment option in a Retirement Plan
if the plan has made special arrangements with the Distributor.
(25) Distributions made on account of a plan termination or
"in-service" distributions, if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
(26) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(27) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as long
as the aggregate value of the distributions does not exceed 10% of
the account's value, adjusted annually.
(28) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate
value of the redeemed shares does not exceed 10% of the account's
value, adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued 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.
|_| Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section
I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds, or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former
Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
--------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
--------------------------------------------------------------------------------
For purchases by 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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 who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| 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 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.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed
10% of the initial value of the account value, adjusted annually,
and
|_| 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of
the initial value of the account value; adjusted annually, and
|_| 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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (3)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's
policies on Combined Purchases or Rights of Accumulation, who still
hold those shares in that Fund or other Former Connecticut Mutual
Funds, and
(4) persons whose intended purchases under a Statement of Intention
entered into prior to March 18, 1996, with the former general
distributor of the Former Connecticut Mutual Funds to purchase shares
valued at $500,000 or more over a 13-month period entitled those
persons to purchase shares at net asset value without being subject
to the Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(7) any purchaser, provided the total initial amount invested in the
Fund or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(8) any participant in a qualified plan, provided that the total
initial amount invested by the plan in the Fund or any one or more
of the Former Connecticut Mutual Funds totaled $500,000 or more;
(9) Directors of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(10) employee benefit plans sponsored by Connecticut Mutual Financial Services,
L.L.C. ("CMFS"), the prior distributor of the Former Connecticut
Mutual Funds, and its affiliated companies;
(11) one or more members of a group of at least 1,000 persons (and
persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other
activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such
group; and
(12) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the
Fund or any one or more of the Former Connecticut Mutual Funds,
provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (10) by the estate of a deceased shareholder;
(11) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(12) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a)
or 403(b)(7)of the Code, or from IRAs, deferred compensation plans
created under Section 457 of the Code, or other employee benefit
plans;
(13) as tax-free returns of excess contributions to such retirement or employee
benefit plans;
(14) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase
of shares of any registered investment management company;
(15) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(16) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(17) in connection with automatic redemptions of Class A shares and Class
B shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(18) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholdersof Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or 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 in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
Oppenheimer International Bond Fund
Internet Web Site:
www.oppenheimerfunds.com
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 Bank
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
PX880.02000
<PAGE>
OPPENHEIMER WORLD BOND FUND
Supplement dated July 12, 2000 to the
Prospectus dated February 23, 2000
The Prospectus is changed as follows:
1. The supplement dated March 6, 2000 is replaced by this supplement.
2. The second paragraph of the subsection entitled "Portfolio Manager" on page
15 is revised in its entirety to read as follows:
Portfolio Managers. The portfolio managers of the Fund, Arthur P. Steinmetz
and Ruggero de'Rossi, are Vice Presidents of the Fund and the persons
principally responsible for the day to day management of the Fund's
investments. Mr. Steinmetz became the portfolio manager on May 20,
1999, and Mr. de'Rossi on March 6, 2000. Mr. Steinmentz is a Senior
Vice President of the Manager. He joined the Manager in 1986, and has
been a portfolio manager of other Oppenheimer funds since 1989. Mr.
de'Rossi joined the Manager as a Vice President and portfolio manager
on March 6, 2000. He was Senior Vice President and Chief Emerging
Markets Strategist for ING Barings from 7/98 until 3/00 and Vice
President and head of emerging markets trading strategies for Citicorp
Securities from 5/95 until 7/98. Mr. Steinmetz and Mr. de'Rossi are
also officers and portfolio managers of other Oppenheimer funds.
3. All references in the Prospectus to the "portfolio manager" are hereby
changed to read, "portfolio managers."
Continued
<PAGE>
4. The following paragraphs are added to the end of the section captioned "How
the
Fund is Managed" on Page 15:
On April 13, 2000, the Board of Directors of the Oppenheimer World Bond Fund
approved, subject to the approval by the shareholders of the Fund, an
Agreement and Plan of Reorganization (the "Plan") with Oppenheimer
International Bond Fund pursuant to which the Fund would be reorganized with
and into Oppenheimer International Bond Fund. A proxy statement will be sent
to shareholders of the Fund.
July 12, 2000 PS0705.005
<PAGE>
Oppenheimer
World Bond Fund
--------------------------------------------------------------------------------
Prospectus dated February 23, 2000
Oppenheimer World Bond Fund is a mutual
fund that seeks total return as its
primary goal. As a secondary goal, it
seeks income when consistent with total
return. It invests primarily in
domestic and foreign government and
corporate debt securities.
This Prospectus contains important
information about the Fund's
objectives, its investment policies,
strategies and risks. It also contains
important information about how to buy
and sell shares of the Fund and other
As with all mutual funds, the account features. Please read this Securities and
Exchange Commission has Prospectus carefully before you invest not approved or
disapproved the Fund's and keep it for future reference about securities nor has
it determined that your account.
this Prospectus is accurate or
complete. It is a criminal offense to
represent otherwise.
--------------------------------------------------------------------------------
(logo) OppenheimerFunds The Right Way to Invest
<PAGE>
Contents
About the Fund
The Fund's Investment Objectives and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
A B O U T T H E F U N D
The Fund's Investment Objectives and Strategies
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? The Fund's main objective is to seek
total return. As a secondary objective, the Fund seeks income when consistent
with total return.
WHAT DOES THE FUND MAINLY INVEST IN? The Fund invests mainly in debt securities
issued by domestic and foreign governments and corporations in developed or
emerging markets. Those debt securities, or "bonds," include government bonds,
as well as participation interests in loans, corporate debt obligations,
mortgage-related securities (including collateralized mortgage obligations, or
"CMOs"), "structured notes" and other debt obligations. They include
"zero-coupon" or "stripped" securities.
The Fund has no limitations on the range of maturities of the debt
securities in which it can invest, and therefore may hold bonds with short-,
medium- or long-term maturities. The Fund can buy securities rated below
investment grade (commonly referred to as "junk bonds").
Under normal market conditions, the Fund:
o invests 65% of its total assets in "bonds,"
o invests at least 50% of net assets in foreign securities, and
o as a fundamental policy, will not make any purchase that will cause 25% or
more of its total assets to be invested in foreign government
securities and foreign corporate securities of any one country (other
than the United States).
HOW DOES THE MANAGER DECIDE WHAT SECURITIES TO BUY OR SELL? In selecting
securities for the Fund, the Fund's portfolio manager analyzes the overall
investment opportunities and risks in individual national economies by focusing
on business cycle analysis in developed countries and political and exchange
rate factors of emerging markets. The portfolio manager's overall strategy is to
build a broadly diversified portfolio of domestic and foreign bonds. For foreign
bonds, the Fund emphasizes government bonds in developed and emerging markets,
to help moderate the special risks of foreign investing. The portfolio manager
currently focuses on the factors below (which may vary in particular cases and
may change over time), looking for:
o Opportunities for higher yields in both domestic and foreign markets, o
Overall country and currency diversification for the portfolio, o Opportunities
in government bonds in both developed and emerging markets.
In selecting securities for appreciation potential, the portfolio manager
will select securities consistent with the Fund's primary goal of total return
with opportunities for income as a secondary goal. The Fund's diversification
strategies, with respect to securities of different issuers, securities
denominated in different currencies and securities issued in different
countries, is intended to help reduce the volatility of the value of the overall
portfolio while seeking total return.
WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking total return in their investment over the long term, with the
opportunity for some income, from a fund that will have investments in both
domestic and foreign debt securities. Those investors should be willing to
assume the risks of short-term share price fluctuations that are typical for a
fund that can have substantial investments in foreign securities, particularly
those in emerging markets, which have special risks. Because the Fund's income
will fluctuate, it is not designed for investors needing an assured level of
current income. Because of its focus on long-term total return, the Fund may be
appropriate for a part of an investor's retirement plan portfolio. However, the
Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors described below. There is also
the risk that poor security selection by the Fund's investment Manager,
OppenheimerFunds, Inc., will cause the Fund to underperform other funds having
similar objectives.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a security might not make interest and principal payments on
the security as they become due. If the issuer fails to pay interest, the Fund's
income might be reduced, and if the issuer fails to repay principal, the value
of that bond and of the Fund's shares might be reduced. A downgrade in an
issuer's credit rating or other adverse news about an issuer can reduce the
value of that issuer's securities. While U.S. government securities have little
credit risk, the Fund's investments in debt securities issued by foreign
government and domestic and foreign corporations are subject to risks of
default.
Special Risks of Lower-Grade Securities. Because the Fund can invest up to 50%
of its total assets in securities below investment grade to seek total
return and higher income, the Fund's credit risks are greater than those
of funds that buy only investment grade bonds. Lower-grade debt securities
(commonly called "junk bonds") may be subject to greater market
fluctuations and greater risks of loss of income and principal than
investment-grade debt securities. Securities that are (or that have
fallen) below investment grade are exposed to a greater risk that the
issuers of those securities might not meet their debt obligations.
Additionally, they may be less liquid than investment-grade securities
making it harder to sell them quickly at an acceptable price. These risks
can reduce the Fund's share prices and the income it earns.
RISKS OF FOREIGN INVESTING. The Fund invests a significant portion of its assets
in foreign debt securities and can buy securities of governments and companies
in both developed markets and emerging markets. While the Fund typically invests
a portion of its assets in domestic debt securities, it has no limit on the
amount of its assets that can be invested in foreign securities. It will invest
at least 50% of its assets abroad. While foreign securities offer special
investment opportunities, there are also special risks that can reduce the
Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. Foreign issuers are not
subject to the same accounting and disclosure requirements that apply to U.S.
companies.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
Special Risks of Emerging and Developing Markets. Securities in emerging and
developing markets may offer special investment opportunities, but
investments in those countries present risks not found in more mature
markets. Those securities may be more difficult to sell at an acceptable
price and their prices may be more volatile than securities of issuers in
more developed markets. Settlements of trades may be subject to greater
delays so that the Fund might not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and exchanges.
Emerging countries may have less developed legal and accounting systems
and investments may be subject to greater risks of government restrictions
on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of securities of
local companies. These investments may be substantially more volatile than
debt securities of issuers in the U.S. and other developed countries and
may be very speculative.
INTEREST RATE RISKS. The values of debt securities are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Fund's investments in debt securities.
HOW RISKY IS THE FUND OVERALL? The risks describe above collectively form the
overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its prices per share. Particular
investments and investment strategies also have risks. These risks mean that you
can lose money by investing in the Fund. When you redeem your shares, they may
be worth more or less than what you paid for them. There is no assurance that
the Fund will achieve its investment objectives.
In the short term, the values of debt securities, particularly those of
issuers in emerging markets, can be volatile, and the price of the Fund's shares
can go up and down substantially. The income from some of the Fund's investments
may help cushion the Fund's total return from changes in prices, but debt
securities are subject to credit and interest rate risks that can also affect
their values and the share prices of the Fund. In the OppenheimerFunds spectrum,
the Fund is generally more aggressive and has more risks than bond funds that
focus primarily on U. S. government securities and investment grade bonds but
may be less volatile than funds that focus solely on investments in foreign or
emerging markets.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the last ten calendar years and by showing how the average
annual total returns of the Fund's Class A shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 10.41% (3Q92) and the lowest return (not annualized)
for a calendar quarter was -8.64% (4Q92).
<PAGE>
--------------------------------------------------------------------------------
Average Annual Total 1 Year 5 Years 10 Years
Returns for the
periods ended December (or life of
31, 1999 class, if less)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares 1.74% 6.67% 6.82%
(inception 11/23/88)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Salomon Bros. World -4.27% 6.42% 8.03%1
Gov't Bond Index
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares 1.32% -0.94% N/A
(inception 4/27/98)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares 5.17% 1.04% N/A
(inception 4/27/98)
--------------------------------------------------------------------------------
1. From 12/31/89.
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
maximum contingent deferred sales charge of 5% (1-year) and 4% (life of class);
and for Class C, the 1% contingent deferred sales charge for the 1-year period.
The Fund converted from a closed-end fund (having no sales charges or 12b-1
plans) to an open-end fund on April 24, 1998. Its existing shares became the
Fund's Class A shares. The returns in the table for Class A shares are based on
the Fund's historical performance prior to the conversion, adjusted downward for
the current Class A maximum initial sales charge.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The performance of the Fund's Class A shares is compared to the Salomon
Brothers World Government Bond Index, which measures the performance of selected
domestic and foreign government bond markets. The index performance reflects the
reinvestment of income but does not consider the effects of transaction costs.
Also, the index does not include corporate bonds or bonds from emerging markets,
in which the Fund can invest and the Fund's investments vary from the securities
in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
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 meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
October 31, 1999.
Shareholder Fees (charges paid directly from your investment):
--------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Sales Charge 4.75% None None
(Load) on purchases
(as % of offering price)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Deferred Sales None1 5%2 1%3
Charge (Load) (as % of
the lower of the
original offering price
or redemption proceeds)
--------------------------------------------------------------------------------
1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
-------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Distribution and/or 0.18% 1.00% 1.00%
Service (12b-1) Fees
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Other Expenses 0.81% 0.74% 0.79%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total Annual Operating 1.74% 2.49% 2.54%
Expenses
-------------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
--------------------------------------------------------------------------------
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $643 $997 $1,374 $2,429
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $752 $1,076 $1,526 $2,473
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $357 $791 $1,350 $2,875
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $643 $997 $1,374 $2,429
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $252 $776 $1,326 $2,473
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $257 $791 $1,350 $2,875
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1. Class
B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different types of investments will vary over time based upon the
Manager's evaluation of economic and market trends. The Fund's portfolio might
not always include all of the different types of investments described below. At
times the Fund might focus more on investing for growth with less emphasis on
income, while at other times it may have both growth and income investments to
seek total return. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of securities of any one issuer and by not investing too great a
percentage of the Fund's assets in any one issuer. Also, the Fund does not
concentrate 25% or more of its investments in the foreign government securities
and foreign corporate securities of any one foreign country (other than the
United States). However, changes in the overall market prices of securities and
the income they pay can occur at any time. The share prices of the Fund will
change daily based on changes in market prices of securities and market
conditions and in response to other economic events.
Debt Securities. The Fund can invest in debt securities, such as securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities, foreign government securities, real estate investment
trusts, and foreign and domestic corporate bonds and debentures.
The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned an
equivalent rating by the Manager. The Fund's investments may be above or
below investment grade in credit quality.
o Foreign Debt Securities. The Fund can buy a variety of debt securities
issued by foreign government and companies, as well as "supra-national"
entities such as the World Bank. Securities issued or guaranteed by
foreign governments and their agencies might not be backed by the "full
faith and credit" of the government.
The Fund's foreign debt investments can be denominated in U.S. dollars or
in foreign currencies and can include "Brady Bonds." Those are U.S.-dollar
denominated debt securities collateralized by zero-coupon U.S. Treasury
securities. They are typically issued by emerging markets countries and
are considered speculative securities with higher risks of default. The
Fund will buy foreign currency only in connection with the purchase and
sale of foreign securities and not for speculation.
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus.
o U.S. Treasury Obligations. Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and
repayments of principal. The Fund can also buy U. S. Treasury securities
that have been "stripped" of their coupons by a Federal Reserve Bank,
zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates. Some are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds. Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations.
o Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have
collateral to secure payment of interest and principal. They may be issued
in different series each having different interest rates and maturities.
The collateral is either in the form of mortgage pass-through certificates
issued or guaranteed by a U.S. agency or instrumentality or mortgage loans
insured by a U.S. government agency. The Fund can have substantial amounts
of its assets invested in mortgage-related U.S. government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected
prepayments of those mortgages to change. In general, prepayments increase
when general interest rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment
proceeds in other securities paying interest at lower rates, which could
reduce the Fund's yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks
can make the prices of CMOs very volatile when interest rates change. The
prices of longer-term debt securities tend to fluctuate more than those of
shorter-term debt securities. That volatility will affect the Fund's share
prices.
High-Yield, Lower-Grade Debt Securities. The Fund can purchase a variety of
lower-grade, high-yield debt securities of U.S. and foreign issuers, to
seek high current income. These securities are sometimes called "junk
bonds." The Fund has no requirements as to the maturity of the debt
securities it can buy, or as to the market capitalization range of the
issuers of those securities.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating
Service or similar ratings by other nationally-recognized rating
organizations. The Fund can invest in securities rated as low as "C" or
"D" or which are in default at the time the Fund buys them. The Manager
does not rely solely on ratings issued by rating organizations when
selecting investments for the Fund. The Fund can buy unrated securities
that offer high current income.
Although the Fund can invest up to 50% of its total assets in securities
below investment grade, it cannot invest more than 5% of its total assets
in securities rated "C" or "D" by a national rating organization.
Additionally, not more than 30 % of the Fund's total assets can be
invested in the following securities if they are below investment-grade:
o foreign government securities
o foreign corporate securities
o securities denominated in currencies other than the U.S. dollar.
CAN THE FUND'S INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's objectives are
fundamental policies. Other investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of Additional
Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objectives, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have risks, although some are designed to help
reduce overall investment or market risks.
EquitySecurities. The Fund can invest up to 35% of its total assets under
normal market conditions in other types of securities, including common
stocks and other equity securities of foreign and U.S. companies. Equity
securities can be volatile and are subject to risks from market price
movement. However, the Fund does not anticipate having significant
investments in those types of securities as part of its normal portfolio
strategy.
Zero-Coupon and "Stripped" Securities. Some of the government and corporate debt
securities the Fund buys are zero-coupon bonds that pay no interest and
are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped,
with each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all the
principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. The
Fund may have to pay out the imputed income on zero-coupon securities
without receiving the actual cash currently. Interest-only securities are
particularly sensitive to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only
securities may also be more volatile when interest rates change. When
prepayments tend to fall, the timing of the cash flows to these securities
increases, increasing their fluctuations in value when rates change. The
market for some of these securities may be limited, making it difficult
for the Fund to dispose of its holdings at an acceptable price.
"When-Issued" and "Delayed-Delivery" Transactions. The Fund can purchase
securities on a "when-issued" basis and may purchase or sell securities on
a "delayed-delivery" basis. These terms refer to securities that have been
created and for which a market exists, but which are not available for
immediate delivery. There is a risk that the value of the security might
fall before the settlement date. No income accrues to the Fund on a
when-issued security until the Fund receives the security on settlement of
the trade.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have 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 (the Board can increase that limit to 15%). Certain
restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
Private-Issuer Mortgage-Backed Securities. The Fund can invest a portion of its
assets in mortgage-backed securities issued by private issuers, which do
not offer the credit backing of U.S. government securities. Primarily
these include multi-class debt or pass-through certificates secured by
mortgage loans. They may be issued by banks, savings and loans, mortgage
bankers and other non-governmental issuers. Private issuer mortgage-backed
securities are subject to the credit risks of the issuers (as well as the
interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
Asset-Backed Securities. The Fund can buy asset-backed securities, which are
fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of
the interest. These securities are subject to the risk of default by the
issuer as well as by the borrowers of the underlying loans in the pool.
Participation Interests in Loans. These securities represent an undivided
fractional interest in a loan obligation by a borrower. They are typically
purchased from banks or dealers that have made the loan or are members of
the loan syndicate. The loans may be to foreign or U.S. companies. The
Fund does not invest more than 5% of its net assets in participation
interests of any one borrower. They are subject to the risk of default by
the borrower. If the borrower fails to pay interest or repay principal,
the Fund can lose money on its investment.
Derivative Investments. The Fund can invest in a number of different kinds of
"derivative investments." Options, futures contracts, structured notes,
interest rate swaps, mortgage-related securities and forward contracts are
"derivative investments" the Fund uses. In addition to using derivatives
to hedge risks, the Fund can use other derivative investments because they
offer the potential for increased income.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the
U.S. and abroad may also influence the performance of derivatives. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may be illiquid.
o "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed debt investments with principal payments or interest
payments that are linked to the value of an index (such as a currency or
securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The values of these notes will fall or rise in response to the changes
in the values of the underlying security or index. They are subject to
both credit and interest rate risks. Therefore the Fund could receive
more or less than it originally invested when a note matures, or it
might receive less interest than the stated coupon payment if the
underlying investment or index does not perform as anticipated. The
prices of these notes may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment
quickly at an acceptable price.
o Hedging. The Fund can buy and sell futures contracts, put and call options,
and forward contracts. These are all referred to as "hedging instruments."
The Fund is not required to use hedging instruments to seek its objectives.
The Fund does not use hedging instruments for speculative purposes and has
limits on its use of them.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to hedge against falling
prices of its portfolio securities or to establish a position in the
securities market as a temporary substitute for purchasing individual
securities. It might do so to try to manage its exposure to changing
interest rates. Forward contracts and currency options can be used to
try to manage foreign currency risks on the Fund's foreign investments.
Hedging has risks. Options trading involves the payment of premiums and
increases portfolio turnover. There are also special risks in
particular hedging strategies. If the Manager used a hedging instrument
at the wrong time or judged market conditions incorrectly, the strategy
could 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.
Portfolio Turnover. The Fund may engage in short-term trading to try to seek its
objectives. It might have a portfolio turnover rate in excess of 100%
annually. Portfolio turnover affects brokerage costs the Fund pays. If the
Fund realizes capital gains when it sells its portfolio investments, it
must generally pay those gains out to shareholders, increasing their
taxable distributions. The Financial Highlights table at the end of this
Prospectus shows the Fund's portfolio turnover rates during prior fiscal
years.
Temporary Defensive Investments. For cash management purposes the Fund can hold
cash equivalents such as commercial paper, repurchase agreements, Treasury
bills and other short-term U.S. government securities. In times of
unstable market or economic conditions, the Fund can invest up to 100% of
its assets in temporary defensive investments. These would ordinarily be
short-term U. S. government securities, highly-rated commercial paper,
bank obligations or repurchase agreements. The Fund may also hold these
types of securities pending the investment of proceeds from the sale of
fund shares or portfolio securities or to meet anticipated redemptions of
fund shares. To the extent the Fund invests defensively in these
securities, it may not achieve its primary investment objectives.
How the Fund Is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets 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 been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $120 billion in
assets as of December 31, 1999, including other Oppenheimer funds with more than
5 million shareholder accounts. The Manager is located at Two World Trade
Center, 34th Floor, New York, New York 10048-0203.
Portfolio Manager. The portfolio manager of the Fund is Arthur P. Steinmetz.
He became the portfolio manager on May 20, 1999, and is the person
principally responsible for the day-to-day management of the Fund's
portfolio. He is a Vice President of the Fund and Senior Vice
President of the Manager. He is an officer and portfolio manager for
other Oppenheimer funds. Mr. Steinmetz has been employed by the
Manager since 1986.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average
annual net assets of the Fund, 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 0.58% of average annual net assets in excess of $1
billion. The Fund's management fee for its last fiscal year ended October
31, 1999 was 0.75% of average annual net assets for each class of shares.
A B O U T Y O U R A C C O U N T
How To Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
BuyingShares Through Your Dealer. You can buy shares through any dealer, broker
or financial institution that has a sales agreement with the Distributor.
Your dealer will place your order with the Distributor on your behalf.
BuyingShares 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, we recommend that you discuss
your investment with a financial advisor before you make a purchase to be
sure that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.525.7048 to notify the Distributor of the wire, and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you
pay for shares by electronic funds transfer from your bank account. Shares
are purchased for your account by a transfer of money from your bank
account through the Automated Clearing House (ACH) system. You can provide
those instructions automatically, under an Asset Builder Plan, described
below, or by telephone instructions using OppenheimerFunds PhoneLink, also
described below. Please refer to "AccountLink," below for more details.
o Buying Shares Through 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 in the Asset Builder
Application and the Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments
for as little as $25. You can make additional purchases of at least $25 by
telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans and
401(k) plans, you can start your account with as little as $250. If your
IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
o The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order and sends it to the Distributor.
The Net Asset Value. The net asset value of each class of shares is determined
as of the close of The New York Stock Exchange, on each day the Exchange
is open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days. (All references to time in this Prospectus
mean "New York time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures
for valuing illiquid restricted securities and obligations for which
market values cannot be readily obtained. Because some foreign securities
trade in markets and exchanges that operate on U.S. holidays and weekends,
the value of some of the Fund's foreign investments may change on days
when investors cannot buy or redeem Fund shares.
The Offering Price. To receive the offering price for a particular day, in
most cases the Distributor or its designated agent must receive your order
by the time of day The New York Stock Exchange closes that day. If your
order is received on a day when the Exchange is closed or after it has
closed, the order will receive the next offering price that is determined
after your order is received.
BuyingThrough a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit
it to the Distributor so that it is received before the Distributor's
close of business on a regular business day (normally 5:00 P.M.) to
receive that day's offering price. Otherwise, the order will receive the
next offering price that is determined.
--------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
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--------------------------------------------------------------------------------
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Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or $500,000 for certain
retirement plans). The amount of that sales charge will vary depending on the
amount you invest. The sales charge rates are listed in "How Can You Buy Class A
Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within six years of buying them, you will normally pay a contingent
deferred sales charge. That contingent deferred sales charge varies depending on
how long you own your shares, as described in "How Can You Buy Class B Shares?"
below.
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--------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%, as described in "How Can You Buy 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 best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some 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.
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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares,
and not a combination of shares of different classes.
Of course, these examples are based on approximations of the effect of current
sales charges and expenses projected over time, and do not detail all of the
considerations in selecting a class of shares. You should analyze your options
carefully with your financial advisor before making that choice.
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,
compared to the effect over time of higher class-based expenses on shares
of Class B or Class C .
o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you have a relatively 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. That is because of the effect of the Class B contingent deferred
sales charge if you redeem within six 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend
to hold your shares. For that reason, the Distributor normally will not
accept purchase orders of $500,000 or more of Class B shares or $1 million
or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 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
appropriate.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent
deferred sales charge) for Class B or Class C shareholders. Therefore, you
should carefully review how you plan to use your investment account before
deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A shares, such as the Class B and Class C asset-based
sales charge described below and in the Statement of Additional
Information. Share certificates are not available for Class B and Class C
shares, and if you are considering using your shares as collateral for a
loan, that may be a factor to consider.
How Do Share Classes Affect Payments to My Broker? A financial advisor may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for concessions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
HOW CAN YOU BUY 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 will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as a concession. The Distributor reserves the right to reallow the
entire concession to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:
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Amount of Purchase Front-End Sales Front-End Sales Concession As
Charge As a Charge As a
Percentage of Percentage of Net Percentage of
Offering Price Amount Invested Offering Price
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Less than $50,000 4.75% 4.98% 4.00%
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$50,000 or more but 4.50% 4.71% 3.75%
less than $100,000
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$100,000 or more
but less than 3.50% 3.63% 2.75%
$250,000
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$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
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$500,000 or more 2.00% 2.04% 1.60%
but less than $1
million
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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
aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in Appendix C to the Statement of
Additional Information. The Distributor pays dealers of record concessions
in an amount equal to 1.0% of purchases of $1 million or more (other than
purchases by those retirement accounts). For those retirement plan
accounts, the concession is 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, based on
the cumulative purchases during the prior 12 months ending with the
current purchase. In either case, the concession will be paid only on
purchases that were not previously subject to a front-end sales charge and
dealer concession.1 That concession will not be paid on purchases of
shares in amounts of $1 million or more (including any right of
accumulation) by a retirement plan that pays for the purchase with the
redemption of Class C shares of one or more Oppenheimer funds held by the
plan for more than one year.
1 No concession will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
If you redeem any of those shares within an 18-month "holding period"
measured from the end of the calendar month of their purchase, a
contingent deferred sales charge (called the "Class A contingent deferred
sales charge") may be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of the lesser of (1) the aggregate net asset
value of the redeemed shares at the time of redemption (excluding shares
purchased by reinvestment of dividends or capital gain distributions) or
(2) the original net asset value of the redeemed shares. The Class A
contingent deferred sales charge will not exceed the aggregate amount of
the concessions the Distributor paid to your dealer on all purchases of
Class A shares of all Oppenheimer funds you made that were subject to the
Class A contingent deferred sales charge.
Can You Reduce Class A Sales Charges? You may be eligible to buy Class A shares
at reduced sales charge rates under the Fund's "Right of Accumulation" or a
Letter of Intent, as described in "Reduced Sales Charges" in the Statement of
Additional Information.
HOW CAN YOU BUY 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 the end of the calendar month of their purchase, a contingent
deferred sales charge will be deducted from the redemption proceeds. The Class B
contingent deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class B shares.
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 for the Class B contingent deferred sales
charge holding period:
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Years Since Beginning of Month in Contingent Deferred Sales Charge on
Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to Charge)
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0 - 1 5.0%
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1 - 2 4.0%
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2 - 3 3.0%
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3 - 4 3.0%
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4 - 5 2.0%
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5 - 6 1.0%
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6 and following None
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In the table, a "year" is a 12-month period. In applying the sales charge, 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. Class B shares automatically convert to
Class A shares 72 months after you purchase them. 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. For further information on the conversion
feature and its tax implications, see "Class B Conversion" in the
Statement of Additional Information.
How Can You Buy 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 a holding period of 12 months from the end of the calendar month of their
purchase, a contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. The Class C contingent deferred sales charge is paid to
compensate the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
DISTRIBUTION AND SERVICE (12B-1) PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
pay the Distributor for its services and costs in distributing Class B and
Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class
B shares and on Class C shares. The Distributor also receives a service
fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the
first year after the shares are sold by the dealer. After the shares have
been held for a year, the Distributor pays the service fees to dealers on
a quarterly basis.
The Distributor currently pays sales concessions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sales of Class B shares is
therefore 4.00% of the purchase price. The Distributor retains the Class B
asset-based sales charge.
The Distributor currently pays sales concessions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.00% of the purchase price. The Distributor pays the
asset-based sales charge as an ongoing concession to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|X| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or |X| have the Transfer Agent send redemption proceeds or
transmit dividends and distributions directly to your bank account. Please
call the Transfer Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
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.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
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 only 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.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs, rollover IRAs and Education IRAs.
SEP-IRAs. These are Simplified Employee Pensions Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
401(k) Plans. These are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by using the Fund's checkwriting privilege or
by telephone. You can also set up Automatic Withdrawal Plans to redeem shares on
a regular basis. 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 account, please call the
Transfer Agent first, at 1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem $100,000 or more and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or name
o Shares are being redeemed by someone (such as an Executor) other than the
owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities or
government securities, or
o 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.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares
in your plan account.
HOW DO YOU SELL SHARES BY MAIL? Write a letter of instructions that includes: o
Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any special
payment instructions o Any share certificates for the shares you are selling o
The signatures of all registered owners exactly as the account is registered,
and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
--------------------------------------------------------------------------------
Use the following address for requests by mail:
--------------------------------------------------------------------------------
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
--------------------------------------------------------------------------------
Send courier or express mail requests to:
--------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular 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 account or under a share
certificate by telephone. o To redeem shares through a service representative,
call 1.800.852.8457 o 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 sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
o Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
o 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.
CHECKWRITING. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank. The checks are payable through the Fund's custodian
bank.
o Checkwriting privileges are not available for accounts holding shares
that are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account value.
Remember, your shares fluctuate in value and you should not write a check
close to the total account value.
o You may not write a check that would require the Fund to redeem shares that
were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
CAN YOU SELL 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase shares
subject to a Class A, Class B or Class C contingent deferred sales charge and
redeem any of those shares during the applicable holding period for the class of
shares, the contingent deferred sales charge will be deducted from the
redemption proceeds, unless you are eligible for a waiver of that sales charge
based on the categories listed in Appendix C to the Statement of Additional
Information and you advise the Transfer Agent of your eligibility for the waiver
when you place your redemption request.
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on: o the amount
of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to the
Statement of Additional Information.
To determine whether a 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 the holding period that applies to the class, and
3. shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange
them within the applicable contingent deferred sales charge holding period,
the holding period will carry over to the fund whose shares you acquire.
Similarly, if you acquire shares of this Fund by exchanging shares of another
Oppenheimer fund that are still subject to a contingent deferred sales charge
holding period, that holding period will carry over to this Fund.
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. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions: o Shares
of the fund selected for exchange must be available for sale in your
state of residence.
o The prospectuses of both funds must offer the exchange privilege.
o 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.
o You must meet the minimum purchase requirements for the fund whose
shares you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund 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. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
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.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? 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
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificates
with the request.
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.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o 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
conforms to the policies described above. It must be received 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 seven
days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from
a "market timer" might require the Fund to sell securities at a
disadvantageous time and/or price.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that it believes will disadvantage it, or to refuse multiple
exchange requests submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so
by applicable law, but it may impose changes at any time for emergency
purposes.
o 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
More information about the Fund's policies and procedures for buying, and
selling and exchanging shares is contained 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
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. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
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. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or through AccountLink (as elected by the shareholder) within seven days
after the Transfer Agent receives redemption instructions in proper form.
However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be
forwarded within three business days after redemption.
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 Federal Funds wire or certified check, or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Sharesmay be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio.
"Backup Withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
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 intends to declare dividends separately for each class of
shares from net investment income on each regular business day and to pay those
dividends to shareholders monthly on a date selected by the Board of Trustees.
Dividends and distributions paid on Class A shares will generally be higher than
dividends for Class B and Class C shares, which normally have higher expenses
than Class A. The Fund has no fixed dividend rate and cannot guarantee that it
will pay any dividends or distributions.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT ARE YOUR CHOICES FOR RECEIVING DISTRIBUTIONS? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividend or Capital Gains Only. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving other types of
distributions by check or having them sent to your bank account through
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 through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
If more than 50% of the Fund's assets are invested in foreign securities
at the end of any fiscal year, the Fund may elect under the Internal Revenue
Code to permit shareholders to take a credit or deduction on their federal
income tax returns for foreign taxes paid by the Fund.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Avoid "Buying a Distribution". If you buy shares on or just before the Fund
declares a capital gain distribution, you will pay the full price for the
shares and then receive a portion of the price back as a taxable capital
gain.
Remember, There May be Taxes on Transactions. Because the Fund's share prices
fluctuate, you may have a capital gain or loss when you sell or exchange
your shares. 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. Any
capital gain is subject to capital gains tax.
Returns of Capital Can Occur. 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.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A YEAR ENDED OCTOBER 31, 1999 1998
1997 1996 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.33 $8.28
$8.31 $7.91 $7.93
-----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .72
.72 .73 .71
Net realized and unrealized gain (loss) (.31) (.97)
(.08) .34 (.05)
-----------------------------------------------------------
Total income (loss) from investment operations .49 (.25)
.64 1.07 .66
-----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.64)
(.67) (.67) (.68)
Tax return of capital (.21) (.06)
-- -- --
-----------------------------------------------------------
Total dividends and distributions
to shareholders (.72) (.70)
(.67) (.67) (.68)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.10 $7.33
$8.28 $8.31 $7.91
-----------------------------------------------------------
-----------------------------------------------------------
Market value, end of period N/A N/A
$8.06 $7.50 $7.00
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 7.07% (3.25)%
7.94% 14.14% 8.81%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A
16.42% 16.40% 9.09%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $34,553 $38,950 $54,781
$54,962 $52,340
-----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $36,620 $48,542 $55,339
$53,309 $51,207
-----------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 11.16% 8.94%
8.65% 9.04% 9.20%
Expenses, before indirect expenses 1.74% 1.56%(4)
1.20%(4) 1.28%(4) 1.24%(4)
Expenses, after indirect expenses 1.72% N/A
N/A N/A N/A
-----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 237% 344%
289% 261% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls.
32 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED OCTOBER 31,
1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
$7.34 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.72 .25
Net realized and unrealized gain (loss)
(.29) (.73)
----------------------------
Total income (loss) from investment operations
.43 (.48)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.45) (.27)
Tax return of capital
(.21) (.06)
----------------------------
Total dividends and distributions
to shareholders
(.66) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period
$7.11 $7.34
----------------------------
----------------------------
Market value, end of period
N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1)
6.22% (5.93)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2)
N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)
$2,736 $933
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)
$1,607 $340
------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)
Net investment income
10.81% 10.97%(7)
Expenses, before indirect expenses
2.49% 2.74%(4,7)
Expenses, after indirect expenses
2.47% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5)
237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls. 6. For the period from
April 27, 1998 (inception of offering) to October 31, 1998.
7. This information may not be representative of future ratios.
33 OPPENHEIMER WORLD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
CLASS C YEAR ENDED OCTOBER 31,
1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
$7.33 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.75 .34
Net realized and unrealized gain (loss)
(.31) (.83)
----------------------------
Total income (loss) from investment operations
.44 (.49)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.46) (.27)
Tax return of capital
(.21) (.06)
----------------------------
Total dividends and distributions to shareholders
(.67) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period
$7.10 $7.33
----------------------------
----------------------------
Market value, end of period
N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1)
6.24% (6.09)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2)
N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)
$775 $587
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)
$809 $253
------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income
10.14% 9.24%(7)
Expenses, before indirect expenses
2.54% 2.62%(4,7)
Expenses, after indirect expenses
2.52% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5)
237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls. 6. For the period from
April 27, 1998 (inception of offering) to October 31, 1998.
7. This information may not be representative of future ratios.
34 OPPENHEIMER WORLD BOND FUND
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer World Bond Fund:
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
--------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services
toll-free: 1.800.525.7048
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or
read or down-load documents on the
OppenheimerFunds web site:
http://www.oppenheimerfunds.com
--------------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed
by:
SEC File No. 811-08675 (logo)OppenheimerFunds Distributor,
Inc.
PR0705.001.0200
Printed on recycled paper
<PAGE>
OPPENHEIMER WORLD BOND FUND
Supplement dated March 6, 2000 to the
Statement of Additional Information dated February 23, 2000
The Statement of Additional Information is revised as follows:
1. The following biographical information for Ruggero de'Rossi is added to page
37 as follows:
Ruggero de'Rossi, Vice President and Portfolio Manager; Age 36.
2 World Trade Center, New York, New York 10048
Vice President of the Manager (since 3/6/00). Prior to joining the Manager he
was a Senior Vice President and Chief Emerging Markets Debt and Currency
Strategist of ING Barings, a global investment bank from 7/98 until 3/00; before
that he was Vice President, head of emerging markets trading strategies at
Citicorp Securities, after having run the bank's proprietary trading activity on
international fixed income and foreign exchange derivatives from 5/95 until
7/98. From 1990 through 1995 he was associated with other global investment
banks with responsibility for International Fixed Income Strategy and
Derivatives.
2. All references in the Statement of Additional Information to the "portfolio
manager" are hereby changed to read, "portfolio managers."
March 6, 2000 PXO705.004
<PAGE>
Oppenheimer World Bond Fund
Two World Trade Center, New York, New York 10048
1.800.525.7048
Statement of Additional Information dated February 23, 2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 23, 2000. It should be read
together with the Prospectus. You can obtain the Prospectus 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, or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 10
Investment Restrictions............................................ 31
How the Fund is Managed ............................................... 33
Organization and History........................................... 33
Trustees and Officers.............................................. 35
The Manager........................................................ 40
Brokerage Policies of the Fund......................................... 42
Distribution and Service Plans......................................... 44
Performance of the Fund................................................ 47
About Your Account
How To Buy Shares...................................................... 53
How To Sell Shares..................................................... 62
How To Exchange Shares................................................. 67
Dividends, Capital Gains and Taxes..................................... 70
Additional Information About the Fund.................................. 72
Financial Information About the Fund
Independent Auditors' Report........................................... 74
Financial Statements................................................... 75
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
<PAGE>
A-128
--------------------------------------------------------------------------------
A B O U T T H E F U N D
-------------------------------------------------------------------------------
Additional Information About the Fund's Investment
Policies and Risks
The investment objectives, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objectives.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below in seeking its goals. It
may use some of the special investment techniques and strategies at some times
or not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. In the case of non-governmental issues, that process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer. In
the case of foreign government issuers, the Manager may consider general
economic conditions, the conditions of a particular country's economy in
relation to the U.S. economy or other foreign economies, general political
conditions in a country or region, the effect of taxes, the efficiencies and
costs of particular markets (as well as their liquidity) and other factors.
|X| Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than the
United States and debt securities issued or guaranteed by governments other than
the U.S. government or by foreign supra-national entities, such as the World
Bank. "Foreign securities" also include securities of companies (including those
that are located in the U.S. or organized under U.S. law) that derive a
significant portion of their revenue or profits from foreign businesses,
investments or sales, or that have a significant portion of their assets abroad.
Those securities may be traded on foreign securities exchanges or in the foreign
over-the-counter markets. Securities denominated in foreign currencies issued by
U.S. companies are also considered to be "foreign securities." The Fund expects
to have substantial investments in foreign securities. For the most part, these
will be debt securities issued or guaranteed by foreign governments, including
supra-national entities.
Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and their agencies and instrumentalities may or may not be supported
by the full faith and credit of the foreign government. The Fund can buy
securities issued by certain "supra-national" entities, which include entities
designated or supported by governments to promote economic reconstruction or
development, international banking organizations and related government
agencies. Examples are the International Bank for Reconstruction and Development
(commonly called the "World Bank"), the Asian Development bank and the
Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero-coupon obligations that have the same maturity as
the Brady Bonds. Brady Bonds can be 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.
Those uncollateralized amounts constitute what is called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and 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. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
|_| Risks of Foreign Investing. Investments in foreign securities
may offer special opportunities for investing but also present special
additional risks and considerations not typically associated with investments in
domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in
foreign countries comparable to those applicable to domestic
issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those
<PAGE>
countries. The Manager will consider these factors when evaluating securities in
these markets, because the selection of those securities must be consistent with
the Fund's primary goal of total return.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven
countries in the European Union adopted the euro as their official currency.
However, their current currencies (for example, the franc, the mark, and the
lira) will also continue in use until January 1, 2002. After that date, it is
expected that only the euro will be used in those countries. A common currency
is expected to confer some benefits in those markets, by consolidating the
government debt market for those countries and reducing some currency risks and
costs. But the conversion to the new currency will affect the Fund operationally
and also has potential risks, some of which are listed below. Among other
things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market and
greater operational costs from converting to the new currency.
This might depress securities values.
o vendors the Fund depends on to carry out its business, such as
its custodian bank (which holds the foreign securities the Fund
buys), the Manager (which must price the Fund's investments to
deal with the conversion to the euro) and brokers, foreign
markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to the
Fund.
o exchange contracts and derivatives that are outstanding during
the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to
update the Fund's contracts could pose extra costs to the Fund.
The Manager upgraded (at its expense) its computer and bookkeeping systems
to deal with the conversion. The Fund's custodian bank has advised the Manager
of its plans to deal with the conversion, including how it will update its
record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| Debt Securities. The Fund can invest in a variety of debt securities
to seek its objectives. Foreign debt securities are subject to the risks of
foreign securities described above. In general, debt securities are also subject
to two additional types of risk: credit risk and interest rate risk.
|_| Credit Risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater extent
than lower-yield, higher-quality bonds.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., or at least "BBB" by Standard & Poor's Rating Service or Duff &
Phelps, Inc., or that have comparable ratings by another nationally-recognized
rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own
research to evaluate a security's credit-worthiness. If securities the Fund
buys are unrated, to be considered part of the Fund's holdings of
investment-grade securities, they must be judged by the Manager to be of
comparable quality to bonds rated as investment grade by a rating
organization.
|_| Interest Rate Risk. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting from the inverse
relationship between price and yield. For example, an increase in general
interest rates will tend to reduce the market value of already-issued
fixed-income investments, and a decline in general interest rates will tend to
increase their value. In addition, debt securities with longer maturities, which
tend to have higher yields, are subject to potentially greater fluctuations in
value from changes in interest rates than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund
buys them will not affect the interest income payable on those securities
(unless the security pays interest at a variable rate pegged to interest rate
changes). However, those price fluctuations will be reflected in the valuations
of the securities, and therefore the Fund's net asset values will be affected by
those fluctuations.
|_| Special Risks of Lower-Grade Securities. The Fund can invest in
lower-grade debt securities if the Manager believes it is consistent with the
Fund's objectives. Because lower-grade securities tend to offer higher yields
than investment-grade securities, the Fund might invest in lower-grade
securities if the Manager is trying to achieve higher income. In some cases, the
appreciation possibilities of lower-grade securities may be a reason they are
selected for the Fund's portfolio.
"Lower-grade" debt securities are those rated below "investment grade,"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
considered part of the Fund's portfolio of lower-grade securities. The Fund can
invest in securities rated as low as "C" or "D" or which may be in default at
the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment-grade
securities. The issuer's low creditworthiness may increase the potential for its
insolvency. An overall decline in values in the high-yield bond market is also
more likely during a period of a general economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for
high-yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high-yield bonds, these risks are in addition to the special risk of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of these risks than non-convertible high-yield bonds,
since stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's,
Standard & Poor's, Fitch/IBCA and Duff & Phelps are included in Appendix A to
this Statement of Additional Information.
|X| Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real estate
related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related
securities tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
|_| Collateralized Mortgage Obligations. CMOs are multi-class bonds that
are backed by pools of mortgage loans or mortgage pass-through certificates.
They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other U.S. government agencies or federally-chartered
corporate entities referred to as "instrumentalities." The obligations of U.S.
government agencies or instrumentalities in which the Fund can invest may or may
not be guaranteed or supported by the "full faith and credit" of the United
States. "Full faith and credit" means generally that the taxing power of the
U.S. government is pledged to the payment of interest and repayment of principal
on a security. If a security is not backed by the full faith and credit of the
United States, the owner of the security must look principally to the agency
issuing the obligation for repayment. The owner might not be able to assert a
claim against the United States if the issuing agency or instrumentality does
not meet its commitment. The Fund will invest in securities of U.S. government
agencies and instrumentalities only if the Manager is satisfied that the credit
risk with respect to the agency or instrumentality is minimal.
|_|U.S. Treasury Obligations. These include Treasury bills (which
have maturities of one year or less when issued), Treasury notes (which have
maturities of one to ten years when issued), and Treasury bonds (which have
maturities of more than ten years when issued). Treasury securities are backed
by the full faith and credit of the United States as to timely payments of
interest and repayments of principal. They also can include U. S. Treasury
securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
|_|Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. These include interests in
pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series with different
interest rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have significant amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO will be reduced.
Additionally, the Fund may have to reinvest the prepayment proceeds in other
securities paying interest at lower rates, which could reduce the Fund's yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These are the prepayment risks
described above and can make the prices of CMOs very volatile when interest
rates change. The prices of longer-term debt securities tend to fluctuate more
than those of shorter-term debt securities. That volatility will affect the
Fund's share prices.
|X| Commercial (Privately-Issued) Mortgage-Related Securities. The Fund
may invest in commercial mortgage-related securities issued by private entities.
Generally these are multi-class debt or pass-through certificates secured by
mortgage loans on commercial properties. They are subject to the credit risk of
the issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
|X| Participation Interests. The Fund can invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyer's
participation interest bears to the total principal amount of the loan. Not more
than 5% of the Fund's net assets can be invested in participation interests of
the same borrower. 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. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which
the Fund traded its portfolio securities during its last fiscal year. For
example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Fund's portfolio turnover rate will
fluctuate from year to year, and the Fund expects to have a portfolio turnover
rate of more than 100% annually. When securities in the Fund's portfolio mature,
they are included in the Fund's portfolio turnover rate. This may cause the
Fund's portfolio turnover to be higher than other types of funds.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally,
the realization of capital gains from selling portfolio securities may
result in distributions of taxable long-term capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized
each year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Zero-Coupon Securities. The Fund can buy zero-coupon and
delayed-interest securities, and "stripped" securities. Stripped securities are
debt securities whose interest coupons are separated from the security and sold
separately. The Fund can buy different types of zero-coupon or stripped
securities, including, among others, foreign debt securities and U.S. Treasury
notes or bonds that have been stripped of their interest coupons, U.S. Treasury
bills issued without interest coupons, and certificates representing interests
in stripped securities.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value. The buyer recognizes a rate of return
determined by the gradual appreciation of the security, which is redeemed at
face value on a specified maturity date. This discount depends on the time
remaining until maturity, as well as prevailing interest rates, the liquidity of
the security and the credit quality of the issuer. In the absence of threats to
the issuer's credit quality, the discount typically decreases as the maturity
date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to
a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives
any cash payments on the zero-coupon investment. To generate cash to satisfy
those distribution requirements, the Fund may have to sell portfolio
securities that it otherwise might have continued to hold or to use cash
flows from other sources such as the sale of Fund shares.
|X| "Stripped" Mortgage-Related Securities. The Fund can invest in
stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security's principal or interest payments. These are a form of derivative
investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
|X| Floating Rate and Variable Rate Demand Obligations. Variable rate
demand obligations have a demand feature that allows the Fund to tender the
obligation to the issuer or a third party prior to its maturity. The tender may
be at par value plus accrued interest, according to the terms of the
obligations.
The interest rate on a floating rate demand note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals. Generally, the changes in the
interest rate on such securities reduce the fluctuation in their market value.
As interest rates decrease or increase, the potential for capital appreciation
or depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate demand obligation meets the Fund's quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets those
quality standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
Step-coupon bonds have a coupon interest rate which changes periodically
during the life of the security on predetermined dates that are set when the
security is issued.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest
in securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield the Manager considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund
<PAGE>
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge 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
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor 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. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the
purchase. Repurchase agreements having a maturity beyond seven days are
subject to the Fund's limits on holding illiquid investments. The Fund will
not enter into a repurchase agreement that causes more than 10% of its net
assets to be subject to repurchase agreements having a maturity beyond seven
days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. 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 Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
|X| 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. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has 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 under Rule 144A of the Securities Act of
1933, if those securities have been determined to be liquid 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 holdings of that
security may be considered to be illiquid. Illiquid securities include
repurchase agreements maturing in more than seven days and participation
interests that do not have puts exercisable within seven days.
|X| Forward Rolls. The Fund can enter into "forward roll" transactions
with respect to mortgage-related securities. In this type of transaction, the
Fund sells a mortgage-related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and having the same
coupon and maturity) at a later date at a set price. The securities that are
repurchased will have the same interest rate as the securities that are sold,
but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold.
Proceeds from the sale are invested in short-term instruments, such as
repurchase agreements. The income from those investments, plus the fees from the
forward roll transaction, are expected to generate income to the Fund in excess
of the yield on the securities that have been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books liquid assets
in an amount equal to the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells might decline below the price at which
the Fund is obligated to repurchase securities.
|X| Investments in Equity Securities. Under normal market conditions the
Fund can invest up to 35% of its total assets in securities other than debt
securities, including equity securities of foreign and U.S. companies. However,
it does not currently anticipate investing significant amounts of its assets in
these securities as part of its normal investment strategy. Equity securities
include common stocks, preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund's investments can include stocks of
companies in any market capitalization range, if the Manager believes the
investment is consistent with the Fund's objectives of total return and income.
Certain equity securities may be selected not only for their appreciation
possibilities but because they may provide dividend income.
|_| Risks of Investing in Stocks. Stocks fluctuate in price, and
their short-term volatility at times may be great. To the extent that the Fund
invests in equity securities, the value of the Fund's portfolio will be affected
by changes in the stock markets. Market risk can affect the Fund's net asset
value per share, which will fluctuate as the values of the Fund's portfolio
securities change. The prices of individual stocks do not all move in the same
direction uniformly or at the same time. Different stock markets may behave
differently from each other.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer or its industry. The Fund can invest in securities of large companies
and mid-size companies, but may also buy stocks of small companies, which
may have more volatile stock prices than large companies.
|_| Convertible Securities. While some convertible securities are a
form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded by the Manager
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 fixed income securities.
Convertible securities are subject to the credit risks and interest rate risks
described above in "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 conversion of 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.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security and the
security's price will likely increase when interest rates
<PAGE>
fall and decrease when interest rates rise. If the conversion value exceeds the
investment value, the security will behave more like an equity security. In that
case it will likely sell at a premium over its conversion value and its price
will tend to fluctuate directly with the price of the underlying security.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before dividends can be paid on the issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as provisions
allowing calls or redemptions prior to maturity, which also have a negative
impact on prices when interest rates decline. The rights of preferred stock
on distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock generally has a preference over common stock on
the distribution of a corporation's assets in the event of liquidation of
the corporation. Preferred stock may be "participating" stock, which means
that it may be entitled to a dividend exceeding the stated dividend in
certain cases.
|X| Loans of Portfolio Securities. To raise cash for liquidity purposes,
the Fund can lend its portfolio securities to brokers, dealers and other types
of financial institutions approved by the Fund's Board of Trustees. These loans
are limited to not more than 25% of the value of the Fund's total assets. The
Fund currently does not intend to engage in loans of securities in the coming
year, but if it does so, such loans will not likely exceed 5% of the Fund's
total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal the value of the loaned securities. It must
consist of cash, bank letters of credit or securities of the U.S. government or
its agencies or instrumentalities, 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. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
<PAGE>
|X| Borrowing Money. Under its fundamental policies, the Fund has the
ability to borrow up to one third of the value of its total assets from banks on
an unsecured basis to invest the borrowed funds in portfolio securities. This
speculative technique is known as "leverage." It may subject the Fund to greater
risks than funds that do not use leverage. The Fund may borrow only from banks.
Under current regulatory requirements, borrowings can be made only to the extent
that the value of the Fund's assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings (including the proposed borrowing).
If the value of the Fund's assets fails to meet this 300% asset coverage
requirement, the Fund will reduce its bank debt within three days to meet the
requirement. To do so, the Fund might have to sell a portion of its investments
at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more than that of funds that do not borrow. Currently, the Fund does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.
Under its fundamental policy on borrowing, the Fund can also borrow money
for temporary, emergency purposes or under other unusual circumstances, subject
to any limitation on that type of borrowing under the Investment Company Act.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due.
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 related to 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 in the case of mortgage-backed securities and CMOs, described
above.
|X| Money Market Instruments. The following is a brief description of the
types of the U.S. dollar denominated money market securities the Fund can invest
in. Money market securities are high-quality, short-term debt instruments that
may be issued by the U.S. government, corporations, banks or other entities.
They may have fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
described above.
|_| Bank Obligations. The Fund can buy time deposits, certificates of
deposit and bankers' acceptances. They must be:
o obligations issued or guaranteed by a domestic bank (including a foreign
branch of a domestic bank) having total assets of at least U.S. $1 billion,
or
o U.S. dollar-denominated obligations of a foreign bank with total assets
of at least U.S. $1 billion
"Banks" include commercial banks, savings banks and savings and loan
associations, which may or may not be members of the Federal Deposit Insurance
Corporation.
|_| Commercial Paper. The Fund can invest in commercial paper if it
is rated within the top three rating categories of Standard & Poor's and
Moody's. If the paper is not rated, it may be purchased if issued by a company
having a credit rating of at least "A" by Standard & Poor's or by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under 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. 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 expected that there will be a trading market for
them. There is no secondary market for these notes, although they are
redeemable (and thus are 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.
Currently, the Fund does not intend that its investments in variable amount
master demand notes will exceed 5% of its total assets.
<PAGE>
|X| Derivatives. The Fund can invest in a variety of derivative
investments to seek income or for hedging purposes. Some derivative investments
the Fund can use are the hedging instruments described below in this Statement
of Additional Information.
Among the derivative investments the Fund can invest in are "index-linked"
or "currency-linked" notes. Principal and/or interest payments on index-linked
notes depend on the performance of an underlying index. Currency-indexed
securities are typically short-term or intermediate-term debt securities. Their
value at maturity or the rates at which they pay income are determined by the
change in value of the U.S. dollar against one or more foreign currencies or an
index. In some cases, these securities may pay an amount at maturity based on a
multiple of the amount of the relative currency movements. This type of index
security offers the potential for increased income or principal payments but at
a greater risk of loss than a typical debt security of the same maturity and
credit quality.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
|X| Hedging. The Fund can use hedging instruments although it is not
obligated to use them in seeking its objectives. 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 that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered
calls may also be used to increase the Fund's income, but
the Manager does not expect to engage extensively in that
practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. 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. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate
to (1) broadly-based bond or stock indices (these are referred to as "financial
futures"), (2) commodities (these are referred to as "commodity futures"), (3)
debt securities (these are referred to as "interest rate futures"), and (4)
foreign currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index
futures. In some cases, these futures may be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the securities included in the index and its value fluctuates in
response to the changes in value of the underlying securities. A stock index
cannot be purchased or sold directly. Bond index futures are similar contracts
based on the future value of the basket of securities that comprise the index.
These contracts obligate the seller to deliver, and the purchaser to take, cash
to settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas,
gasoline and heating oil; (2) livestock, which includes cattle and hogs; (3)
agriculture, which includes wheat, corn, soybeans, cotton, coffee, sugar and
cocoa; (4) industrial metals, which includes aluminum, copper, lead, nickel,
tin and zinc; and (5) precious metals, which includes gold, platinum and
silver. The Fund may purchase and sell commodity futures contracts, options
on futures contracts and options and futures on commodity indices with
respect to these five main commodity groups and the individual commodities
within each group, as well as other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. 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"). Initial margin payments will be deposited with the Fund's
custodian bank 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 (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
<PAGE>
|_| Put and Call Options. The Fund can buy and sell certain kinds of
put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
o Writing Covered Call Options. The Fund can write (that is, sell) covered
calls. If the Fund sells a call option, it must be covered. That means the Fund
must own the security subject to the call while the call is outstanding, or, for
calls on futures and indices, the call may be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's custodian bank, 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 calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
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 will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will 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 option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on it
books an equivalent dollar amount of liquid assets. The Fund will identify
additional liquid assets if the value of the identified assets drops below 100%
of the current value of the future. Because of this identification requirement,
in no circumstances would the Fund's receipt of an exercise notice as to that
future 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.
o Writing Put Options. The Fund can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. 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. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be identified on the Fund's books to
cover such put options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the identified assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay 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.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls on securities,
broadly-based securities indices, foreign currencies and futures. It may do so
to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then 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.
The Fund benefits only if it sells the call 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 for
the call and the Fund exercises the call. If the Fund does not exercise the
call or sell it (whether or not at a profit), the call will become worthless
at its expiration date. In that case the Fund will have paid the premium but
lost the right to purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns 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 put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on securities or futures the Fund owns enables the Fund
to attempt to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling the
underlying investment at the exercise price to a seller of a corresponding
put. If the market price of the underlying investment is equal to or above
the exercise price and, as a result, the put is not exercised or resold, the
put will become worthless at
<PAGE>
its expiration date. In that case the Fund will have paid the premium but
lost the right to sell the underlying investment. However, the Fund may sell
the put prior to its expiration. That sale may or may not be at a profit.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to 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 call or put 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. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put 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.
o Buying and Selling Options on Foreign Currencies. The Fund can buy and sell
calls and puts on foreign currencies. They include puts and calls that trade on
a securities or commodities exchange or in the over-the-counter markets or are
quoted by major recognized dealers in such options. The Fund could use these
calls and puts to try to protect against declines in the dollar value of foreign
securities and increases in the dollar cost of foreign securities the Fund wants
to acquire.
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 those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency 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 it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call 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. That decline might be one that occurs due to an expected adverse change
in the exchange rate. In those circumstances, the Fund covers the
<PAGE>
option by maintaining cash, U.S. government securities or other liquid, high
grade debt securities in an amount equal to the exercise price of the option, in
a segregated account with the Fund's custodian bank.
o Risks of Hedging with Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Manager
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. 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 investment.
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. It will not be able to realize any profit if the investment has
increased in value above the call price.
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. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of 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 securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the
hedging instruments, the Fund might use hedging instruments in a greater
dollar amount than the dollar amount of portfolio securities being hedged.
It might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further 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 securities purchased.
o 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 "lock in" the U.S. dollar price of a security
denominated in a foreign currency that the Fund has bought or sold, or to
protect against possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund limits its exposure in foreign currency
exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely-correlated 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.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among 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
the risk of 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.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in 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 the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its 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.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if 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 or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one 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. As another alternative,
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 contact price.
<PAGE>
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as
a consequence of market movements between the date the forward contract is
entered into and the date it is sold. In some cases the Manager might decide
to sell the security and deliver foreign currency to settle the original
purchase obligation. If the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, the Fund might
have to purchase additional foreign currency on the "spot" (that is, cash)
market to settle the security trade. If the market value of the security
instead exceeds the amount of foreign currency the Fund is obligated to
deliver to settle the trade, the Fund might have to sell on the spot market
some of the foreign currency received upon the sale of the security. There
will be additional transaction costs on the spot market in those cases.
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 to pay additional transactions costs.
The use of forward contracts in this manner might reduce the Fund's
performance if there are unanticipated changes in currency prices to a
greater degree than if the Fund had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might 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. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs 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 brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each 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
will incur costs in doing so. 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 might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
|_| Interest Rate Swap Transactions. The Fund can enter into
interest rate swap agreements. 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 might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. The Fund will not enter into swaps with respect to more
than 25% of its total assets. Also, the Fund will segregate liquid assets (such
as cash or U.S. government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.
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 be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty 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 can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty may terminate all of the swaps with that party. Under
these agreements, if a default results 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 for each swap. It is measured by 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."
|_| Regulatory Aspects of Hedging Instruments. When using futures
and options on futures, the Fund is required to operate within certain
guidelines and restrictions with respect to the use of futures as established by
the Commodities Futures Trading Commission (the "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 Rule 4.5 adopted by the CFTC. The
Rule does not limit the percentage of the Fund's assets that may be used for
futures margin and related options premiums for a bona fide hedging position.
However, under the Rule, the Fund must limit its aggregate initial futures
margin and related options premiums to not more than 5% of the Fund's net assets
for hedging strategies that are not considered bona fide hedging strategies
under the Rule. Under the Rule, the Fund must also use short futures and options
on futures solely for bona fide hedging purposes within the meaning and intent
of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply 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 that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act when the Fund purchases a future, it must
maintain liquid assets in an amount equal to the market value of the securities
underlying the future, less the margin deposit applicable to it.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as "Section
1256 contracts" under the Internal Revenue Code. In general, gains or losses
relating to Section 1256 contracts are characterized as 60% long-term and 40%
short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are 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," and unrealized gains or losses are treated as though they
were realized. These contracts also may be marked-to-market for purposes of
determining 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 those transactions from this
marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized 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 that the 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, the following gains or losses are treated
as ordinary income or loss: (1) 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, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
|X| Temporary Defensive Investments. When market conditions are unstable,
or the Manager believes it is otherwise appropriate to reduce holdings in
stocks, the Fund can invest in a variety of debt securities for defensive
purposes. The Fund can also purchase these securities for liquidity purposes to
meet cash needs due to the redemption of Fund shares, or to hold while waiting
to reinvest cash received from the sale of other portfolio securities. The Fund
can buy:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic
or foreign companies) rated in the three top rating categories of a
nationally recognized rating organization,
o short-term debt obligations of corporate issuers, rated investment
grade (rated at least Baa by Moody's Investors Service, Inc. or at
least BBB by Standard & Poor's Corporation, or a comparable rating by
another rating organization), or unrated securities judge by the
Manager to have a comparable quality to rated securities in those
categories,
o certificates of deposit and bankers' acceptances of domestic and foreign
banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
o 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
o more than 50% of the outstanding shares.
The Fund's investment objectives are fundamental policies. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
<PAGE>
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer
if more than 5% of its total assets would be invested in securities of
that issuer or if it would then own more than 10% of that issuer's
voting securities. That restriction applies to 75% of the Fund's total
assets. The limit does not apply to securities issued by the U.S.
government or any of its agencies or instrumentalities.
o The Fund cannot make loans. However, it can invest in debt securities
and enter into repurchase agreements, delayed-delivery and when-issued
transactions and similar securities transactions. The Fund may also
lend its portfolio securities.
o The Fund cannot buy or sell real estate. However, the Fund can purchase
and sell debt securities of companies that deal in real estate or
interests in real estate.
o The Fund cannot underwrite securities. A permitted exception is in case
it is deemed to be an underwriter under the Securities Act of 1933 when
reselling any securities held in its own portfolio.
o The Fund cannot invest in any company for the purpose of exercising
control or management of that company.
o The Fund cannot invest in or hold securities of any issuer if officers
and Directors or Trustees of the Fund or the Manager individually
beneficially own more than 1/2 of 1% of the securities of that issuer
and together own more than 5% of the securities of that issuer.
o The Fund cannot mortgage, pledge or otherwise hypothecate any of its
assets. However, this does not prohibit the Fund from escrow,
collateral or margin arrangements in connection with any of its
investments.
o The Fund cannot buy securities on margin. However, the Fund can make
margin deposits in connection with any other of its investments.
o The Fund cannot invest in interests in oil, gas or other mineral exploration
or development programs.
o The Fund may borrow money from banks on an unsecured basis to buy
securities, and may borrow for temporary, emergency purposes or under
other unusual circumstances, subject to the limits set forth in the
Investment Company Act.
o The Fund cannot invest in physical commodities or physical commodity
contracts. However, the Fund may buy and sell hedging instruments permitted
by any of its other investment policies. It can also buy and sell options,
futures, securities or other instruments backed by physical commodities, or
whose investment return is linked to changes in the price of, physical
commodities.
o The Fund cannot issue "senior securities." However, this restriction
does not prohibit it from borrowing money as described in the
Prospectus or this Statement of Additional Information, or entering
into margin, collateral, segregation or escrow arrangements, or
options, futures, hedging transactions or purchasing and selling other
investments as permitted by its other investment policies.
o The Fund cannot make short sales of securities or maintain a short position
unless it owns an equal amount of the applicable securities while the short
position is open, or has the right to acquire an equal amount of those
securities without payment of any further amount of consideration. These
permitted short transactions are referred to as
"short-sales-against-the-box," and because changes in federal income tax laws
would not enable the Fund to defer realization of gain or loss for federal
income tax purposes, they therefore would not be used by the Fund.
o The Fund cannot invest more than 25% of its total assets in securities of
issuers in any one industry. The Fund, as an operating policy, will not
invest 25% or more of its total assets in securities of issuers in any one
industry. That limitation does not apply to obligations of the U.S.
government, its agencies and instrumentalities.
For purposes of the Fund's policy not to concentrate its investments, the
Fund has adopted the industry classifications set forth in Appendix B to this
Statement of Additional Information. This is not a fundamental policy.
Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Fund makes an investment. The Fund need not sell
securities to meet the percentage limits if the value of the investment
increases in proportion to the size of the Fund.
How the Fund is Managed
Organization and History. The Fund was originally a closed-end diversified
management company organized on October 5, 1988 as a Massachusetts business
trust named "Oppenheimer Multi-Government Trust." The Fund commenced operations
on November 23, 1988 and on July 26, 1996 the Fund's name was changed to
Oppenheimer World Bond Fund. On April 24, 1998, the Fund was converted to an
open-end diversified management investment company, with an unlimited number of
authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under Massachusetts
law. The Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
Although the Fund will not normally hold annual meetings of its shareholders, 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.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares: Class A, Class B, and Class C. All classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class
are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. 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. It will also do so 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. If the Trustees receive a request from at least 10
shareholders 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. The
shareholders making the request must have been shareholders for at least six
months and must hold shares of the Fund valued at $25,000 or more or
constituting at least 1% of the Fund's outstanding shares, whichever is
less. The Trustees may also take other action as permitted by the Investment
Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. Additionally, the
Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are Trustees or Directors of the following New York-based Oppenheimer
funds2:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Capital Preservation Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Discovery Fund Oppenheimer Multi-State Municipal Trust Oppenheimer
Enterprise Fund Oppenheimer Municipal Bond Fund Oppenheimer Europe Fund
Oppenheimer New York Municipal Fund Oppenheimer Global Fund Oppenheimer Series
Fund, Inc. Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government
Trust Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund Oppenheimer
International Growth Fund Oppenheimer Trinity Value Fund Oppenheimer
International Small Company Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Wixted, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of February 4, 2000, the Trustees and officers of the
Fund as a group owned of record or beneficially less than 1% of each class of
shares of the Fund. The foregoing statement does not reflect ownership of shares
of the Fund held of record by an employee benefit plan for employees of the
Manager, other than the shares beneficially owned under the plan by the officers
of the Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of that
plan.
2 Ms. Macaskill and Mr. Griffiths are not Directors of Oppenheimer Money Market
Fund, Inc. Mr. Griffiths is not a Trustee of Oppenheimer Discovery Fund.
Leon Levy, Chairman of the Board of Trustees, Age: 74.
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since 1982)
and Chairman of Avatar Holdings, Inc. (real estate development).
<PAGE>
Robert G. Galli, Trustee, Age: 66.
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 -
December 1997); Executive Vice President of the Manager (December 1977 - October
1995); Executive Vice President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation, an investment advisor subsidiary of
the Manager.
Phillip A. Griffiths, Trustee, Age: 61.
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly a
director of Bankers Trust Corporation (1994 through June, 1999); Provost and
Professor of Mathematics at Duke University (1983 - 1991); a director of
Research Triangle Institute, Raleigh, N.C. (1983 - 1991); and a Professor of
Mathematics at Harvard University (1972 - 1983).
Benjamin Lipstein, Trustee, Age: 76.
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee*, Age: 51.
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation; Chairman and a director
of Shareholder Services, Inc. (since August 1994) and Shareholder Financial
Services, Inc. (since September 1995), transfer agent subsidiaries of the
Manager; President (since September 1995) and a director (since October 1990) of
Oppenheimer Acquisition Corp., the Manager's parent holding company; President
(since September 1995) and a director (since November 1989) of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager; a
director of Oppenheimer Real Asset Management, Inc. (since July 1996), an
investment advisor subsidiary of the Manager; President and a director (since
October 1997) of OppenheimerFunds International Ltd., an offshore fund
management subsidiary of the Manager and of Oppenheimer Millennium Funds plc;
President and a director of other Oppenheimer funds; a director of Prudential
Corporation plc (a U.K. financial service company).
Elizabeth B. Moynihan, Trustee, Age: 70.
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute); Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 72.
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 69
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); formerly New York State Comptroller and trustee, New
York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 68.
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Group, Inc. (corporate governance consulting and
executive recruiting); a director of Professional Staff Limited (an U.K.
temporary staffing company); a life trustee of International House (non-profit
educational organization), and a trustee of the Greenwich Historical Society.
Donald W. Spiro, Vice Chairman and Trustee, Age: 74.
399 Ski Trail, Smoke Rise, New Jersey 07405
Formerly he held the following positions: Chairman Emeritus (August 1991 -
August 1999), Chairman (November 1987 - January 1991) and a director (January
1969 - August 1999) of the Manager; President and Director of OppenheimerFunds
Distributor, Inc. (July 1978 - January 1992), the Fund's Distributor.
Clayton K. Yeutter, Trustee, Age: 69.
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (financial services), Zurich Allied AG and Allied Zurich p.l.c.
(insurance investment management), Caterpillar, Inc. (machinery), ConAgra, Inc.
(food and agricultural products), Farmers Insurance Company (insurance), FMC
Corp. (chemicals and machinery) and Texas Instruments, Inc. (electronics);
formerly (in descending chronological order), Counselor to the President (Bush)
for Domestic Policy, Chairman of the Republican National Committee, Secretary of
the U.S. Department of Agriculture, and U.S. Trade Representative.
Arthur P. Steinmetz, Vice President and Portfolio Manager, Age:41. Two World
Trade Center, New York, New York 10048-0203 Senior Vice President of the Manager
(since March 1993); and an officer of other Oppenheimer funds.
Andrew J. Donohue, Secretary, Age: 49.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of OppenheimerFunds Distributor, Inc.; Executive Vice President,
General Counsel and a director of HarbourView Asset Management Corporation,
Shareholder Services, Inc., Shareholder Financial Services, Inc. and (since
September 1995) Oppenheimer Partnership Holdings, Inc.; President and a director
of Centennial Asset Management Corporation, an investment advisor subsidiary of
the Manager, (since September 1995); President, General Counsel and a director
of Oppenheimer Real Asset Management, Inc. (since July 1996); General Counsel
(since May 1996) and Secretary (since April 1997) of Oppenheimer Acquisition
Corp.; Vice President and a director of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); and an officer of other
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer Funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer, Age: 40.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); and an officer of other Oppenheimer
funds.
<PAGE>
|X| Remuneration of Trustees. The officers of the Fund and one Trustee of
the Fund (Ms. Macaskill) who is affiliated with the Manager receives no salary
or fee from the Fund. The remaining Trustees of the Fund received the
compensation shown below. The compensation from the Fund was paid during its
fiscal year ended October 31, 1999. The compensation from all of the New
York-based Oppenheimer funds (including the Fund) was received as a director,
trustee or member of a committee of the boards of those funds during the
calendar year 1999.
<PAGE>
--------------------------------------------------------------------------------
Total
Compensation
Retirement From all
Benefits New York based
Aggregate Accrued as Part Oppenheimer
Trustee's Name Compensation of Fund Funds (26
and Other Positions from Fund1 Expenses Funds)2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$7,252Levy $3,359 $166,700
Chairman
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$2,270t G. Galli None $176,2153
Study Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$4474 None $17,835
Phillip A. Griffiths
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$7,146min Lipstein$3,780 $144,100
Study Committee Chairman,
Audit Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$2,745beth B. Moyn$374 $101,500
Study Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$4,233th A. Randal$2,058 $93,100
Audit Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$2,151d V. Regan None $92,100
Proxy Committee Chairman,
Audit Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Russell S. Reynolds, Jr. $2,240 $631 $68,900
Proxy Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Noneald W. Spiro5 None $10,250
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$1,6096n K. YeutteNone $68,900
Proxy Committee Member
--------------------------------------------------------------------------------
--------------------------------------------
1. Aggregate compensation includes fees, deferred compensation, in any, and
retirement plan benefits accrued for a trustee.
2. For the 1999 calendar year.
3. Total compensation for the 1999 calendar year includes compensation received
for serving as a Trustee or Director of 10 other Oppenheimer funds.
4. Includes $308 deferred under Deferred Compensation Plan described below.
5. Prior to August 1, 1999, Mr. Spiro was not an independent Trustee.
6. Includes $388 deferred under Deferred Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as trustee for any of
the New York-based Oppenheimer funds for at least 15 years to be eligible for
the maximum payment. Each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service. Therefore the
amount of those benefits cannot be determined at this time, nor can we estimate
the number of years of credited service that will be used to determine those
benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect
the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued
by the Securities and Exchange Commission, the Fund may invest in the funds
selected by the Trustee under the plan without shareholder approval for the
limited purpose of determining the value of the Trustee's deferred fee
account.
|X| Major Shareholders. As of February 4, 2000, the only person who owned of
record or was known by the Fund to own beneficially 5% or more of any class of
the Fund's outstanding shares were as follows:
Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052,
Jersey City, NJ 07303, which owned 48,464.796 Class C shares (26.96% of the
then-outstanding 179,668.577 Class C shares), for the benefit of its
customers.
Lewco Securities Corp., 34 Exchange Place 4th Floor, Jersey City, NJ
07311, which owned 28,653.173 Class C shares (15.94% of the
then-outstanding 179,668.577 Class C shares) for the benefit of its
customers.
NFSC FEBO, Diana Kerby, 10085 S Fairgate Way, Highlands Ranch, Co 80126,
which owned 11,899.402 Class C shares (6.62% of the then-outstanding
179,668.577 Class C shares).
NFSC FEBO, Glenda H Weeks TTEE Glenda H Weeks Grantor, 365 Freedom Street,
Winfield, Al 35594, which owned 9,059.572 Class C shares (5.04% of the
then-outstanding 179,668.577 Class C shares).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed-Income Portfolio Team provide the portfolio manager with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include 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.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories 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. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class.
-------------------------------------------------------------------------------
Fiscal Year ended 10/31: Management Fees Paid to OppenheimerFunds, Inc.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1997 $359,532
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1998 $341,0291
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1999 $292,706
-------------------------------------------------------------------------------
1. During the fiscal year ended 10/31/98, the Manager received a separate fee of
$18,000 plus out-of-pocket costs and expenses, for acting as the accounting
agent of the Fund. That additional fee has been discontinued, effective with
the fiscal year commencing November 1, 1998.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment 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 under the
agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
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. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) 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 charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for effecting transactions in listed securities or for certain fixed-income
agency transactions in the secondary market. Otherwise brokerage commissions are
paid only if it appears likely that a better price or execution can be obtained
by doing so. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of 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
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio 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 investment advisory agreement permits the Manager to allocate
brokerage for research services. 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. The investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by
a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, 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 permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
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 Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
<PAGE>
------------------------------------------------------------------------------
Fiscal Year Ended 10/31: Total Brokerage Commissions Paid by the Fund1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $5,477
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $9,915
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1999 $4,434
------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
Distribution and Service Plans
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 different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's most recent fiscal year
is shown in the table below.
-------------------------------------------------------------------------------
Fiscal Aggregate Class A Commissions Commissions Commissions
Front-End Front-End
Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
10/31: Shares Distributor4 Distributor1 Distributor1 Distributor1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
19972 N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
19983 $23,884 $6,486 None $22,555 $4,345
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1999 $47,476 $21,352 $3,929 $77,474 $4,241
-------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. During the fiscal year ended 10/31/97, while the Fund operated as a
closed-end investment company, the Fund's shares were not sold through the
Distributor and there were no sales charges on purchases of shares.
3. For the period from 4/24/98 (conversion to open-end fund) through 10/31/98.
4. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the distributor.
-------------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent Class C Contingent
Deferred Sales Deferred Sales Deferred Sales
Year Ended Charges Retained by Charges Retained by Charges Retained by
10/31 Distributor Distributor Distributor
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1999 None $2,744 $1,245
-------------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees, including
a majority of the Independent Trustees3, cast in person at a meeting called for
the purpose of voting on that plan.
3. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not have
any direct or indirect financial interest in the operation of the distribution
plan or any agreement under the plan.
Under the plans, the Manager and the Distributor, may make payments to
affiliates and, in their sole discretion, from time to time, may use their
own resources (at no direct cost to the Fund) to make payments to brokers,
dealers or other financial institutions for distribution and administrative
services they perform. The Manager may use its profits from the advisory fee
it receives from the Fund. In their sole discretion, the Distributor and the
Manager may increase or decrease the amount of payments they make from their
own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. The reports
on the Class B Plan and Class C Plan shall also include the Distributor's
distribution costs for that quarter. Those reports are subject to the review and
approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Class A Service Plan. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services 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. While the plan permits
the Board to authorize payments to the Distributor to reimburse itself for
services under the plan, the Board has not yet done so. The Distributor makes
payments to plan recipients quarterly at an annual rate not to exceed 0.25% of
the average annual net assets consisting of Class A shares held in the accounts
of the recipients or their customers.
For the fiscal year ended October 31, 1999, payments under the Class A
Plan totaled $66,179, all of which was paid by the Distributor to
recipients. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
The Distributor may not use payments received under the Class A Plan to pay
any of its interest expenses, carrying charges, or other financial costs, or
allocation of overhead.
|X| Class B and Class C Service and Distribution Plan. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid. The types of services that
recipients provide are similar to the services provided under the Class A
service plan, described above.
The Class B and the Class C plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the
<PAGE>
Distributor, the Distributor will pay the Class B and/or Class C service fee and
the asset-based sales charge to the dealer quarterly in lieu of paying the sales
commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund pays the
asset-based sales charges to the Distributor for its services rendered in
distributing Class B and Class C shares. The payments are made to the
Distributor in recognition that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C shares,
and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C 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 shares before the plan was terminated. All
payments under the Class B and the Class C plans are subject to the limitations
imposed by the Conduct Rules of the National Association of Securities Dealers,
Inc. on payments of asset-based sales charges and service fees.
--------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 10/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class: Total Amount Distributor's Distributor's
Unreimbursed
Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Under Plan Distributor1 Expenses Under Plan of Class
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Plan $16,023 $15,054 $103,357 3.78%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Plan $8,083 $6,074 $7,063 0.91%
--------------------------------------------------------------------------------
1. Includes $65 paid to an affiliate of the Distributor's parent company.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield," "dividend
yield," "average annual total return," "cumulative total return," "average
annual total return at net asset value" and "total return at net asset value."
An explanation of how yields and total returns are calculated is set forth
below. The charts below show the Fund's performance as of the Fund's most recent
fiscal year end. You can obtain current performance information by calling the
Fund's Transfer Agent at 1.800.525.7048 or by visiting the OppenheimerFunds
Internet web site at http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements
must comply with rules of the Securities and Exchange Commission. Those
rules describe the types of performance data that may be used and how it is
to be calculated. In general, any advertisement by the Fund of its
performance data must include the average annual total returns for the
advertised class of shares of the Fund. Those returns must be shown 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 (or its submission for publication). Certain types of yields
may also be shown, provided that they are accompanied by standardized
average annual total returns.
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
o Yields and total 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. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other government
agency.
o The principal value of the Fund's shares, and its yields and total returns are
not guaranteed and normally will fluctuate on a daily basis. o When an
investor's shares are redeemed, they may be worth more or less than their
original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
<PAGE>
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
o Standardized Yield. The "standardized yield" (sometimes referred to just as
"yield") is shown for a class of shares for a stated 30-day period. It 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 for that period. It may therefore differ from
the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
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 for a particular 30-day period may differ from
the yield for other periods. 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. 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 any
30-day period.
o Dividend Yield. The Fund may quote a "dividend yield" for each class of its
shares. Dividend yield is based on the dividends paid on a class of shares
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
<PAGE>
-----------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 10/31/99
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class of Standardized Yield Dividend Yield
Shares
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A 14.51% 13.81% 10.60% 10.10%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B 13.95% N/A 9.94% N/A
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C 13.68% N/A 9.96% N/A
-----------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
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 without sales
charge, as described below). For Class B shares, payment of the applicable
contingent deferred sales charge is applied, depending on the period for
which the return is shown: 5.0% in the first year, 4.0% in the second year,
3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the
sixth year and none thereafter. For Class C shares, the 1% contingent
deferred sales charge is deducted for returns for the 1-year period.
|_| Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|-|
<PAGE>
Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) 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 Fund's Total Returns for the Periods Ended 10/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class Cumulative Total Average Annual Total Returns
Returns (10
of years or Life of
Shares Class)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or (or (or
life-of-class) life-of-class) life-of-class)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A 92.25% 101.83% 1.98% 7.07% 5.75% 6.79% 6.75%1 7.28%1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B -3.57% -0.08% 1.38%2 6.22%2 -2.38% -0.05% N/A N/A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C -0.23% -0.23% 5.27%3 6.24%3 -0.15% -0.15% N/A N/A
--------------------------------------------------------------------------------
1. Inception of Class A: 11/23/88. Returns for periods during which the
Fund operated as a closed-end investment company are adjusted to reflect
the current maximum sales charge rate of 4.75% on Class A shares.
2. Inception of Class B: 4/27/98
3. Inception of Class C: 4/27/98
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its classes of shares by Lipper Analytical Services, Inc. Lipper
is 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 investment styles. The
Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take
sales charges or taxes into consideration. Lipper also publishes "peer-group"
indices of the performance of all mutual funds in a category that it monitors
and averages of the performance of the funds in particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the ranking
and/or star rating of the performance of its classes of shares by Morningstar,
Inc., an independent mutual fund monitoring service. Morningstar rates and ranks
mutual funds in broad investment categories: domestic stock funds, international
stock funds, taxable bond funds and municipal bond funds. The Fund is included
in the taxable bond funds category.
Morningstar proprietary star ratings reflect historical
risk-adjusted total investment return. Investment return measures a fund's
(or class's) one-, three-, five- and ten-year average annual total returns
(depending on the inception of the fund or class) in excess of 90-day U.S.
Treasury bill returns after considering the fund's sales charges and
expenses. Risk measures a fund's (or class's) performance below 90-day U.S.
Treasury bill returns. Risk and investment return are combined to produce
star ratings reflecting performance relative to the other fund in the fund's
category. Five stars is the "highest" rating (top 10% of funds in a
category), 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%). The current star ranking is the fund's (or
class's) overall rating, which is the fund's 3-year rating or its combined
3- and 5-year rating (weighted 60%/40% respectively), or its combined 3-,
5-, and 10-year ranking (weighted 40%/30%/30%, respectively), depending on
the inception date of the fund (or class). Ratings are subject to change
monthly.
The Fund may also compare its total return ranking to that of other
funds in its Morningstar category, in addition to its star ratings. Those total
return rankings are percentages from one percent to one hundred percent and are
not risk adjusted. For example if a fund is in the 94th percentile, that means
that 94% of the funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include 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 or insured 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. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of 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 and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
--------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
--------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can
be used to buy shares of the Fund. Appendix C contains more information
about the special sales charge arrangements offered by the Fund, and the
circumstances in which sales charges may be reduced or waived for certain
classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased two regular business days following
the regular business day you instruct the Distributor to initiate the Automated
Clearing House ("ACH") transfer to buy the shares. That instruction must be
received prior to the close of The New York Stock Exchange that day. Dividends
will begin to accrue on shares purchased with the proceeds of ACH transfers on
the business day after the shares are purchased. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. The proceeds of ACH transfers
are normally received by the Fund 3 days after the transfers are initiated. If
the proceeds of the ACH transfer are not received on a timely basis, the
Distributor reserves the right to cancel the purchase order. 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 Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
<PAGE>
|X| 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:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
o 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, and
o 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.
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. The Distributor will add the
value, at current offering price, of the shares you previously purchased and
currently own to the value of current purchases to determine the sales
charge rate that applies. The reduced sales charge will apply only to
current purchases. You must request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund Oppenheimer
Champion Income Fund Oppenheimer Multiple Strategies Fund Oppenheimer
Convertible Securities Fund Oppenheimer Municipal Bond Fund Oppenheimer
Developing Markets Fund Oppenheimer New York Municipal Fund Oppenheimer
Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund Oppenheimer
Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund Oppenheimer
Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund Oppenheimer
Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund Oppenheimer Global
Fund Oppenheimer Quest Value Fund, Inc. Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer
Strategic Income Fund Oppenheimer Growth Fund Oppenheimer Total Return Fund,
Inc. Oppenheimer High Yield Fund Oppenheimer Trinity Core Fund Oppenheimer
Insured Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer Intermediate
Municipal Fund Oppenheimer Trinity Value Fund Oppenheimer International Bond
Fund Oppenheimer U.S. Government Trust Oppenheimer International Growth Fund
Oppenheimer World Bond Fund Oppenheimer International Small Company Fund
Limited-Term New York Municipal Fund Oppenheimer Large Cap Growth Fund Rochester
Fund Municipals Oppenheimer Limited-Term Government Fund
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A 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. You can include purchases made
up to 90 days before the date of the Letter.
Letter of Intent is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares or Class A and Class B shares of the
Fund (and other Oppenheimer funds) during a 13-month period (the "Letter of
Intent period"). At the investor's request, this may 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 of shares which, when added
to the investor's holdings of shares of those funds, will equal or exceed the
amount specified in the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset value without
sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) 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 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total 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 Prospectus, the sales charges paid will be adjusted to the lower
rate. That adjustment will be made 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.
The Transfer Agent will not hold shares in escrow for purchases of
shares of the Fund and other Oppenheimer funds by OppenheimerFunds prototype
401(k) plans under a Letter of Intent. If the intended purchase amount under
a Letter of Intent 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.
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.
o 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 offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended 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. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
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 of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds-sponsored qualified retirement accounts offered by
employers to their employees. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use their account in that fund to make monthly
automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally, the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or your can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset
Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the Plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time
the investor expects to hold shares, and other relevant circumstances. Class
A shares normally are sold subject to an initial sales charge. While Class B
and Class C shares have no initial sales charge, the purpose of the deferred
sales charge and asset-based sales charge on Class B and Class C shares is
the same as that of the initial sales charge on Class A shares - to
compensate the Distributor and brokers, dealers and financial institutions
that sell shares of the Fund. A salesperson who is entitled to receive
compensation from his or her firm for selling Fund shares may receive
different levels of compensation for selling one class of shares rather than
another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf
of a single investor (not including dealer "street name" or omnibus
accounts). That is because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund.
|X| Class B Conversion. Under current interpretation of applicable federal
income tax law by the Internal Revenue Service, the conversion of Class B shares
to Class A shares after six years is not treated as a taxable event for the
shareholder. For the shareholder, those laws, or the IRS interpretation of those
laws, should change, the automatic conversion feature may be suspended. In that
event, no further conversion of Class B shares would occur while that 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 shareholder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer than six
years.
|X| Allocation of Expenses. 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on
the percentage of the Fund's total assets that is represented by the assets
of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share
issuance costs, organization and start-up costs, interest, taxes and
brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
<PAGE>
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on those days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those
securities are determined, but before the close of The New York Stock
Exchange, will not be reflected in the Fund's calculation of its net asset
values that day unless the Manager determines that the event is likely to
effect a material change in the value of the security. The Manager may make
that determination, under procedures established by the Board.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ are
valued as follows:
(1) if last sale information is regularly reported, they are valued at
the last reported sale price on the principal exchange on which they
are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid" and
"asked" prices on the valuation date or, if not, at the closing "bid"
price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
(1) at the last sale price available to the pricing service approved
by the Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3)
<PAGE>
at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis
of reasonable inquiry, from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days are
valued based on the mean between the "bid" and "asked" prices determined by a
portfolio pricing service approved by the Fund's Board of Trustees or obtained
by the Manager from two active market makers in the security on the basis of
reasonable inquiry.
o The following securities 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 by the Manager from two active market makers in the security on the
basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued, (2)
debt instruments that had a maturity of 397 days or less when issued and have
a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
o The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts: (1) money market debt securities held by a
non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available
market quotations are valued at fair value determined under the Board's
procedures. If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer
or pricing service that the Manager has determined to be reliable are used
to value foreign currency, including forward contracts, and to convert to
U.S. dollars securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium
received is included in the Fund's Statement of Assets and Liabilities as an
asset. An equivalent credit is included in the liability section. The 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 or put
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
received 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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below provides additional information about the
procedures and conditions for redeeming shares.
Checkwriting. When a check is presented to the Bank for clearance, the Bank will
ask the Fund to redeem a sufficient number of full and fractional shares in the
shareholder's account to cover the amount of the check. This enables the
shareholder to continue receiving dividends on those shares until the check is
presented to the Fund. Checks may not be presented for payment at the offices of
the Bank or the Fund's custodian bank. This limitation does not affect the use
of checks for the payment of bills or to obtain cash at other banks. The Fund
reserves the right to amend, suspend or discontinue offering checkwriting
privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege, by signing
the Account Application or by completing a Checkwriting card, each individual
who signs: (1) for individual accounts, represents that they are the registered
owner(s) of
the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
the registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of: o Class A shares purchased
subject to an initial sales charge or Class A shares on which a contingent
deferred sales charge was paid, or o 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 in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. 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.
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.
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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay
redemptions in kind using the same method the Fund uses to value its
portfolio securities described above under "Determination of Net Asset
Values Per Share." That valuation will be made as of the time the redemption
price is determined.
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 will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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 or Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 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 (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary 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 and submitted to the Transfer Agent
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, 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 on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
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. The signature(s) of the registered owners on the
redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have 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 Account Application or by signature-guaranteed
instructions sent to the Transfer Agent. Shares are normally redeemed
pursuant to an
<PAGE>
Automatic Withdrawal Plan three business days before the payment transmittal
date you select in the Account Application. If a contingent deferred sales
charge applies to the redemption, the amount of the check or payment will be
reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested.
The Fund reserves the right to amend, suspend or discontinue offering these
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 contingent deferred sales charge is waived as
described in Appendix C to this Statement of Additional Information.)
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
<PAGE>
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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. 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. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1.800.525.7048.
o All of the Oppenheimer funds currently offer Class A, B and 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, and Centennial
America Fund, L.P., which only offer Class A shares.
o Oppenheimer Main Street California Municipal Fund currently offers only Class
A and Class B shares.
o 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.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y shares
of Oppenheimer Real Asset Fund may not be exchanged for shares of any other
fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be exchanged
only for Class A shares of other Oppenheimer funds. They may not be acquired
by exchange of shares of any class of any other Oppenheimer funds except
Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash Reserves
acquired by exchange of Class M shares.
o Class A shares of Senior Floating Rate Fund are not available by exchange of
Class A shares of other Oppenheimer funds. Class A shares of Senior Floating
Rate Fund that are exchanged for shares of the other Oppenheimer funds may
not be exchanged back for Class A shares of Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only
for Class B shares of other Oppenheimer funds and no exchanges may be made to
Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged for
shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or
Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation
Fund, and only those participants may exchange shares of other Oppenheimer
funds for shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
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 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge or contingent deferred sales
charge. 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. If requested, they
must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other 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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class of shares they wish to exchange
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
|X| Processing 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 Fund may refuse the
request. When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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
Dividends and Distributions. The Fund has no fixed dividend and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
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.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares. That is because of
the effect of the asset-based sales charge on Class B and Class C shares. Those
dividends will also differ in amount as a consequence of any difference in the
net asset values of the different classes of shares.
Dividends will be payable on shares held of record at the time of the
previous determination of net asset value, or as otherwise described in "How to
Buy Shares." Daily dividends will not be declared or paid on newly purchased
shares until such time as Federal Funds (funds credited to a member bank's
account at the Federal Reserve Bank) are available from the purchase payment for
such shares. Normally, purchase checks received from investors re converted to
Federal Funds on the next business day. Shares purchased through dealers or
brokers normally are paid for by the third business day following the placement
of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
Dividends, distributions and 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. Reinvestment will be made as promptly as possible after the
return of such checks to the Transfer Agent, to enable the investor to earn
a return on otherwise idle funds. Unclaimed accounts may be subject to state
escheatment laws, and the Fund and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good
faith.
Tax Status of the Fund's Dividends and Distributions. The federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
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. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from 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.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1
through December 31 of that year and 98% of its capital gains realized in
the period from November 1 of the prior year through October 31 of the
current year. If it does not, the Fund must pay an excise tax on the amounts
not distributed. It is presently anticipated that the Fund will meet those
requirements. However, the Board of Trustees and the Manager might determine
in a particular year that it would be in the best interests of shareholders
for the Fund not to make such distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
The 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). If the Fund
qualifies as a "regulated investment company" under the Internal Revenue
Code, it will not be liable for federal income taxes on amounts paid by it
as dividends and distributions. The Fund qualified as a regulated investment
company in its last fiscal year. The Internal Revenue Code contains a number
of complex tests relating to qualification which the Fund might not meet in
any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
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 above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
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 also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as 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 numbers shown on the back cover.
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. 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. Those
uninsured balances at times may be substantial.
<PAGE>
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER WORLD BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer World Bond Fund as of October 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers; and where
confirmations 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 referred
to above present fairly, in all material respects, the financial position of
Oppenheimer World Bond Fund as of October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 19, 1999
STATEMENT OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
MORTGAGE-BACKED OBLIGATIONS--14.8%
---------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--10.3%
---------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--9.3%
Federal Home Loan Mortgage Corp., Collateralized Mtg.
Obligations, Gtd. Multiclass Mtg. Participation Certificates,
Series 1343, Cl. LA, 8%, 8/15/22 $
229,000 $ 234,510
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates,
Series 2054, Cl. TE, 6.25%, 4/15/24
109,000 104,231
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security
Series 197, Cl. IO, 11.232%, 4/1/28(2)
1,376,122 438,209
Series 199, Cl. IO, 22.578%, 8/1/28(2)
1,289,375 419,249
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Mtg.-Backed Certificates:
11.50%, 1/1/18
45,467 49,981
13%, 5/1/19
191,919 218,602
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.50%, 3/1/28
2,147,811 2,060,890
---------------
3,525,672
---------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--1.0%
Government National Mortgage Assn.:
7.50%, 5/15/24
37,661 37,915
7.50%, 1/15/26(3,4)
282,409 283,607
11%, 10/20/19(4)
51,759 57,239
---------------
378,761
---------------------------------------------------------------------------------------------------------
PRIVATE--4.5%
---------------------------------------------------------------------------------------------------------
COMMERCIAL--3.0%
Asset Securitization Corp., Commercial Mtg.
Pass-Through Certificates, Series 1996-MD6,
Cl. A5, 7.163%, 11/13/26(5)
200,000 192,062
---------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.,
Interest-Only Stripped Mtg.-Backed Security,
Series 1996-C1, Cl. X-2, 29.86%, 12/25/20(2,6)
6,208,300 81,484
---------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1, Cl. E, 7.421%, 3/15/06(5,6)
553,342 460,830
---------------------------------------------------------------------------------------------------------
Nykredit AS, 7% Cv. Bonds, 10/1/29 [DKK]
1,684,000 233,264
---------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates, Series 1995-C1, Cl. F, 6.90%, 2/25/27
93,735 85,270
---------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through
Certificates, Series 1995-C4, Cl. E, 8.71%, 6/25/26(5,6)
100,000 96,156
---------------
1,149,066
</TABLE>
14 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
MULTIFAMILY--0.5%
Mortgage Capital Funding, Inc., Multifamily Mtg.
Pass-Through Certificates, Series 1996-MC1, Cl. G, 7.15%, 6/15/06(7) $
250,000 $ 196,211
---------------------------------------------------------------------------------------------------------
RESIDENTIAL--1.0%
CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. E, 7.50%, 3/1/11(6)
190,000 158,472
---------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg.
Pass-Through Certificates, Series 1997-CHL1, Cl. C, 8.502%, 7/25/06(5,6)
200,000 183,500
---------------------------------------------------------------------------------------------------------
Salomon Brothers, Inc., Series 1997-TZH, Cl. D, 7.902%, 3/25/22(6)
50,000 47,266
---------------
389,238
---------------
Total Mortgage-Backed Obligations (Cost
$5,595,179) 5,638,948
---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.3%
---------------------------------------------------------------------------------------------------------
AGENCY--0.7%
Federal National Mortgage Assn.:
Sr. Unsub. Medium-Term Nts., 6.50%, 7/10/02 [AUD]
200,000 127,368
Sr. Unsub. Nts., 6.375%, 8/15/07 [AUD]
205,000 124,852
---------------
252,220
---------------------------------------------------------------------------------------------------------
TREASURY--16.6%
U.S. Treasury Bonds:
6%, 8/15/04(8)
340,000 340,850
STRIPS, 5.97%, 11/15/18(8,9)
4,050,000 1,172,119
---------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.25%, 5/15/04
2,450,000 2,380,329
5.625%, 11/30/00
600,000 600,000
7%, 7/15/06
1,750,000 1,828,204
---------------
6,321,502
---------------
Total U.S. Government Obligations (Cost
$6,719,340) 6,573,722
---------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--39.4%
---------------------------------------------------------------------------------------------------------
ARGENTINA--3.5%
Argentina (Republic of) Bonds:
Bonos de Consolidacion de Deudas, Series I, 2.857%, 4/1/07(5) [ARP]
517,969 352,192
Series D, Zero Coupon, 9.87%, 10/15/02(9)
160,000 120,800
---------------------------------------------------------------------------------------------------------
Argentina (Republic of) Nts., Series REGS, 11.75%, 2/12/07 [ARP]
765,000 663,969
---------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Series PBA1, 2.857%, 4/1/07(5) [ARP]
258,984 168,855
---------------------------------------------------------------------------------------------------------
City of Buenos Aires Bonds, Series 3, 10.50%, 5/28/04 [ARP]
10,000 7,754
---------------
1,313,570
---------------------------------------------------------------------------------------------------------
AUSTRALIA--0.4%
Australia Postal Corp. Unsec. Unsub. Nts., 6%, 3/25/09 [AUD]
280,000 163,622
</TABLE>
15 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
BRAZIL--3.4%
Brazil (Federal Republic of) Bonds, 11.625%, 4/15/04 $
65,000 $ 62,094
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Capitalization Bonds, 8%, 4/15/14
272,973 183,574
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Conversion Bonds, 7%, 4/15/12(5)
850,000 556,750
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Eligible Interest Bonds, 6.937%, 4/15/06(5)
454,960 371,930
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Gtd. Bonds, 7%, 4/15/09(5)
158,000 116,130
---------------
1,290,478
---------------
---------------------------------------------------------------------------------------------------------
BULGARIA--1.1%
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.75%, 7/28/12(10)
590,000 398,250
---------------------------------------------------------------------------------------------------------
CANADA--1.0%
Canada (Government of) Bonds, Series J24, 10.25%, 2/1/04
490,000 385,427
---------------------------------------------------------------------------------------------------------
COLOMBIA--0.3%
Colombia (Republic of) Nts., 8.625%, 4/1/08
70,000 59,937
---------------------------------------------------------------------------------------------------------
Colombia (Republic of) Unsec. Bonds, 10.875%, 3/9/04
60,000 60,375
---------------
120,312
---------------------------------------------------------------------------------------------------------
ECUADOR--0.0%
Ecuador (Republic of) Past Due Interest Bonds, 2/27/15(11)
76,847 16,522
---------------------------------------------------------------------------------------------------------
GERMANY--2.5%
Germany (Republic of) Bonds:
6.25%, 4/26/06 [DEM]
460 517
6.75%, 5/13/04 [DEM]
170,000 192,678
Series 98, 5.25%, 1/4/08 [EUR]
480,000 506,042
Zero Coupon, 5.63%, 7/4/27(9) [EUR]
520,000 108,254
---------------------------------------------------------------------------------------------------------
Germany (Republic of) Stripped Bonds, Series JA24,
Zero Coupon, 5.54%, 1/4/24(9) [EUR]
600,000 150,911
---------------
958,402
---------------------------------------------------------------------------------------------------------
GREAT BRITAIN--1.0%
United Kingdom Treasury Nts., 10%, 9/8/03 [GBP]
210,000 386,973
---------------------------------------------------------------------------------------------------------
ITALY--2.2%
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali:
9.50%, 2/1/06 [EUR]
555,000 716,192
10.50%, 9/1/05 [ITL]
100,810 133,671
---------------
849,863
</TABLE>
16 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
IVORY COAST--1.3%
Ivory Coast (Government of) Front Loaded Interest Reduction Bonds:
2%, 3/29/18(10) [FRF]
2,215,000 $ 81,634
2%, 3/29/18(10)
715,000 180,537
---------------------------------------------------------------------------------------------------------
Ivory Coast (Government of) Past Due Interest Bonds,
Series F, 1.90%, 3/29/18(10) [FRF]
5,144,562 230,821
---------------
492,992
---------------------------------------------------------------------------------------------------------
JAPAN--1.7%
Japan (Government of) Bonds, Series 141, 6.50%, 6/20/01 [JPY]
60,000,000 632,254
---------------------------------------------------------------------------------------------------------
JORDAN--1.4%
Hashemite (Kingdom of Jordan) Bonds, Series DEF, 5.50%, 12/23/23(10)
90,000 56,925
---------------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.188%, 12/23/23(5)
680,000 457,300
---------------
514,225
---------------------------------------------------------------------------------------------------------
MEXICO--1.3%
Petroleos Mexicanos Debs., 14.50%, 3/31/06(6) [GBP]
100,000 185,422
---------------------------------------------------------------------------------------------------------
United Mexican States Bonds, 11.375%, 9/15/16
300,000 321,375
---------------
506,797
---------------------------------------------------------------------------------------------------------
NIGERIA--0.7%
Nigeria (Federal Republic of) Promissory Nts., Series RC, 5.092%, 1/5/10
422,789 262,125
---------------------------------------------------------------------------------------------------------
NORWAY--3.3%
Norway (Government of) Bonds, 9.50%, 10/31/02 [NOK]
8,970,000 1,254,721
---------------------------------------------------------------------------------------------------------
PANAMA--0.4%
Panama (Republic of) Past Due Interest Debs., 5.819%, 7/17/16(5)
188,950 142,186
---------------------------------------------------------------------------------------------------------
PERU--1.4%
Peru (Republic of) Sr. Nts., Zero Coupon, 4.53%, 2/28/16(9)
1,247,337 547,269
---------------------------------------------------------------------------------------------------------
POLAND--0.4%
Poland (Republic of) Bonds, Series 1000, 13%, 10/12/00 [PLZ]
725,000 168,440
---------------------------------------------------------------------------------------------------------
RUSSIA--1.7%
Russia (Government of) Principal Loan Debs., Series 24 yr., 12/15/20(11)
1,840,000 170,775
---------------------------------------------------------------------------------------------------------
Russia (Government of) Sr. Unsec. Unsub. Nts., 11.75%, 6/10/03
90,000 55,125
---------------------------------------------------------------------------------------------------------
Russia (Government of) Unsec. Bonds, 11%, 7/24/18
380,000 186,200
---------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%, 7/24/05
185,000 89,262
12.75%, 6/24/28
240,000 126,972
---------------
628,334
---------------------------------------------------------------------------------------------------------
SLOVAKIA--0.7%
Vseobenona Uverova Banka Unsec. Sub. Nts., 7.011%, 12/28/06(5)
380,000 269,800
</TABLE>
17 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
SOUTH AFRICA--1.7%
South Africa (Republic of) Bonds:
Series 150, 12%, 2/28/05 [ZAR]
190 $ 29
Series 153, 13%, 8/31/10 [ZAR]
2,986,000 439,009
Series 175, 9%, 10/15/02 [ZAR]
1,300,000 189,216
---------------
628,254
---------------------------------------------------------------------------------------------------------
SPAIN--1.2%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
8.80%, 4/30/06 [EUR]
180,000 224,843
10%, 2/28/05 [EUR]
180,000 231,499
---------------
456,342
---------------------------------------------------------------------------------------------------------
THE NETHERLANDS--1.8%
The Netherlands (Government of) Bonds:
6%, 1/15/06 [EUR]
105,000 115,939
7.75%, 3/1/05 [EUR]
480,000 570,117
---------------
686,056
---------------------------------------------------------------------------------------------------------
TURKEY--0.9%
Turkey (Republic of) Treasury Bills, Zero Coupon, 78.57%,
280,000,000,000 353,015
8/23/00(9) [TRL]
---------------------------------------------------------------------------------------------------------
VENEZUELA--3.5%
Venezuela (Republic of) Disc. Bonds, Series DL, 6.312%, 12/18/07(5)
1,474,141 1,188,527
---------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Front-Loaded Interest Reduction Bonds,
Series A, 6.875%, 3/31/07(5)
178,571 142,411
---------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Unsec. Bonds, 13.625%, 8/15/18
15,000 13,762
---------------
1,344,700
---------------------------------------------------------------------------------------------------------
VIETNAM--0.6%
Vietnam (Government of) Bonds, 3%, 3/12/28(5)
740,000 228,475
---------------
Total Foreign Government Obligations (Cost
$15,380,341) 14,999,404
---------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--4.6%
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Reprofiled Debt Loan Participation Nts.:
Tranche 1, 6.812%, 9/4/06(5,6)
548,181 402,228
Tranche A, 7.50%, 3/4/00(5,6)
20,000 19,700
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Trust III Nts., Tranche 3, 1.063%, 3/4/10(5,6)
23,800,000 110,037
[JPY]
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts., 6.615%, 1/22/01(6) [JPY]
24,300,000 224,407
---------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 2.018%, 1/1/09(5) [JPY]
19,226,190 145,656
Tranche B, 5.906%, 1/1/09(5,6)
52,941 48,772
</TABLE>
18 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
LOAN PARTICIPATIONS Continued
---------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 3 yr., 9.156%, 8/25/01(5,6) $
180,000 $ 164,700
Series 4 yr., 9.406%, 8/25/02(5,6)
90,000 79,650
---------------------------------------------------------------------------------------------------------
PT Lippo Bank Nts.:
8.906%, 8/25/00(5,6)
150,000 144,000
9.156%, 8/25/01(5,6)
225,000 205,875
9.406%, 8/25/02(5,6)
50,000 44,250
---------------------------------------------------------------------------------------------------------
Trinidad & Tobago Loan Participation Agreement, Tranche A,
1.148%, 9/30/00(5,6) [JPY]
19,108,944 166,627
---------------
Total Loan Participations (Cost
$1,517,441) 1,755,902
---------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--9.1%
---------------------------------------------------------------------------------------------------------
CHEMICALS--1.1%
Reliance Industries Ltd., 10.25% Unsec. Debs., Series B, 1/15/2097
520,000 419,819
---------------------------------------------------------------------------------------------------------
ENERGY--0.8%
Empresa Electrica del Norte Grande SA, 7.75% Bonds, 3/15/06(7)
250,000 127,657
---------------------------------------------------------------------------------------------------------
Moran Energy, Inc., 8.75% Cv. Sub. Debs., 1/15/08
200,000 188,347
---------------
316,004
---------------------------------------------------------------------------------------------------------
FINANCIAL--4.5%
AB Spintab, 5.50% Bonds, Series 169, 9/17/03 [SEK]
900,000 107,791
---------------------------------------------------------------------------------------------------------
Allgemeine Hypobk AG, 5% Sec. Nts., Series 501, 9/2/09 [EUR]
50,000 49,959
---------------------------------------------------------------------------------------------------------
Bakrie Investindo, Zero Coupon Promissory Nts., 3/16/99(6,11) [IDR]
850,000,000 18,681
---------------------------------------------------------------------------------------------------------
Bayerische Vereinsbank AG, 5% Sec. Nts., Series 661, 7/28/04 [EUR]
480,614 504,315
---------------------------------------------------------------------------------------------------------
Dresdner Funding Trust II, 5.79% Sub. Nts., 6/30/11(6) [EUR]
270,000 260,554
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.875% Sr. Unsec. Nts., 6/7/02 [GBP]
290,000 476,480
---------------------------------------------------------------------------------------------------------
KBC Bank Funding Trust IV, 8.22% Nts., 11/29/49(10,12) [EUR]
90,000 96,601
---------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Gtd. Nts., 3/29/04(7,11)
185,000 6,937
---------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
11% Nts., 6/18/03(6,11)
50,000 6,500
20% Nts., 3/6/00(11) [IDR]
1,000,000,000 19,048
24% Nts., 6/19/03(11) [IDR]
492,900,000 9,389
---------------------------------------------------------------------------------------------------------
SanLuis Corp., SA DE CV, 8.875% Sr. Unsec. Nts., 3/18/08
190,000 165,300
---------------
1,721,555
---------------------------------------------------------------------------------------------------------
GAMING/LEISURE--0.0%
Capital Gaming International, Inc., 11.50% Promissory Nts., 8/1/95(11)
2,000 --
---------------------------------------------------------------------------------------------------------
HOUSING--0.2%
Internacional de Ceramica SA, 9.75% Unsec. Unsub. Nts., 8/1/02(7)
90,000 63,225
</TABLE>
19 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS--2.1%
Netia Holdings BV, 0%/11% Sr. Disc. Nts., 11/1/07(13) [DEM]
200,000 $ 68,252
---------------------------------------------------------------------------------------------------------
Netia Holdings II BV, 13.50% Sr. Nts., 6/15/09(7) [EUR]
275,000 296,279
---------------------------------------------------------------------------------------------------------
NTL, Inc., 9.50% Sr. Unsec. Unsub. Nts., Series B, 4/1/08 [GBP]
65,000 104,792
---------------------------------------------------------------------------------------------------------
Telewest Communications plc, 0%/9.875% Sr. Nts., 4/15/09(7,13) [GBP]
320,000 317,678
---------------
787,001
---------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.4%
General Motors Acceptance Corp., 6.875% Nts., Series EC, 9/9/04 [GBP]
60,000 96,928
---------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(6)
188,587 66,477
---------------
163,405
---------------
Total Corporate Bonds and Notes (Cost
$4,166,054) 3,471,009
<CAPTION>
SHARES
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
COMMON STOCKS--0.1%
---------------------------------------------------------------------------------------------------------
Optel, Inc.(14)
45 --
---------------------------------------------------------------------------------------------------------
Price Communications Corp.(14)
1,105 24,035
---------------
Total Common Stocks (Cost
$11) 24,035
<CAPTION>
UNITS
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 1/23/03
206 --
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 1/23/03(6)
119 1
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 9/1/04(6)
350 372
---------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05
495 5,514
---------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp. 1/15/07(6)
50 607
---------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp. 6/1/06(6)
100 4,275
---------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 6/30/05(6)
640 160
---------------
Total Rights, Warrants and Certificates (Cost
$1,731) 10,929
<CAPTION>
FACE
AMOUNT(1)
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
STRUCTURED INSTRUMENTS--14.7%
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Argentine Peso Linked Nts., 14.50%, 1/14/00 $
390,000 390,156
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Brazilian Real Linked Nts., 23.75%, 10/25/00
190,000 190,000
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Mexican Peso Linked Nts.:
26.10%, 10/29/01 [MXN]
1,828,750 192,168
27.40%, 9/20/01
338,000 347,802
28.60%, 9/13/01
380,000 392,084
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indian Rupee/Japanese Yen Linked Nts., Zero Coupon,
12.73%, 8/17/01(9)
425,000 309,315
</TABLE>
20 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
STRUCTURED INSTRUMENTS Continued
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesian Rupiah Floating Linked Nts.,
13.86%, 8/3/00 $
230,000 $ 227,861
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesian Rupiah Linked Nts., 13.667%, 6/30/00
275,000 267,273
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, New York, Philippine Peso/Japanese Yen
Linked Nts., 10.55%, 5/12/00
320,000 258,528
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Russian OFZ Linked Nts.:
Series 25030, Zero Coupon, 146.53%, 12/15/01(9) [RUR]
259,000 1,230
Series 27001, 25%, 2/6/02(5) [RUR]
75,800 677
Series 27002, 25%, 5/22/02(5) [RUR]
75,800 633
Series 27003, 25%, 6/5/02(5) [RUR]
75,800 630
Series 27004, 25%, 9/18/02(5) [RUR]
75,800 592
Series 27005, 25%, 10/9/02(5) [RUR]
75,800 574
Series 27006, 25%, 1/22/03(5) [RUR]
75,800 546
Series 27007, 25%, 2/5/03(5) [RUR]
75,800 544
Series 27008, 25%, 5/21/03(5) [RUR]
75,800 523
Series 27009, 25%, 6/4/03(5) [RUR]
75,800 513
Series 27010, 25%, 9/17/03(5) [RUR]
75,800 508
Series 27011, 25%, 10/8/03(5) [RUR]
75,800 486
Series 28001, 25%, 1/21/04(5) [RUR]
75,800 488
---------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. Russian OFZ Linked Nts., Series L:
25%, 2/6/02(5) [RUR]
68,820 1,230
25%, 5/22/02(5) [RUR]
68,820 1,150
25%, 6/5/02(5) [RUR]
68,820 1,144
25%, 9/18/02(5) [RUR]
68,820 1,074
25%, 10/9/02(5) [RUR]
68,820 1,041
25%, 1/22/03(5) [RUR]
68,820 991
25%, 2/5/03(5) [RUR]
68,820 989
25%, 5/21/03(5) [RUR]
68,820 949
25%, 6/4/03(5) [RUR]
68,820 932
25%, 9/17/03(5) [RUR]
68,820 923
25%, 10/8/03(5) [RUR]
68,820 883
25%, 1/21/04(5) [RUR]
68,820 886
Zero Coupon, 53.77%, 12/15/01(9) [RUR]
235,000 2,233
---------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Turkey Treasury Bond Linked Nts.:
87.283%, 1/7/01(5) [TRL]
185,000,000,000 446,675
87.282%, 1/9/01(5) [TRL]
175,100,000,000 422,772
---------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bill Linked Nts.,
92.10%, 8/24/00(5)
500,000 446,460
---------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bond Linked Nts.,
87.283%, 1/7/01(5) [TRL]
222,908,218,827 541,463
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Argentine Peso Linked Nts.:
13.512%, 3/10/00
388,000 391,414
15.10%, 1/18/00
195,000 197,360
16.10%, 3/3/00
200,000 203,660
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Indonesian Rupiah Linked Nts.,
18.19%, 8/18/00
200,000 239,840
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Philippine Peso/Japanese Yen Linked Nts.,
16.04%, 5/10/00
150,000 111,840
---------------
Total Structured Instruments (Cost
$5,864,265) 5,599,040
</TABLE>
21 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
MARKET VALUE
DATE STRIKE
CONTRACTS SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
OPTIONS PURCHASED--0.1%
---------------------------------------------------------------------------------------------------------
European Monetary Unit Call Opt. 12/2/99 EUR 1.071
2,740,000 $ 19,098
---------------------------------------------------------------------------------------------------------
Hong Kong Dollar Put Opt. 1/11/00 HKD 7.894
2,368,200 54
---------------------------------------------------------------------------------------------------------
Japanese Yen Call Opt.(6) 1/24/00 JPY 99.000
82,000,000 10,380
---------------
Total Options Purchased (Cost
$79,397) 29,532
<CAPTION>
FACE
AMOUNT(1)
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
REPURCHASE AGREEMENTS--0.3%
---------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.20%, dated 10/29/99, to be repurchased at $100,043 on 11/1/99,
collateralized by U.S. Treasury Nts., 4.875%-8%, 7/31/00-11/15/28,
with a value of $53,671 and U.S. Treasury Bonds, 7.125%-11.75%,
2/15/01-2/15/23, with a value of $48,402 (Cost $100,000)
$100,000 100,000
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $39,423,759)
100.4% 38,202,521
---------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS
(0.4) (138,723)
----------------------------------
NET ASSETS
100.0% $38,063,798
----------------------------------
----------------------------------
</TABLE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
ARP Argentine Peso ITL Italian Lira
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar MXN Mexican Nuevo Peso
DEM German Mark NOK Norwegian Krone
DKK Danish Krone PLZ Polish Zloty
EUR Euro RUR Russian Ruble
FRF French Franc SEK Swedish Krona
GBP British Pound Sterling TRL Turkish Lira
IRD Indonesian Rupiah ZAR South African Rand
2. 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.
3. A sufficient amount of liquid assets has been designated to cover
outstanding written options, as follows:
<TABLE>
<CAPTION>
CONTRACTS EXPIRATION EXERCISE
PREMIUM MARKET VALUE
SUBJECT TO PUT DATE PRICE
RECEIVED SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
Polish Zloty Put Opt. 2,319,290 11/4/99 PLZ 4.179
$12,682 $6,503
</TABLE>
4. A sufficient amount of securities has been designated to cover outstanding
foreign currency exchange contracts. See Note 5 of Notes to Financial
Statements.
5. Represents the current interest rate for a variable rate security.
6. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
7. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $1,007,987 or 2.65% of the Fund's net
assets as of October 31, 1999.
22 OPPENHEIMER WORLD BOND FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS CONTINUED
8. Securities with an aggregate market value of $1,512,969 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
9. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
10. Represents the current interest rate for an increasing rate security.
11. Non-income-producing--issuer is in default.
12. When-issued security to be delivered and settled after October 31, 1999.
13. Denotes a step bond: a zero coupon bond that converts to a fixed or
variable interest rate at a designated future date.
14. Non-income-producing security.
DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC DIVERSIFICATION, AS A
PERCENTAGE OF TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
GEOGRAPHIC DIVERSIFICATION MARKET
VALUE PERCENT
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
United States
$12,850,553 33.6%
Argentina
2,496,159 6.5
Turkey
2,210,385 5.8
Germany
1,773,229 4.6
Mexico
1,733,853 4.5
Brazil
1,480,479 3.9
Indonesia
1,434,004 3.8
Venezuela
1,344,700 3.5
Norway
1,254,721 3.3
Italy
849,862 2.2
Algeria
756,373 2.0
India
729,134 1.9
Great Britain
704,652 1.9
The Netherlands
686,056 1.8
Russia
650,704 1.7
Japan
632,254 1.7
South Africa
628,254 1.7
Peru
547,269 1.4
Poland
532,971 1.4
Jordan
514,225 1.4
Ivory Coast
492,992 1.3
Spain
456,342 1.2
Australia
415,842 1.1
Bulgaria
398,250 1.0
Canada
389,702 1.0
Philippines
370,368 1.0
Slovakia
269,800 0.7
Nigeria
262,125 0.7
Denmark
233,264 0.6
Vietnam
228,475 0.6
Morocco
194,429 0.5
Trinidad & Tobago
166,626 0.4
Panama
142,186 0.4
Chile
127,657 0.3
Colombia
120,313 0.3
Sweden
107,791 0.3
Ecuador
16,522 0.0
----------------------------------
Total
$38,202,521 100.0%
----------------------------------
----------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
23 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S>
<C>
ASSETS
---------------------------------------------------------------------------------------------------------
Investments, at value (cost $39,423,759)--see accompanying
statement $ 38,202,521
---------------------------------------------------------------------------------------------------------
Cash
172,287
---------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency exchange
contracts 14,225
---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal
paydowns 423,654
Investments
sold
120,460
Shares of beneficial interest
sold 31,385
Closed foreign currency exchange
contracts 11,462
Daily variation on futures
contracts 11,415
Other
727
----------------
Total
assets
38,988,136
---------------------------------------------------------------------------------------------------------
LIABILITIES
---------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency exchange
contracts 499
---------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $12,682)--see accompanying
statement 6,503
---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $94,599 purchased on a when-issued
basis) 485,948
Dividends
211,250
Trustees'
compensation
87,724
Shareholder
reports
61,476
Shares of beneficial interest
redeemed 11,219
Transfer and shareholder servicing agent
fees 9,704
Daily variation on futures
contracts 7,586
Distribution and service plan
fees 6,847
Closed foreign currency exchange
contracts 6,558
Other
29,024
---------------------------------------------------------------------------------------------------------
Total
liabilities
924,338
---------------------------------------------------------------------------------------------------------
NET
ASSETS
$38,063,798
----------------
----------------
---------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
---------------------------------------------------------------------------------------------------------
Par value of shares of capital
stock $ 53,589
---------------------------------------------------------------------------------------------------------
Additional paid-in
capital 48,198,308
---------------------------------------------------------------------------------------------------------
Overdistributed net investment
income (139,724)
---------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (8,851,817)
---------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign
currencies (1,196,558)
----------------
Net
assets
$38,063,798
----------------
----------------
</TABLE>
24 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S>
<C>
NET ASSET VALUE PER SHARE
---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$34,552,699 and 4,864,741 shares of beneficial interest
outstanding) $7.10
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering
price) $7.45
---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $2,735,839
and 384,952 shares of beneficial interest
outstanding) $7.11
---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $775,260 and
109,210 shares of beneficial interest
outstanding) $7.10
</TABLE>
See accompanying Notes to Financial Statements.
25 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
---------------------------------------------------------------------------------------------------------
<S>
<C>
INVESTMENT INCOME
---------------------------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of
$8,265) $ 5,031,533
---------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of
$115) 635
----------------
Total
income
5,032,168
---------------------------------------------------------------------------------------------------------
EXPENSES
---------------------------------------------------------------------------------------------------------
Management
fees
292,706
---------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class
A
66,179
Class
B
16,023
Class
C
8,083
---------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent
fees 101,006
---------------------------------------------------------------------------------------------------------
Shareholder
reports
100,022
---------------------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 36,907
---------------------------------------------------------------------------------------------------------
Trustees'
compensation
32,294
---------------------------------------------------------------------------------------------------------
Custodian fees and
expenses 19,694
---------------------------------------------------------------------------------------------------------
Other
24,001
----------------
Total
expenses
696,915
Less expenses paid
indirectly (6,399)
----------------
Net
expenses
690,516
---------------------------------------------------------------------------------------------------------
Net Investment
Income
4,341,652
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments
(1,206,355)
Closing of futures
contracts (70,067)
Closing and expiration of option contracts
written 115,591
Foreign currency
transactions
(1,737,306)
----------------
Net realized
loss
(2,898,137)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
1,224,060
Translation of assets and liabilities denominated in foreign
currencies (2,778)
----------------
Net
change
1,221,282
----------------
Net realized and unrealized
loss (1,676,855)
---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $2,664,797
----------------
----------------
</TABLE>
See accompanying Notes to Financial Statements.
26 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1999 1998
---------------------------------------------------------------------------------------------------------
<S>
<C> <C>
OPERATIONS
---------------------------------------------------------------------------------------------------------
Net investment income $
4,341,652 $ 4,368,356
---------------------------------------------------------------------------------------------------------
Net realized loss
(2,898,137) (3,053,977)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
1,221,282 (2,480,858)
----------------------------------
Net increase (decrease) in net assets resulting from operations
2,664,797 (1,166,479)
---------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A
(2,671,354) (3,921,503)
Class B
(69,360) (8,405)
Class C
(50,388) (6,104)
---------------------------------------------------------------------------------------------------------
Tax return of capital:
Class A
(1,017,454) (313,635)
Class B
(80,561) (7,511)
Class C
(22,828) (4,729)
---------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A
(3,211,011) (10,446,596)
Class B
1,832,386 963,214
Class C
219,731 600,668
---------------------------------------------------------------------------------------------------------
NET ASSETS
---------------------------------------------------------------------------------------------------------
Total decrease
(2,406,042) (14,311,080)
---------------------------------------------------------------------------------------------------------
Beginning of period
40,469,840 54,780,920
----------------------------------
End of period [including undistributed (overdistributed) net
investment income of $(139,724) and $56,324, respectively]
$38,063,798 $40,469,840
----------------------------------
----------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
27 OPPENHEIMER WORLD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A YEAR ENDED OCTOBER 31, 1999 1998
1997 1996 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.33 $8.28
$8.31 $7.91 $7.93
-----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .72
.72 .73 .71
Net realized and unrealized gain (loss) (.31) (.97)
(.08) .34 (.05)
-----------------------------------------------------------
Total income (loss) from investment operations .49 (.25)
.64 1.07 .66
-----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.64)
(.67) (.67) (.68)
Tax return of capital (.21) (.06)
-- -- --
-----------------------------------------------------------
Total dividends and distributions
to shareholders (.72) (.70)
(.67) (.67) (.68)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.10 $7.33
$8.28 $8.31 $7.91
-----------------------------------------------------------
-----------------------------------------------------------
Market value, end of period N/A N/A
$8.06 $7.50 $7.00
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 7.07% (3.25)%
7.94% 14.14% 8.81%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A
16.42% 16.40% 9.09%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $34,553 $38,950 $54,781
$54,962 $52,340
-----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $36,620 $48,542 $55,339
$53,309 $51,207
-----------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 11.16% 8.94%
8.65% 9.04% 9.20%
Expenses, before indirect expenses 1.74% 1.56%(4)
1.20%(4) 1.28%(4) 1.24%(4)
Expenses, after indirect expenses 1.72% N/A
N/A N/A N/A
-----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 237% 344%
289% 261% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls.
See accompanying Notes to Financial Statements.
28 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED OCTOBER 31,
1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
$7.34 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.72 .25
Net realized and unrealized gain (loss)
(.29) (.73)
----------------------------
Total income (loss) from investment operations
.43 (.48)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.45) (.27)
Tax return of capital
(.21) (.06)
----------------------------
Total dividends and distributions
to shareholders
(.66) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period
$7.11 $7.34
----------------------------
----------------------------
Market value, end of period
N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1)
6.22% (5.93)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2)
N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)
$2,736 $933
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)
$1,607 $340
------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)
Net investment income
10.81% 10.97%(7)
Expenses, before indirect expenses
2.49% 2.74%(4,7)
Expenses, after indirect expenses
2.47% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5)
237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls. 6. For the period from
April 27, 1998 (inception of offering) to October 31, 1998.
7. This information may not be representative of future ratios.
See Accompanying Notes to Financial Statements.
29 OPPENHEIMER WORLD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
CLASS C YEAR ENDED OCTOBER 31,
1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
$7.33 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.75 .34
Net realized and unrealized gain (loss)
(.31) (.83)
----------------------------
Total income (loss) from investment operations
.44 (.49)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.46) (.27)
Tax return of capital
(.21) (.06)
----------------------------
Total dividends and distributions to shareholders
(.67) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period
$7.10 $7.33
----------------------------
----------------------------
Market value, end of period
N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1)
6.24% (6.09)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2)
N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)
$775 $587
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)
$809 $253
------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income
10.14% 9.24%(7)
Expenses, before indirect expenses
2.54% 2.62%(4,7)
Expenses, after indirect expenses
2.52% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5)
237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls. 6. For the period from
April 27, 1998 (inception of offering) to October 31, 1998.
7. This information may not be representative of future ratios.
See Accompanying Notes to Financial Statements.
30 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer World Bond Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek total return.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge on investments up to $1 million. Class B and Class C
shares may be subject to a contingent deferred sales charge (CDSC). All classes
of shares have identical rights to earnings, assets and voting privileges,
except that each class has its own expenses directly attributable to that class
and exclusive voting rights with respect to matters affecting that class.
Classes A, B and C have separate distribution and/or service plans. 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.
--------------------------------------------------------------------------------
SECURITIES 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
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 an
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. Foreign currency exchange contracts are valued based on
the closing prices of the foreign 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 is used.
--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes may be leveraged, which increases the notes'
volatility relative to the face of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of October 31, 1999, the market value of these
securities comprised 12.88% of the Fund's net assets and resulted in realized
and unrealized losses of $778,140. The Fund also hedges a portion of the
foreign currency exposure generated by these securities, as discussed in Note
5.
31 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for
securities that have been purchased by the Fund on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
Normally the settlement date occurs within six months after the transaction
date; however, the Fund may, from time to time, purchase securities whose
settlement date extends beyond six months and possibly as long as two years or
more beyond trade date. During this period, such securities do not earn
interest, are subject to market fluctuation and may increase or decrease in
value prior to their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its purchase commitments.
The purchase of securities on a when-issued or forward commitment basis may
increase the volatility of the Fund's net asset value to the extent the Fund
makes such purchases while remaining substantially fully invested. As of
October 31, 1999, the Fund had entered into net outstanding when-issued or
forward commitments of $94,599.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage dollar-rolls in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
--------------------------------------------------------------------------------
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. As of October 31, 1999,
securities with an aggregate market value of $247,852, representing 0.65% 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 foreign 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.
32 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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. As of October 31, 1999, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $8,678,000, which expires between 2002 and 2007.
--------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted a nonfunded retirement plan for
the Fund's independent Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 1999, a provision of $11,070 was made for the Fund's projected
benefit obligations and payments of $1,928 were made to retired trustees,
resulting in an accumulated liability of $87,268 as of October 31, 1999.
The Board of Trustees has adopted a deferred compensation plan for
independent Trustees that enables Trustees to elect to defer receipt of all or
a portion of annual compensation they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustees in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
33 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
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 the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes. The character of
distributions made during the year from net investment income or net realized
gains may differ from its 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 fiscal year in which the
income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 1999, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $1,746,598. Accumulated net
realized loss on investments has decreased by the same amount. As noted in the
Statements of Changes in Net Assets, the Fund realized a tax return of capital
of $1,120,843.
--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of 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. Dividends-in-kind are recognized as income on the ex-dividend date,
at the current market value of the underlying security. Interest on
payment-in-kind debt instruments is accrued as income at the coupon rate and a
market adjustment is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
34 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest for the year ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999 YEAR
ENDED OCTOBER 31, 1998
SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C>
<C> <C>
---------------------------------------------------------------------------------------------------------
CLASS A:
Sold 390,587 $ 2,817,009
286,833 $ 2,178,396
Dividends and/or
distributions reinvested 163,761 1,175,569
74,607 566,615
Redeemed (1,001,683) (7,203,589)
(1,664,869) (13,191,607)
-----------------------------------------------------------------
Net decrease (447,335) $(3,211,011)
(1,303,429) $(10,446,596)
-----------------------------------------------------------------
-----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS B:
Sold 361,517 $ 2,585,614
131,607 $ 995,498
Dividends and/or
distributions reinvested 13,053 93,470
1,934 14,358
Redeemed (116,778) (846,698)
(6,381) (46,642)
-----------------------------------------------------------------
Net increase 257,792 $ 1,832,386
127,160 $ 963,214
-----------------------------------------------------------------
-----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS C:
Sold 102,151 $ 744,459
118,968 $ 899,891
Dividends and/or
distributions reinvested 4,047 29,065
738 5,675
Redeemed (77,118) (553,793)
(39,576) (304,898)
-----------------------------------------------------------------
Net increase 29,080 $ 219,731
80,130 $ 600,668
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of October 31, 1999, net unrealized depreciation on securities and options
written of $1,215,065 was composed of gross appreciation of $1,097,416, and
gross depreciation of $2,312,481.
35 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
0.75% of the first $200 million of average annual net assets of the Fund, 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 0.58% of average annual net
assets in excess of $1 billion. The Fund's management fee for the year ended
October 31, 1999 was 0.75% of average annual net assets for each class of
shares.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS
B ON CLASS C
SALES CHARGES SALES CHARGES SHARES
SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED
BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1)
DISTRIBUTOR(1) DISTRIBUTOR(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
October 31, 1999 $47,476 $21,352 $3,929
$77,474 $4,241
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<CAPTION>
CLASS A CLASS
B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED
CONTINGENT DEFERRED
SALES CHARGES SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1999 $--
$2,744 $1,245
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
36 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements
to the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the fiscal year ended October 31, 1999,
payments under the Class A Plan totaled $66,179, all of which was paid by the
Distributor to recipients. Any unreimbursed expenses the Distributor incurs
with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.
--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C 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 shares before the plan was
terminated. The plans allow for the carry-forward of distribution expenses, to
be recovered from asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended October 31, 1999,
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED
EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $16,023 $15,054
$103,357 3.78%
Class C Plan 8,083 6,074
7,063 0.91
</TABLE>
37 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency exchange contract is a commitment to purchase or sell a
foreign currency at a future date, at a negotiated rate. The Fund may enter
into foreign currency exchange contracts for operational purposes and to seek
to protect against adverse exchange rate fluctuations. Risks to the Fund
include the potential inability of the counterparty to meet the terms of the
contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided
by a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Realized gains and losses are reported with all
other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of
Investments where applicable.
As of October 31, 1999, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
CONTRACT VALUATION AS
OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATES AMOUNT (000S) OCTOBER 31, 1999
APPRECIATION DEPRECIATION
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
CONTRACTS TO PURCHASE
Euro (EUR) 11/10/99 EUR90 $
94,664 $ -- $ 79
Euro (EUR) 11/19/99-11/24/99 EUR506
532,534 2,540 --
Japanese Yen (JPY) 12/6/99 JPY183,000
1,763,465 4,779 --
-------------------------
7,319 79
-------------------------
CONTRACTS TO SELL
Australian Dollar (AUD) 11/17/99 AUD475
302,782 4,833 --
British Pound Sterling (GBP) 11/19/99-12/13/99 GBP480
787,727 -- 420
Euro (EUR) 11/10/99 EUR86
90,638 78 --
Japanese Yen (JPY) 11/24/99 JPY27,040
260,023 1,995 --
-------------------------
6,906 420
-------------------------
Total Unrealized Appreciation and
Depreciation $14,225 $499
-------------------------
-------------------------
</TABLE>
38 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
6. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
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 (initial margin) in an amount 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 may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
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.
As of October 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS
OF APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS OCTOBER 31,
1999 (DEPRECIATION)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
CONTRACTS TO PURCHASE
Euro-Bobl 12/8/99 2 $
219,407 $ 1,482
Euro-Bund 12/8/99 4
445,204 10,301
Euro-Schatz 12/8/99 10
1,085,576 4,310
U.S. Long Bond 12/20/99 4
454,375 (7,969)
----------
8,124
----------
CONTRACTS TO SELL
Japanese Bond, 10 yr. 3/9/00 1
1,254,599 1,437
U.K. Long Gilt 12/24/99 1
177,135 (2,904)
U.S. Treasury Nts., 10 yr. 12/20/99 1
109,719 (586)
----------
(2,053)
----------
$ 6,071
----------
----------
</TABLE>
39 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered 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.
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 note
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 October 31, 1999, was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT
OPTIONS
----------------------------
-----------------------------
NUMBER OF AMOUNT OF NUMBER OF
AMOUNT OF
OPTIONS PREMIUMS OPTIONS
PREMIUMS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding as of
October 31, 1998 216,915,000 $ 53,812 600,989 $
46,740
Options written 297,846,846 128,948 235,314,827
165,099
Options closed or expired (298,091,203) (101,699) (232,257,209)
(139,728)
Options exercised (216,670,643) (81,061) (1,339,317)
(59,429)
------------------------------------------------------------
Options outstanding as of
October 31, 1999 -- $ -- 2,319,290 $
12,682
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
40 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
8. ILLIQUID OR RESTRICTED SECURITIES
As of October 31, 1999, investments in securities included issues that are
illiquid or restricted. Restricted 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. A security may also
be considered illiquid if it lacks a readily available market or if its
valuation has not changed for a certain period of time. The Fund intends to
invest no more than 10% of its net assets (determined at the time of purchase
and reviewed periodically) in illiquid or restricted securities. Certain
restricted securities, eligible for resale to qualified institutional
investors, are not subject to that limitation. The aggregate value of illiquid
or restricted securities subject to this limitation as of October 31, 1999, was
$3,191,383, which represents 8.38% of the Fund's net assets.
--------------------------------------------------------------------------------
9. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.08% per annum.
The Fund had no borrowings outstanding during the year ended October 31,
1999.
41 OPPENHEIMER WORLD BOND FUND
<PAGE>
<PAGE>
Appendix A
--------------------------------------------------------------------------------
RATINGS DEFINITIONS
--------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
--------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They 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 are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
--------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
<PAGE>
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being made
on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the due
date. The rating may also be used if a bankruptcy petition has been filed or
similar actions jeopardize payments on the obligation.
<PAGE>
Fitch IBCA, Inc.
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and are
extremely speculative. "DDD" designates the highest potential for recovery of
amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
--------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free U.S.
Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
--------------------------------------------------------------------------------
Industry Classifications
--------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-11
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (1) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue Code, (2)
non-qualified deferred compensation plans, (3) employee benefit plans3 (4) Group
Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
--------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."4 This waiver provision applies to:
4 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases by a Retirement Plan (other than an IRA or 403(b)(7)
custodial plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or total plan
assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those purchases,
or
(2) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements with
the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the Retirement Plan.
On the date the plan sponsor signs the record-keeping service agreement
with Merrill Lynch, the Plan must have $3 million or more of its assets
invested in (a) mutual funds, other than those advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM"), that are made available
under a Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as "Applicable
Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided under a
contract or arrangement between the Retirement Plan and Merrill Lynch. On
the date the plan sponsor signs the record keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in Applicable
Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
|_| Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. 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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
|_| 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 which are
identified as such 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, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| 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 (or its successor) is the
investment advisor (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.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent
or other financial intermediary that has made special arrangements with
the Distributor for those purchases.
|_| 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 Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan 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, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. 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 sales charges (and no commissions are paid by the Distributor on such
purchases): |_| 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 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 through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers
to purchase and pay for shares of Oppenheimer funds using the proceeds
of shares redeemed in the prior 30 days 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 shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. 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:
|_| To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following 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) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan. 5 Under a Qualified
Domestic Relations Order, as defined in the Internal Revenue Code, or, in
the case of an IRA, a divorce or separation agreement described in Section
71(b) of the Internal Revenue Code.
5 This provision does not apply to IRAs.
(5) To meet the minimum distribution requirements of the Internal Revenue Code.
(6) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(7) For loans to participants or beneficiaries.
(8) Separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the Manager)
if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA. |_|
For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan. |_| For
distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or
redeemed in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. 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.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
|-|
<PAGE>
Distributions from Retirement Plans or other employee benefit plans for
any of the following 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 in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.7
7 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.8
8 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.9
9 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) offered as an investment option in a Retirement Plan
if the plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service"
distributions, if the redemption proceeds are rolled over directly
to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as long
as the aggregate value of the distributions does not exceed 10% of
the account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate value
of the redeemed shares does not exceed 10% of the account's value,
adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued 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.
|_| Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section I.A.)
of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds, or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former
Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
--------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
--------------------------------------------------------------------------------
For purchases by 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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 who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| 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 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.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed
10% of the initial value of the account value, adjusted annually,
and
|_| 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of
the initial value of the account value; adjusted annually, and
|_| 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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other
Former Connecticut Mutual Funds were $500,000 prior to March 18, 1996,
as a result of direct purchases or purchases pursuant to the Fund's
policies on Combined Purchases or Rights of Accumulation, who still
hold those shares in that Fund or other Former Connecticut Mutual
Funds, and
(2) persons whose intended purchases under a Statement of Intention
entered into prior to March 18, 1996, with the former general
distributor of the Former Connecticut Mutual Funds to purchase shares
valued at $500,000 or more over a 13-month period entitled those
persons to purchase shares at net asset value without being subject
to the Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the
Fund or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total
initial amount invested by the plan in the Fund or any one or more
of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial Services,
L.L.C. ("CMFS"), the prior distributor of the Former Connecticut
Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and
persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other
activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such
group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the
Fund or any one or more of the Former Connecticut Mutual Funds,
provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a)
or 403(b)(7)of the Code, or from IRAs, deferred compensation plans
created under Section 457 of the Code, or other employee benefit
plans;
(4) as tax-free returns of excess contributions to such retirement or employee
benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase
of shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class
B shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholdersof Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a
result of the reorganization of series of Advance America Funds,
Inc. into those Oppenheimer funds on October 18, 1991, and who held
shares of Advance America Funds, Inc. on March 30, 1990, may
purchase Class A shares of those four Oppenheimer funds at a maximum
sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or 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 in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
119
--------------------------------------------------------------------------------
Oppenheimer World Bond Fund
--------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
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 Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019-5820
PX705.0200
<PAGE>
[PHOTO]
Annual Report October 31, 1999
Oppenheimer
WORLD BOND FUND
[LOGO] OPPENHEIMERFUNDS-Registered Trademark-
The Right Way to Invest
<PAGE>
REPORT HIGHLIGHTS
CONTENTS
1 President's Letter
3 An Interview with Your Fund's Manager
8 Fund Performance
14 FINANCIAL STATEMENTS
42 INDEPENDENT AUDITORS' REPORT
43 Federal Income Tax Information
44 Officers and Trustees
45 OppenheimerFunds Family
Declining bond prices in the wake of 1998's global financial crisis were only
PARTIALLY OFFSET BY STABLE TO RISING BOND PRICES SO FAR IN 1999.
We believe that higher yielding bonds--such as emerging-markets debt and lower
rated investment-grade securities-- CURRENTLY OFFER THE MOST ATTRACTIVE VALUES
in the international fixed income markets.
As bond prices continue to recover from the effects of last year's financial
crisis, WE ARE OPTIMISTIC ABOUT THE POTENTIAL FOR CAPITAL APPRECIATION.
<TABLE>
<CAPTION>
---------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
For the 1-Year Period
Ended 10/31/99*
CLASS A
Without With
Sales Chg. Sales Chg.
---------------------------------------
<S> <C>
7.07% 1.98%
<CAPTION>
CLASS B
Without With
Sales Chg. Sales Chg.
---------------------------------------
<S> <C>
6.22% 1.38%
<CAPTION>
CLASS C
Without With
Sales Chg. Sales Chg.
---------------------------------------
<S> <C>
6.24% 5.27%
---------------------------------------
</TABLE>
---------------------------------------
NOT FDIC INSURED.
NO BANK GUARANTEE.
MAY LOSE VALUE.
---------------------------------------
* See page 12 for further details.
<PAGE>
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
Dear shareholder,
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
World Bond Fund
Whenever a new year begins--let alone a new decade or century--it makes sense to
pause a moment to assess where we've been and where we're going.
In retrospect, U.S. stocks and bonds in 1999 were subject to sudden and
substantial swings in investor sentiment because of economic uncertainty. When
the year began, investors were concerned that growth in the United States might
slow in response to economic weakness overseas. At mid-year, investors were
concerned that the economy was too strong, potentially rekindling inflationary
pressures. Yet, by year end, it became clearer that while the U.S. economy grew
robustly in 1999, inflation remained at low levels. Indeed, investors appeared
more comfortable with the economy after the Federal Reserve Board demonstrated
its inflation-fighting resolve by raising interest rates three times between
June and November.
As is normal in a rising-interest-rate environment, bond prices generally
declined in 1999, led lower by U.S. Treasury bonds. In the stock market, while
most major indices advanced, strong performance was mostly limited to a handful
of large-capitalization growth companies, principally in the technology arena.
Smaller and value-oriented stocks provided particularly lackluster returns and,
overall, foreign stocks outperformed U.S. stocks in 1999.
Looking forward, we expect the U.S. economy to remain on a moderate-growth,
low-inflation course. As recent revisions of 1999's economic statistics
demonstrated, the economy has defied many analysts' forecasts by growing at a
strong rate, which should be positive for the bond market. Similarly, positive
economic forces could help the stock market's performance broaden to include
value-oriented and smaller stocks.
We see particularly compelling opportunities outside of the U.S. market.
Many foreign stocks also ended 1999 more attractively valued than large-cap U.S.
stocks, and economic trends in overseas markets could lead to higher stock
prices. In Europe, corporate restructuring has just begun, giving
1 OPPENHEIMER WORLD BOND FUND
<PAGE>
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
companies there the same potential for cost-cutting and productivity
improvements that U.S. companies enjoyed 10 years ago. In Japan and Asia,
economic recovery is expected to gain strength, which could allow stocks to
rally from relatively low levels.
Another 1999 trend that should remain in force in 2000 is the growth of
businesses related to the Internet. The rise of e-commerce has been good for
consumers and the economy because of greater price competition, which has helped
keep inflation under control. The Internet has also been good for investors, as
even companies with no earnings have seen their stock prices soar. Clearly,
while the Internet is here to stay, not all "dot-com" companies will survive,
and many of these high-flying Internet stocks will eventually--and perhaps very
suddenly--return to more reasonable levels. The long-term winners are most
likely to be companies that support the Internet's growth with content or
infrastructure.
What else is in store for investors in 2000? While we do not have an
infallible crystal ball, we believe that in almost any investment environment,
consistent success stems from an unwavering focus on fundamental investment
principles such as maintaining a long-term perspective, using diversification to
manage risks and availing oneself of the services of a knowledgeable financial
advisor. Indeed, these principles serve as the foundation for every investment
we offer, helping to make OppenheimerFunds THE RIGHT WAY TO INVEST in 2000 and
beyond.
Sincerely,
/s/ Bridget A. Macaskill
Bridget A. Macaskill
November 19, 1999
These general market views represent opinions of OppenheimerFunds, Inc. and are
not intended to predict or depict performance of any particular fund. Specific
discussion, as it applies to your Fund, is contained in the pages that follow.
2 OPPENHEIMER WORLD BOND FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Art Steinmetz
(Portfolio Manager)
David Negri
Q HOW DID OPPENHEIMER WORLD BOND FUND PERFORM DURING THE ONE-YEAR PERIOD THAT
ENDED OCTOBER 31, 1999?
A. Given very challenging conditions in the world's fixed income markets, we are
generally pleased with the Fund's performance over the past year. Poor market
performance in the wake of last year's global currency and credit crisis was
partially offset by greater market stability in 1999.
HOW WOULD YOU CHARACTERIZE THE INVESTMENT ENVIRONMENT OVER THE PAST YEAR?
The global bond markets have been highly volatile, especially in the emerging
markets. When the reporting period began, we were in the midst of the global
financial crisis, which had spread from Asia to Russia and was threatening Latin
America. The bond markets were further unsettled by problems experienced by a
number of hedge funds, which were forced to sell large amounts of bonds into an
already troubled market. In 1999, both the global financial crisis and
hedge-fund problems appeared to ease, and signs began to emerge that troubled
emerging-market economies were stabilizing. Bond prices began to rise from
depressed levels, but have not yet rebounded enough to retrace all of their
previous declines.
In the United States, stronger-than-expected economic growth caused the
Federal Reserve Board to raise short-term interest rates twice during the summer
of 1999. Most U.S. government securities prices fell in anticipation of these
rate hikes.
3 OPPENHEIMER WORLD BOND FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
HOW HAVE THE VARIOUS EMERGING MARKETS IN WHICH THE FUND INVESTS FARED OVER THE
PAST YEAR?
Southeast Asian economies have been the first to start to recover from last
year's financial crisis. Many have begun to implement the reforms necessary to
strengthen their troubled banking and financial systems. As a result, overseas
investors have become more comfortable committing capital to Asia, and greater
liquidity has helped these markets rally.
Although Russia remains mired in the problems that led to default on its
government debt during the summer of 1998, other Eastern European nations have
enjoyed stronger economic conditions. For example, our investments in Turkey
have performed quite well.
The recession in Latin America has persisted. However, we expect Latin
American bond markets to recover when economic conditions there improve.
HOW HAVE FIXED INCOME MARKETS FARED IN THE DEVELOPED REGIONS?
The Japanese bond market has ranked among the top performers over the past year.
While the Japanese economy has not yet improved dramatically, the government
appears to be serious about implementing long-awaited financial reforms. As a
result, investors took advantage of attractive values in Japanese bonds based on
the not-yet-realized expectation that the recession will end sometime in the
foreseeable future.
On the other hand, European bond markets have generally languished amid
slower-than-expected economic growth. Returns for U.S. investors from European
bonds have suffered because of the weakening of Europe's new currency, the euro,
relative to the U.S. dollar.
[SIDENOTE:]
"YIELD SPREADS HAVE NOT BEEN MUCH WIDER THAN THEY ARE TODAY, DESPITE THE FACT
THAT ECONOMIC CONDITIONS APPEAR TO BE IMPROVING IN MANY REGIONS. IN OUR VIEW,
THIS REPRESENTS AN OUTSTANDING INVESTMENT OPPORTUNITY."
4 OPPENHEIMER WORLD BOND FUND
<PAGE>
While returns from U.S. Treasury securities have been negative so far in 1999,
we have found particularly attractive values in the U.S. Government agency
sector. For example, bonds issued by the Federal Home Loan Mortgage Corporation,
a Government agency, typically yield about 40 basis points more than U.S.
Treasury securities; currently they yield about 90 basis points more. We
attribute this wider-than-average difference to the achievement of a federal
budget surplus, which has resulted in lower issuance of U.S. Treasury
securities.
HOW WAS THE FUND MANAGED IN THIS ENVIRONMENT?
While we reduced our holdings of U.S. Government bonds over the past year, we
have attempted to take advantage of prevailing relative values in this sector
by emphasizing mortgage-backed securities, including "interest-only" securities
whose prices tend to increase as interest rates rise.
We increased our exposure to emerging market debt. Within the emerging
markets, we have focused on Latin America and Southeast Asia. As these
securities and currencies rebound from depressed levels, we expect the Fund to
benefit.
Although Japanese bonds have recently performed well, we have maintained a
relatively low exposure to these securities. From a fundamental investment
standpoint, we believe that other areas of the world, such as Europe, currently
offer more favorable economic conditions and, therefore, better long-term return
potential.
In fact, after de-emphasizing the developed markets of Europe for most of
the reporting period, we recently began to increase our exposure to European
bonds and the euro. That's because we expect European economic growth to
accelerate relative to U.S. growth, which should produce currency-related gains.
5 OPPENHEIMER WORLD BOND FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
HOW DO YOU MANAGE THE VARIOUS RISKS THAT AFFECT THE FIXED INCOME MARKETS?
We have recently adopted a number of proprietary quantitative models that are
designed to help us identify, quantify and manage three of the specific kinds of
risk that can affect the Fund: interest-rate risk, currency risk and credit
risk. These models combine quantitative tools--such as econometric modeling and
technical analysis--to help recommend the direction in which we should weight
the portfolio relative to our benchmark. Of course, we always combine the
quantitative analyses with our own fundamental judgement as portfolio managers.
In our view, these models serve as a valuable information resource in our
decision-making process.
WHAT IS YOUR OUTLOOK FOR THE FORESEEABLE FUTURE?
We are cautiously optimistic. We have attempted to position the fund to take
advantage of good values in emerging-market and lower quality, investment-grade
bonds. If, as we expect, many of the world's economies gain strength, we
believe these investments should provide above-average total returns, including
high yields and price appreciation.
[SIDENOTE:]
AVERAGE ANNUAL
TOTAL RETURNS(1)
For the Periods Ended 9/30/99
<TABLE>
<CAPTION>
Class A
1-Year 5-Year 10-Year
-------------------------------
<S> <C> <C>
1.03% 5.41% 6.67%
<CAPTION>
Class B Since
1-Year 5-Year Inception
-------------------------------
<S> <C> <C>
0.38% N/A -4.06%
<CAPTION>
Class C Since
1-Year 5-Year Inception
-------------------------------
<S> <C> <C>
4.24% N/A -1.72%
-------------------------------
<CAPTION>
STANDARDIZED YIELDS(2)
For the 30 Days Ended 10/31/99
-------------------------------
<S> <C>
Class A 13.81%
-------------------------------
Class B 13.95
-------------------------------
Class C 13.68
-------------------------------
</TABLE>
1. See page 12 for further details.
2. Standardized yield is based on net investment income for the 30-day period
ended October 31, 1999. Falling share prices will tend to artificially raise
yields.
6 OPPENHEIMER WORLD BOND FUND
<PAGE>
Nonetheless, we are prepared for continued volatility in the fixed income
markets over the short term. For example, higher U.S. interest rates implemented
by the Federal Reserve Board over the summer may adversely affect international
bond markets, especially in those countries that export goods and services to
the United States. However, once this round of rate hikes is over, we believe
the stage will be set for very attractive returns over the longer term. Having
the patience and discipline to weather short-term volatility on the road to
longer-term gains is the essence of our investment strategy, and is an important
reason Oppenheimer World Bond Fund is part of THE RIGHT WAY TO INVEST.
<TABLE>
Top Ten Country Holdings(3)
----------------------------------------------------
<S> <C>
United States 33.6%
----------------------------------------------------
Argentina 6.5
----------------------------------------------------
Turkey 5.8
----------------------------------------------------
Germany 4.6
----------------------------------------------------
Mexico 4.5
----------------------------------------------------
Brazil 3.9
----------------------------------------------------
Indonesia 3.8
----------------------------------------------------
Venezuela 3.5
----------------------------------------------------
Norway 3.3
----------------------------------------------------
Italy 2.2
</TABLE>
-------------------------------
[SIDENOTE:]
REGIONAL ALLOCATION(3)
[PIE CHART]
<TABLE>
<S> <C>
- United States/Canada 34.6%
- Latin America 21.2
- Asia 15.9
- Europe 15.9
- Middle East/Africa 7.6
- Emerging Europe 4.8
</TABLE>
3. Portfolio is subject to change. Percentages are as of October 31, 1999, and
are based on total market value of investments.
7 OPPENHEIMER WORLD BOND FUND
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED?
BELOW IS A DISCUSSION, BY THE MANAGER, OF THE FUND'S PERFORMANCE DURING ITS
FISCAL YEAR ENDED OCTOBER 31, 1999, FOLLOWED BY A GRAPHICAL COMPARISON OF THE
FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX.
MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the Fund's fiscal year that ended
October 31, 1999, Oppenheimer World Bond Fund provided attractive returns
relative to many other fixed income investments. Returns were positively
influenced by recoveries and anticipated recoveries in key markets, including
Japan and Asia. On the other hand, the Fund was adversely influenced by
declining bond prices in global markets that were affected by last year's global
credit and currency crisis. In some markets, adverse local currency movements
relative to the U.S. dollar also negatively affected performance. In this
environment, the Manager attempted to position the Fund to take advantage of
depressed values and widened yield spreads. The Manager believed that this
strategy should help boost returns as economic and market conditions improve.
The Fund's portfolio holdings, allocations and strategies are subject to change.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each class of shares of
the Fund held until October 31, 1999. In the case of Class A shares, performance
is measured over a ten-year period. In the case of Class B and Class C shares,
performance is measured from inception of those classes on April 27, 1998. The
Fund's performance reflects the deduction of the maximum initial sales charge on
Class A shares, the applicable contingent deferred sales charge on Class B and
Class C shares, and reinvestments of all dividends and capital gains
distributions.
8 OPPENHEIMER WORLD BOND FUND
<PAGE>
The Fund's performance is compared to that of Salomon Brothers World Government
Bond Index. This Index is an inclusive index of institutionally traded bonds,
including fixed rate bonds, with a remaining maturity of one year or longer with
amounts outstanding of at least the equivalent of $25 million. Floating- or
variable-rate bonds and private-placement-type securities are not included. The
Index is designed to measure the total return performance of the domestic and
foreign government bond markets.
Index performance reflects the reinvestment of income, but does not
consider the effect of transaction costs, and none of the data in the graphs
shows the effect of taxes. The Fund's performance reflects the effects 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 the index.
9 OPPENHEIMER WORLD BOND FUND
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer World Bond Fund (Class A)
and Salomon Brothers World Government Bond Index
<TABLE>
<CAPTION>
Oppenheimer Salomon Brothers
World Bond Fund Class A World Government Bond Index
<S> <C> <C>
11/23/88 $9,525 $10,000
10/31/89 $10,241 $10,110
10/31/90 $10,924 $11,263
10/31/91 $12,662 $12,534
10/31/92 $13,389 $14,275
10/31/93 $14,740 $15,987
10/31/94 $14,884 $16,566
10/31/95 $16,196 $19,084
10/31/96 $18,486 $20,107
10/31/97 $19,953 $20,633
10/31/98 $19,304 $23,222
10/31/99 $20,669 $22,650
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 10/31/99(1)
1-Year 1.98% 5-Year 5.75% 10-Year 6.75%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer World Bond Fund (Class B)
and Salomon Brothers World Government Bond Index
<TABLE>
<CAPTION>
Oppenheimer Salomon Brothers
World Bond Fund Class B World Government Bond Index
<S> <C> <C>
4/27/98 $10,000 $10,000
10/31/98 $9,407 $11,196
10/31/99 $9,643 $10,921
</TABLE>
CUMULATIVE TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 10/31/99(1)
1-Year 1.38% Life -2.38%
10 OPPENHEIMER WORLD BOND FUND
<PAGE>
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer World Bond Fund (Class C)
and Salomon Brothers World Government Bond Index
<TABLE>
<CAPTION>
Oppenheimer Salomon Brothers
World Bond Fund Class C World Government Bond Index
<S> <C> <C>
4/27/98 $10,000 $10,000
10/31/98 $9,391 $11,196
10/31/99 $9,978 $10,921
</TABLE>
CUMULATIVE TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 10/31/99(1)
1-Year 5.27% Life -0.15%
The performance information for Salomon Brothers World Government Bond Index
in the graphs begins on 11/30/88 for Class A and 4/30/98 for both Class B and
Class C.
1. See page 12 for further details.
Past performance is not predictive of future performance. Graphs are not drawn
to the same scale.
11 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES
--------------------------------------------------------------------------------
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1.800.525.7048 OR VISIT OUR WEBSITE, www.oppenheimerfunds.com.
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown.
CLASS A shares of the Fund were first publicly offered on 11/23/88. Class A
returns include the current maximum initial sales charge of 4.75%. Class A
shares are subject to an annual 0.25% asset-based sales charge.
CLASS B shares of the Fund were first publicly offered on 4/27/98. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 4% (since inception). The ending account value in the graph is net of the
applicable 4% contingent deferred sales charge. Class B shares are subject to an
annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 4/27/98. Class C
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class C shares are subject to an annual 0.75% asset-based sales charge.
An explanation of the different performance calculations is in the Fund's
prospectus.
12 OPPENHEIMER WORLD BOND FUND
<PAGE>
---------------------------------------------------------------------
FINANCIALS
---------------------------------------------------------------------
13 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS October 31, 1999
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED OBLIGATIONS--14.8%
---------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--10.3%
---------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--9.3%
Federal Home Loan Mortgage Corp., Collateralized Mtg.
Obligations, Gtd. Multiclass Mtg. Participation Certificates,
Series 1343, Cl. LA, 8%, 8/15/22 $ 229,000 $ 234,510
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates,
Series 2054, Cl. TE, 6.25%, 4/15/24 109,000 104,231
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security
Series 197, Cl. IO, 11.232%, 4/1/28(2) 1,376,122 438,209
Series 199, Cl. IO, 22.578%, 8/1/28(2) 1,289,375 419,249
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Mtg.-Backed Certificates:
11.50%, 1/1/18 45,467 49,981
13%, 5/1/19 191,919 218,602
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.50%, 3/1/28 2,147,811 2,060,890
---------------
3,525,672
---------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--1.0%
Government National Mortgage Assn.:
7.50%, 5/15/24 37,661 37,915
7.50%, 1/15/26(3,4) 282,409 283,607
11%, 10/20/19(4) 51,759 57,239
---------------
378,761
---------------------------------------------------------------------------------------------------------
PRIVATE--4.5%
---------------------------------------------------------------------------------------------------------
COMMERCIAL--3.0%
Asset Securitization Corp., Commercial Mtg.
Pass-Through Certificates, Series 1996-MD6,
Cl. A5, 7.163%, 11/13/26(5) 200,000 192,062
---------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.,
Interest-Only Stripped Mtg.-Backed Security,
Series 1996-C1, Cl. X-2, 29.86%, 12/25/20(2,6) 6,208,300 81,484
---------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1, Cl. E, 7.421%, 3/15/06(5,6) 553,342 460,830
---------------------------------------------------------------------------------------------------------
Nykredit AS, 7% Cv. Bonds, 10/1/29 [DKK] 1,684,000 233,264
---------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates, Series 1995-C1, Cl. F, 6.90%, 2/25/27 93,735 85,270
---------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through
Certificates, Series 1995-C4, Cl. E, 8.71%, 6/25/26(5,6) 100,000 96,156
---------------
1,149,066
</TABLE>
14 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTIFAMILY--0.5%
Mortgage Capital Funding, Inc., Multifamily Mtg.
Pass-Through Certificates, Series 1996-MC1, Cl. G, 7.15%, 6/15/06(7) $ 250,000 $ 196,211
---------------------------------------------------------------------------------------------------------
RESIDENTIAL--1.0%
CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. E, 7.50%, 3/1/11(6) 190,000 158,472
---------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg.
Pass-Through Certificates, Series 1997-CHL1, Cl. C, 8.502%, 7/25/06(5,6) 200,000 183,500
---------------------------------------------------------------------------------------------------------
Salomon Brothers, Inc., Series 1997-TZH, Cl. D, 7.902%, 3/25/22(6) 50,000 47,266
---------------
389,238
---------------
Total Mortgage-Backed Obligations (Cost $5,595,179) 5,638,948
---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.3%
---------------------------------------------------------------------------------------------------------
AGENCY--0.7%
Federal National Mortgage Assn.:
Sr. Unsub. Medium-Term Nts., 6.50%, 7/10/02 [AUD] 200,000 127,368
Sr. Unsub. Nts., 6.375%, 8/15/07 [AUD] 205,000 124,852
---------------
252,220
---------------------------------------------------------------------------------------------------------
TREASURY--16.6%
U.S. Treasury Bonds:
6%, 8/15/04(8) 340,000 340,850
STRIPS, 5.97%, 11/15/18(8,9) 4,050,000 1,172,119
---------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.25%, 5/15/04 2,450,000 2,380,329
5.625%, 11/30/00 600,000 600,000
7%, 7/15/06 1,750,000 1,828,204
---------------
6,321,502
---------------
Total U.S. Government Obligations (Cost $6,719,340) 6,573,722
---------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--39.4%
---------------------------------------------------------------------------------------------------------
ARGENTINA--3.5%
Argentina (Republic of) Bonds:
Bonos de Consolidacion de Deudas, Series I, 2.857%, 4/1/07(5) [ARP] 517,969 352,192
Series D, Zero Coupon, 9.87%, 10/15/02(9) 160,000 120,800
---------------------------------------------------------------------------------------------------------
Argentina (Republic of) Nts., Series REGS, 11.75%, 2/12/07 [ARP] 765,000 663,969
---------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Series PBA1, 2.857%, 4/1/07(5) [ARP] 258,984 168,855
---------------------------------------------------------------------------------------------------------
City of Buenos Aires Bonds, Series 3, 10.50%, 5/28/04 [ARP] 10,000 7,754
---------------
1,313,570
---------------------------------------------------------------------------------------------------------
AUSTRALIA--0.4%
Australia Postal Corp. Unsec. Unsub. Nts., 6%, 3/25/09 [AUD] 280,000 163,622
</TABLE>
15 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
BRAZIL--3.4%
Brazil (Federal Republic of) Bonds, 11.625%, 4/15/04 $ 65,000 $ 62,094
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Capitalization Bonds, 8%, 4/15/14 272,973 183,574
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Conversion Bonds, 7%, 4/15/12(5) 850,000 556,750
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Eligible Interest Bonds, 6.937%, 4/15/06(5) 454,960 371,930
---------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Gtd. Bonds, 7%, 4/15/09(5) 158,000 116,130
---------------
1,290,478
---------------
---------------------------------------------------------------------------------------------------------
BULGARIA--1.1%
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.75%, 7/28/12(10) 590,000 398,250
---------------------------------------------------------------------------------------------------------
CANADA--1.0%
Canada (Government of) Bonds, Series J24, 10.25%, 2/1/04 490,000 385,427
---------------------------------------------------------------------------------------------------------
COLOMBIA--0.3%
Colombia (Republic of) Nts., 8.625%, 4/1/08 70,000 59,937
---------------------------------------------------------------------------------------------------------
Colombia (Republic of) Unsec. Bonds, 10.875%, 3/9/04 60,000 60,375
---------------
120,312
---------------------------------------------------------------------------------------------------------
ECUADOR--0.0%
Ecuador (Republic of) Past Due Interest Bonds, 2/27/15(11) 76,847 16,522
---------------------------------------------------------------------------------------------------------
GERMANY--2.5%
Germany (Republic of) Bonds:
6.25%, 4/26/06 [DEM] 460 517
6.75%, 5/13/04 [DEM] 170,000 192,678
Series 98, 5.25%, 1/4/08 [EUR] 480,000 506,042
Zero Coupon, 5.63%, 7/4/27(9) [EUR] 520,000 108,254
---------------------------------------------------------------------------------------------------------
Germany (Republic of) Stripped Bonds, Series JA24,
Zero Coupon, 5.54%, 1/4/24(9) [EUR] 600,000 150,911
---------------
958,402
---------------------------------------------------------------------------------------------------------
GREAT BRITAIN--1.0%
United Kingdom Treasury Nts., 10%, 9/8/03 [GBP] 210,000 386,973
---------------------------------------------------------------------------------------------------------
ITALY--2.2%
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali:
9.50%, 2/1/06 [EUR] 555,000 716,192
10.50%, 9/1/05 [ITL] 100,810 133,671
---------------
849,863
</TABLE>
16 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
IVORY COAST--1.3%
Ivory Coast (Government of) Front Loaded Interest Reduction Bonds:
2%, 3/29/18(10) [FRF] 2,215,000 $ 81,634
2%, 3/29/18(10) 715,000 180,537
---------------------------------------------------------------------------------------------------------
Ivory Coast (Government of) Past Due Interest Bonds,
Series F, 1.90%, 3/29/18(10) [FRF] 5,144,562 230,821
---------------
492,992
---------------------------------------------------------------------------------------------------------
JAPAN--1.7%
Japan (Government of) Bonds, Series 141, 6.50%, 6/20/01 [JPY] 60,000,000 632,254
---------------------------------------------------------------------------------------------------------
JORDAN--1.4%
Hashemite (Kingdom of Jordan) Bonds, Series DEF, 5.50%, 12/23/23(10) 90,000 56,925
---------------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.188%, 12/23/23(5) 680,000 457,300
---------------
514,225
---------------------------------------------------------------------------------------------------------
MEXICO--1.3%
Petroleos Mexicanos Debs., 14.50%, 3/31/06(6) [GBP] 100,000 185,422
---------------------------------------------------------------------------------------------------------
United Mexican States Bonds, 11.375%, 9/15/16 300,000 321,375
---------------
506,797
---------------------------------------------------------------------------------------------------------
NIGERIA--0.7%
Nigeria (Federal Republic of) Promissory Nts., Series RC, 5.092%, 1/5/10 422,789 262,125
---------------------------------------------------------------------------------------------------------
NORWAY--3.3%
Norway (Government of) Bonds, 9.50%, 10/31/02 [NOK] 8,970,000 1,254,721
---------------------------------------------------------------------------------------------------------
PANAMA--0.4%
Panama (Republic of) Past Due Interest Debs., 5.819%, 7/17/16(5) 188,950 142,186
---------------------------------------------------------------------------------------------------------
PERU--1.4%
Peru (Republic of) Sr. Nts., Zero Coupon, 4.53%, 2/28/16(9) 1,247,337 547,269
---------------------------------------------------------------------------------------------------------
POLAND--0.4%
Poland (Republic of) Bonds, Series 1000, 13%, 10/12/00 [PLZ] 725,000 168,440
---------------------------------------------------------------------------------------------------------
RUSSIA--1.7%
Russia (Government of) Principal Loan Debs., Series 24 yr., 12/15/20(11) 1,840,000 170,775
---------------------------------------------------------------------------------------------------------
Russia (Government of) Sr. Unsec. Unsub. Nts., 11.75%, 6/10/03 90,000 55,125
---------------------------------------------------------------------------------------------------------
Russia (Government of) Unsec. Bonds, 11%, 7/24/18 380,000 186,200
---------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%, 7/24/05 185,000 89,262
12.75%, 6/24/28 240,000 126,972
---------------
628,334
---------------------------------------------------------------------------------------------------------
SLOVAKIA--0.7%
Vseobenona Uverova Banka Unsec. Sub. Nts., 7.011%, 12/28/06(5) 380,000 269,800
</TABLE>
17 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA--1.7%
South Africa (Republic of) Bonds:
Series 150, 12%, 2/28/05 [ZAR] 190 $ 29
Series 153, 13%, 8/31/10 [ZAR] 2,986,000 439,009
Series 175, 9%, 10/15/02 [ZAR] 1,300,000 189,216
---------------
628,254
---------------------------------------------------------------------------------------------------------
SPAIN--1.2%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
8.80%, 4/30/06 [EUR] 180,000 224,843
10%, 2/28/05 [EUR] 180,000 231,499
---------------
456,342
---------------------------------------------------------------------------------------------------------
THE NETHERLANDS--1.8%
The Netherlands (Government of) Bonds:
6%, 1/15/06 [EUR] 105,000 115,939
7.75%, 3/1/05 [EUR] 480,000 570,117
---------------
686,056
---------------------------------------------------------------------------------------------------------
TURKEY--0.9%
Turkey (Republic of) Treasury Bills, Zero Coupon, 78.57%, 280,000,000,000 353,015
8/23/00(9) [TRL]
---------------------------------------------------------------------------------------------------------
VENEZUELA--3.5%
Venezuela (Republic of) Disc. Bonds, Series DL, 6.312%, 12/18/07(5) 1,474,141 1,188,527
---------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Front-Loaded Interest Reduction Bonds,
Series A, 6.875%, 3/31/07(5) 178,571 142,411
---------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Unsec. Bonds, 13.625%, 8/15/18 15,000 13,762
---------------
1,344,700
---------------------------------------------------------------------------------------------------------
VIETNAM--0.6%
Vietnam (Government of) Bonds, 3%, 3/12/28(5) 740,000 228,475
---------------
Total Foreign Government Obligations (Cost $15,380,341) 14,999,404
---------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--4.6%
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Reprofiled Debt Loan Participation Nts.:
Tranche 1, 6.812%, 9/4/06(5,6) 548,181 402,228
Tranche A, 7.50%, 3/4/00(5,6) 20,000 19,700
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Trust III Nts., Tranche 3, 1.063%, 3/4/10(5,6) 23,800,000 110,037
[JPY]
---------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts., 6.615%, 1/22/01(6) [JPY] 24,300,000 224,407
---------------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreement:
Tranche A, 2.018%, 1/1/09(5) [JPY] 19,226,190 145,656
Tranche B, 5.906%, 1/1/09(5,6) 52,941 48,772
</TABLE>
18 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
LOAN PARTICIPATIONS Continued
---------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 3 yr., 9.156%, 8/25/01(5,6) $ 180,000 $ 164,700
Series 4 yr., 9.406%, 8/25/02(5,6) 90,000 79,650
---------------------------------------------------------------------------------------------------------
PT Lippo Bank Nts.:
8.906%, 8/25/00(5,6) 150,000 144,000
9.156%, 8/25/01(5,6) 225,000 205,875
9.406%, 8/25/02(5,6) 50,000 44,250
---------------------------------------------------------------------------------------------------------
Trinidad & Tobago Loan Participation Agreement, Tranche A,
1.148%, 9/30/00(5,6) [JPY] 19,108,944 166,627
---------------
Total Loan Participations (Cost $1,517,441) 1,755,902
---------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--9.1%
---------------------------------------------------------------------------------------------------------
CHEMICALS--1.1%
Reliance Industries Ltd., 10.25% Unsec. Debs., Series B, 1/15/2097 520,000 419,819
---------------------------------------------------------------------------------------------------------
ENERGY--0.8%
Empresa Electrica del Norte Grande SA, 7.75% Bonds, 3/15/06(7) 250,000 127,657
---------------------------------------------------------------------------------------------------------
Moran Energy, Inc., 8.75% Cv. Sub. Debs., 1/15/08 200,000 188,347
---------------
316,004
---------------------------------------------------------------------------------------------------------
FINANCIAL--4.5%
AB Spintab, 5.50% Bonds, Series 169, 9/17/03 [SEK] 900,000 107,791
---------------------------------------------------------------------------------------------------------
Allgemeine Hypobk AG, 5% Sec. Nts., Series 501, 9/2/09 [EUR] 50,000 49,959
---------------------------------------------------------------------------------------------------------
Bakrie Investindo, Zero Coupon Promissory Nts., 3/16/99(6,11) [IDR] 850,000,000 18,681
---------------------------------------------------------------------------------------------------------
Bayerische Vereinsbank AG, 5% Sec. Nts., Series 661, 7/28/04 [EUR] 480,614 504,315
---------------------------------------------------------------------------------------------------------
Dresdner Funding Trust II, 5.79% Sub. Nts., 6/30/11(6) [EUR] 270,000 260,554
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.875% Sr. Unsec. Nts., 6/7/02 [GBP] 290,000 476,480
---------------------------------------------------------------------------------------------------------
KBC Bank Funding Trust IV, 8.22% Nts., 11/29/49(10,12) [EUR] 90,000 96,601
---------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Gtd. Nts., 3/29/04(7,11) 185,000 6,937
---------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
11% Nts., 6/18/03(6,11) 50,000 6,500
20% Nts., 3/6/00(11) [IDR] 1,000,000,000 19,048
24% Nts., 6/19/03(11) [IDR] 492,900,000 9,389
---------------------------------------------------------------------------------------------------------
SanLuis Corp., SA DE CV, 8.875% Sr. Unsec. Nts., 3/18/08 190,000 165,300
---------------
1,721,555
---------------------------------------------------------------------------------------------------------
GAMING/LEISURE--0.0%
Capital Gaming International, Inc., 11.50% Promissory Nts., 8/1/95(11) 2,000 --
---------------------------------------------------------------------------------------------------------
HOUSING--0.2%
Internacional de Ceramica SA, 9.75% Unsec. Unsub. Nts., 8/1/02(7) 90,000 63,225
</TABLE>
19 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS--2.1%
Netia Holdings BV, 0%/11% Sr. Disc. Nts., 11/1/07(13) [DEM] 200,000 $ 68,252
---------------------------------------------------------------------------------------------------------
Netia Holdings II BV, 13.50% Sr. Nts., 6/15/09(7) [EUR] 275,000 296,279
---------------------------------------------------------------------------------------------------------
NTL, Inc., 9.50% Sr. Unsec. Unsub. Nts., Series B, 4/1/08 [GBP] 65,000 104,792
---------------------------------------------------------------------------------------------------------
Telewest Communications plc, 0%/9.875% Sr. Nts., 4/15/09(7,13) [GBP] 320,000 317,678
---------------
787,001
---------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.4%
General Motors Acceptance Corp., 6.875% Nts., Series EC, 9/9/04 [GBP] 60,000 96,928
---------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(6) 188,587 66,477
---------------
163,405
---------------
Total Corporate Bonds and Notes (Cost $4,166,054) 3,471,009
<CAPTION>
SHARES
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--0.1%
---------------------------------------------------------------------------------------------------------
Optel, Inc.(14) 45 --
---------------------------------------------------------------------------------------------------------
Price Communications Corp.(14) 1,105 24,035
---------------
Total Common Stocks (Cost $11) 24,035
<CAPTION>
UNITS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 1/23/03 206 --
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 1/23/03(6) 119 1
---------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 9/1/04(6) 350 372
---------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05 495 5,514
---------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp. 1/15/07(6) 50 607
---------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp. 6/1/06(6) 100 4,275
---------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 6/30/05(6) 640 160
---------------
Total Rights, Warrants and Certificates (Cost $1,731) 10,929
<CAPTION>
FACE
AMOUNT(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRUCTURED INSTRUMENTS--14.7%
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Argentine Peso Linked Nts., 14.50%, 1/14/00 $ 390,000 390,156
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Brazilian Real Linked Nts., 23.75%, 10/25/00 190,000 190,000
---------------------------------------------------------------------------------------------------------
Citibank NA (Nassau Branch), Mexican Peso Linked Nts.:
26.10%, 10/29/01 [MXN] 1,828,750 192,168
27.40%, 9/20/01 338,000 347,802
28.60%, 9/13/01 380,000 392,084
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indian Rupee/Japanese Yen Linked Nts., Zero Coupon,
12.73%, 8/17/01(9) 425,000 309,315
</TABLE>
20 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRUCTURED INSTRUMENTS Continued
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesian Rupiah Floating Linked Nts.,
13.86%, 8/3/00 $ 230,000 $ 227,861
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesian Rupiah Linked Nts., 13.667%, 6/30/00 275,000 267,273
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, New York, Philippine Peso/Japanese Yen
Linked Nts., 10.55%, 5/12/00 320,000 258,528
---------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Russian OFZ Linked Nts.:
Series 25030, Zero Coupon, 146.53%, 12/15/01(9) [RUR] 259,000 1,230
Series 27001, 25%, 2/6/02(5) [RUR] 75,800 677
Series 27002, 25%, 5/22/02(5) [RUR] 75,800 633
Series 27003, 25%, 6/5/02(5) [RUR] 75,800 630
Series 27004, 25%, 9/18/02(5) [RUR] 75,800 592
Series 27005, 25%, 10/9/02(5) [RUR] 75,800 574
Series 27006, 25%, 1/22/03(5) [RUR] 75,800 546
Series 27007, 25%, 2/5/03(5) [RUR] 75,800 544
Series 27008, 25%, 5/21/03(5) [RUR] 75,800 523
Series 27009, 25%, 6/4/03(5) [RUR] 75,800 513
Series 27010, 25%, 9/17/03(5) [RUR] 75,800 508
Series 27011, 25%, 10/8/03(5) [RUR] 75,800 486
Series 28001, 25%, 1/21/04(5) [RUR] 75,800 488
---------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. Russian OFZ Linked Nts., Series L:
25%, 2/6/02(5) [RUR] 68,820 1,230
25%, 5/22/02(5) [RUR] 68,820 1,150
25%, 6/5/02(5) [RUR] 68,820 1,144
25%, 9/18/02(5) [RUR] 68,820 1,074
25%, 10/9/02(5) [RUR] 68,820 1,041
25%, 1/22/03(5) [RUR] 68,820 991
25%, 2/5/03(5) [RUR] 68,820 989
25%, 5/21/03(5) [RUR] 68,820 949
25%, 6/4/03(5) [RUR] 68,820 932
25%, 9/17/03(5) [RUR] 68,820 923
25%, 10/8/03(5) [RUR] 68,820 883
25%, 1/21/04(5) [RUR] 68,820 886
Zero Coupon, 53.77%, 12/15/01(9) [RUR] 235,000 2,233
---------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Turkey Treasury Bond Linked Nts.:
87.283%, 1/7/01(5) [TRL] 185,000,000,000 446,675
87.282%, 1/9/01(5) [TRL] 175,100,000,000 422,772
---------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bill Linked Nts.,
92.10%, 8/24/00(5) 500,000 446,460
---------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkey Treasury Bond Linked Nts.,
87.283%, 1/7/01(5) [TRL] 222,908,218,827 541,463
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Argentine Peso Linked Nts.:
13.512%, 3/10/00 388,000 391,414
15.10%, 1/18/00 195,000 197,360
16.10%, 3/3/00 200,000 203,660
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Indonesian Rupiah Linked Nts.,
18.19%, 8/18/00 200,000 239,840
---------------------------------------------------------------------------------------------------------
Standard Chartered Bank, Philippine Peso/Japanese Yen Linked Nts.,
16.04%, 5/10/00 150,000 111,840
---------------
Total Structured Instruments (Cost $5,864,265) 5,599,040
</TABLE>
21 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS CONTINUED
<TABLE>
<CAPTION>
MARKET VALUE
DATE STRIKE CONTRACTS SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS PURCHASED--0.1%
---------------------------------------------------------------------------------------------------------
European Monetary Unit Call Opt. 12/2/99 EUR 1.071 2,740,000 $ 19,098
---------------------------------------------------------------------------------------------------------
Hong Kong Dollar Put Opt. 1/11/00 HKD 7.894 2,368,200 54
---------------------------------------------------------------------------------------------------------
Japanese Yen Call Opt.(6) 1/24/00 JPY 99.000 82,000,000 10,380
---------------
Total Options Purchased (Cost $79,397) 29,532
<CAPTION>
FACE
AMOUNT(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS--0.3%
---------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.20%, dated 10/29/99, to be repurchased at $100,043 on 11/1/99,
collateralized by U.S. Treasury Nts., 4.875%-8%, 7/31/00-11/15/28,
with a value of $53,671 and U.S. Treasury Bonds, 7.125%-11.75%,
2/15/01-2/15/23, with a value of $48,402 (Cost $100,000) $100,000 100,000
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $39,423,759) 100.4% 38,202,521
---------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4) (138,723)
----------------------------------
NET ASSETS 100.0% $38,063,798
----------------------------------
----------------------------------
</TABLE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
ARP Argentine Peso ITL Italian Lira
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar MXN Mexican Nuevo Peso
DEM German Mark NOK Norwegian Krone
DKK Danish Krone PLZ Polish Zloty
EUR Euro RUR Russian Ruble
FRF French Franc SEK Swedish Krona
GBP British Pound Sterling TRL Turkish Lira
IRD Indonesian Rupiah ZAR South African Rand
2. 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.
3. A sufficient amount of liquid assets has been designated to cover
outstanding written options, as follows:
<TABLE>
<CAPTION>
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
SUBJECT TO PUT DATE PRICE RECEIVED SEE NOTE 1
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Polish Zloty Put Opt. 2,319,290 11/4/99 PLZ 4.179 $12,682 $6,503
</TABLE>
4. A sufficient amount of securities has been designated to cover outstanding
foreign currency exchange contracts. See Note 5 of Notes to Financial
Statements.
5. Represents the current interest rate for a variable rate security.
6. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
7. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $1,007,987 or 2.65% of the Fund's net
assets as of October 31, 1999.
22 OPPENHEIMER WORLD BOND FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS CONTINUED
8. Securities with an aggregate market value of $1,512,969 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
9. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
10. Represents the current interest rate for an increasing rate security.
11. Non-income-producing--issuer is in default.
12. When-issued security to be delivered and settled after October 31, 1999.
13. Denotes a step bond: a zero coupon bond that converts to a fixed or
variable interest rate at a designated future date.
14. Non-income-producing security.
DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC DIVERSIFICATION, AS A
PERCENTAGE OF TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
GEOGRAPHIC DIVERSIFICATION MARKET VALUE PERCENT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States $12,850,553 33.6%
Argentina 2,496,159 6.5
Turkey 2,210,385 5.8
Germany 1,773,229 4.6
Mexico 1,733,853 4.5
Brazil 1,480,479 3.9
Indonesia 1,434,004 3.8
Venezuela 1,344,700 3.5
Norway 1,254,721 3.3
Italy 849,862 2.2
Algeria 756,373 2.0
India 729,134 1.9
Great Britain 704,652 1.9
The Netherlands 686,056 1.8
Russia 650,704 1.7
Japan 632,254 1.7
South Africa 628,254 1.7
Peru 547,269 1.4
Poland 532,971 1.4
Jordan 514,225 1.4
Ivory Coast 492,992 1.3
Spain 456,342 1.2
Australia 415,842 1.1
Bulgaria 398,250 1.0
Canada 389,702 1.0
Philippines 370,368 1.0
Slovakia 269,800 0.7
Nigeria 262,125 0.7
Denmark 233,264 0.6
Vietnam 228,475 0.6
Morocco 194,429 0.5
Trinidad & Tobago 166,626 0.4
Panama 142,186 0.4
Chile 127,657 0.3
Colombia 120,313 0.3
Sweden 107,791 0.3
Ecuador 16,522 0.0
----------------------------------
Total $38,202,521 100.0%
----------------------------------
----------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
23 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
---------------------------------------------------------------------------------------------------------
Investments, at value (cost $39,423,759)--see accompanying statement $ 38,202,521
---------------------------------------------------------------------------------------------------------
Cash 172,287
---------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency exchange contracts 14,225
---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 423,654
Investments sold 120,460
Shares of beneficial interest sold 31,385
Closed foreign currency exchange contracts 11,462
Daily variation on futures contracts 11,415
Other 727
----------------
Total assets 38,988,136
---------------------------------------------------------------------------------------------------------
LIABILITIES
---------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency exchange contracts 499
---------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $12,682)--see accompanying statement 6,503
---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $94,599 purchased on a when-issued basis) 485,948
Dividends 211,250
Trustees' compensation 87,724
Shareholder reports 61,476
Shares of beneficial interest redeemed 11,219
Transfer and shareholder servicing agent fees 9,704
Daily variation on futures contracts 7,586
Distribution and service plan fees 6,847
Closed foreign currency exchange contracts 6,558
Other 29,024
---------------------------------------------------------------------------------------------------------
Total liabilities 924,338
---------------------------------------------------------------------------------------------------------
NET ASSETS $38,063,798
----------------
----------------
---------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
---------------------------------------------------------------------------------------------------------
Par value of shares of capital stock $ 53,589
---------------------------------------------------------------------------------------------------------
Additional paid-in capital 48,198,308
---------------------------------------------------------------------------------------------------------
Overdistributed net investment income (139,724)
---------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (8,851,817)
---------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign currencies (1,196,558)
----------------
Net assets $38,063,798
----------------
----------------
</TABLE>
24 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE PER SHARE
---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$34,552,699 and 4,864,741 shares of beneficial interest outstanding) $7.10
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $7.45
---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $2,735,839
and 384,952 shares of beneficial interest outstanding) $7.11
---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $775,260 and 109,210 shares of beneficial interest outstanding) $7.10
</TABLE>
See accompanying Notes to Financial Statements.
25 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
---------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
---------------------------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of $8,265) $ 5,031,533
---------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $115) 635
----------------
Total income 5,032,168
---------------------------------------------------------------------------------------------------------
EXPENSES
---------------------------------------------------------------------------------------------------------
Management fees 292,706
---------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 66,179
Class B 16,023
Class C 8,083
---------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 101,006
---------------------------------------------------------------------------------------------------------
Shareholder reports 100,022
---------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 36,907
---------------------------------------------------------------------------------------------------------
Trustees' compensation 32,294
---------------------------------------------------------------------------------------------------------
Custodian fees and expenses 19,694
---------------------------------------------------------------------------------------------------------
Other 24,001
----------------
Total expenses 696,915
Less expenses paid indirectly (6,399)
----------------
Net expenses 690,516
---------------------------------------------------------------------------------------------------------
Net Investment Income 4,341,652
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (1,206,355)
Closing of futures contracts (70,067)
Closing and expiration of option contracts written 115,591
Foreign currency transactions (1,737,306)
----------------
Net realized loss (2,898,137)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 1,224,060
Translation of assets and liabilities denominated in foreign currencies (2,778)
----------------
Net change 1,221,282
----------------
Net realized and unrealized loss (1,676,855)
---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,664,797
----------------
----------------
</TABLE>
See accompanying Notes to Financial Statements.
26 OPPENHEIMER WORLD BOND FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999 1998
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
---------------------------------------------------------------------------------------------------------
Net investment income $ 4,341,652 $ 4,368,356
---------------------------------------------------------------------------------------------------------
Net realized loss (2,898,137) (3,053,977)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 1,221,282 (2,480,858)
----------------------------------
Net increase (decrease) in net assets resulting from operations 2,664,797 (1,166,479)
---------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (2,671,354) (3,921,503)
Class B (69,360) (8,405)
Class C (50,388) (6,104)
---------------------------------------------------------------------------------------------------------
Tax return of capital:
Class A (1,017,454) (313,635)
Class B (80,561) (7,511)
Class C (22,828) (4,729)
---------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial
interest transactions:
Class A (3,211,011) (10,446,596)
Class B 1,832,386 963,214
Class C 219,731 600,668
---------------------------------------------------------------------------------------------------------
NET ASSETS
---------------------------------------------------------------------------------------------------------
Total decrease (2,406,042) (14,311,080)
---------------------------------------------------------------------------------------------------------
Beginning of period 40,469,840 54,780,920
----------------------------------
End of period [including undistributed (overdistributed) net
investment income of $(139,724) and $56,324, respectively] $38,063,798 $40,469,840
----------------------------------
----------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
27 OPPENHEIMER WORLD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.33 $8.28 $8.31 $7.91 $7.93
-----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .72 .72 .73 .71
Net realized and unrealized gain (loss) (.31) (.97) (.08) .34 (.05)
-----------------------------------------------------------
Total income (loss) from investment operations .49 (.25) .64 1.07 .66
-----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.64) (.67) (.67) (.68)
Tax return of capital (.21) (.06) -- -- --
-----------------------------------------------------------
Total dividends and distributions
to shareholders (.72) (.70) (.67) (.67) (.68)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.10 $7.33 $8.28 $8.31 $7.91
-----------------------------------------------------------
-----------------------------------------------------------
Market value, end of period N/A N/A $8.06 $7.50 $7.00
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 7.07% (3.25)% 7.94% 14.14% 8.81%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A 16.42% 16.40% 9.09%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $34,553 $38,950 $54,781 $54,962 $52,340
-----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $36,620 $48,542 $55,339 $53,309 $51,207
-----------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 11.16% 8.94% 8.65% 9.04% 9.20%
Expenses, before indirect expenses 1.74% 1.56%(4) 1.20%(4) 1.28%(4) 1.24%(4)
Expenses, after indirect expenses 1.72% N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 237% 344% 289% 261% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls.
See accompanying Notes to Financial Statements.
28 OPPENHEIMER WORLD BOND FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED OCTOBER 31, 1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.34 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .72 .25
Net realized and unrealized gain (loss) (.29) (.73)
----------------------------
Total income (loss) from investment operations .43 (.48)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45) (.27)
Tax return of capital (.21) (.06)
----------------------------
Total dividends and distributions
to shareholders (.66) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.11 $7.34
----------------------------
----------------------------
Market value, end of period N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 6.22% (5.93)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,736 $933
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,607 $340
------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)
Net investment income 10.81% 10.97%(7)
Expenses, before indirect expenses 2.49% 2.74%(4,7)
Expenses, after indirect expenses 2.47% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls.
6. For the period from April 27, 1998 (inception of offering) to October 31,
1998.
7. This information may not be representative of future ratios.
See Accompanying Notes to Financial Statements.
29 OPPENHEIMER WORLD BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
CLASS C YEAR ENDED OCTOBER 31, 1999 1998(6)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.33 $8.15
------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .75 .34
Net realized and unrealized gain (loss) (.31) (.83)
----------------------------
Total income (loss) from investment operations .44 (.49)
------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.46) (.27)
Tax return of capital (.21) (.06)
----------------------------
Total dividends and distributions to shareholders (.67) (.33)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.10 $7.33
----------------------------
----------------------------
Market value, end of period N/A N/A
----------------------------
----------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 6.24% (6.09)%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $775 $587
------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $809 $253
------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 10.14% 9.24%(7)
Expenses, before indirect expenses 2.54% 2.62%(4,7)
Expenses, after indirect expenses 2.52% N/A
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 237% 344%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
2. Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended October 31, 1999, were $76,761,467 and $77,082,737,
respectively. Prior to the period ended October 31, 1996, purchases and sales
of investment securities included mortgage dollar-rolls.
6. For the period from April 27, 1998 (inception of offering) to October 31,
1998.
7. This information may not be representative of future ratios.
See Accompanying Notes to Financial Statements.
30 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer World Bond Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek total return.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge on investments up to $1 million. Class B and Class C
shares may be subject to a contingent deferred sales charge (CDSC). All classes
of shares have identical rights to earnings, assets and voting privileges,
except that each class has its own expenses directly attributable to that class
and exclusive voting rights with respect to matters affecting that class.
Classes A, B and C have separate distribution and/or service plans. 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.
--------------------------------------------------------------------------------
SECURITIES 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
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 an
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. Foreign currency exchange contracts are valued based on
the closing prices of the foreign 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 is used.
--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes may be leveraged, which increases the notes'
volatility relative to the face of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of October 31, 1999, the market value of these
securities comprised 12.88% of the Fund's net assets and resulted in realized
and unrealized losses of $778,140. The Fund also hedges a portion of the
foreign currency exposure generated by these securities, as discussed in Note
5.
31 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for
securities that have been purchased by the Fund on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
Normally the settlement date occurs within six months after the transaction
date; however, the Fund may, from time to time, purchase securities whose
settlement date extends beyond six months and possibly as long as two years or
more beyond trade date. During this period, such securities do not earn
interest, are subject to market fluctuation and may increase or decrease in
value prior to their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its purchase commitments.
The purchase of securities on a when-issued or forward commitment basis may
increase the volatility of the Fund's net asset value to the extent the Fund
makes such purchases while remaining substantially fully invested. As of
October 31, 1999, the Fund had entered into net outstanding when-issued or
forward commitments of $94,599.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage dollar-rolls in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
--------------------------------------------------------------------------------
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. As of October 31, 1999,
securities with an aggregate market value of $247,852, representing 0.65% 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 foreign 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.
32 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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. As of October 31, 1999, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $8,678,000, which expires between 2002 and 2007.
--------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted a nonfunded retirement plan for
the Fund's independent Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 1999, a provision of $11,070 was made for the Fund's projected
benefit obligations and payments of $1,928 were made to retired trustees,
resulting in an accumulated liability of $87,268 as of October 31, 1999.
The Board of Trustees has adopted a deferred compensation plan for
independent Trustees that enables Trustees to elect to defer receipt of all or
a portion of annual compensation they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustees in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
33 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
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 the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes. The character of
distributions made during the year from net investment income or net realized
gains may differ from its 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 fiscal year in which the
income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 1999, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $1,746,598. Accumulated net
realized loss on investments has decreased by the same amount. As noted in the
Statements of Changes in Net Assets, the Fund realized a tax return of capital
of $1,120,843.
--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of 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. Dividends-in-kind are recognized as income on the ex-dividend date,
at the current market value of the underlying security. Interest on
payment-in-kind debt instruments is accrued as income at the coupon rate and a
market adjustment is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
34 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest for the year ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999 YEAR ENDED OCTOBER 31, 1998
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
CLASS A:
Sold 390,587 $ 2,817,009 286,833 $ 2,178,396
Dividends and/or
distributions reinvested 163,761 1,175,569 74,607 566,615
Redeemed (1,001,683) (7,203,589) (1,664,869) (13,191,607)
-----------------------------------------------------------------
Net decrease (447,335) $(3,211,011) (1,303,429) $(10,446,596)
-----------------------------------------------------------------
-----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS B:
Sold 361,517 $ 2,585,614 131,607 $ 995,498
Dividends and/or
distributions reinvested 13,053 93,470 1,934 14,358
Redeemed (116,778) (846,698) (6,381) (46,642)
-----------------------------------------------------------------
Net increase 257,792 $ 1,832,386 127,160 $ 963,214
-----------------------------------------------------------------
-----------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS C:
Sold 102,151 $ 744,459 118,968 $ 899,891
Dividends and/or
distributions reinvested 4,047 29,065 738 5,675
Redeemed (77,118) (553,793) (39,576) (304,898)
-----------------------------------------------------------------
Net increase 29,080 $ 219,731 80,130 $ 600,668
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of October 31, 1999, net unrealized depreciation on securities and options
written of $1,215,065 was composed of gross appreciation of $1,097,416, and
gross depreciation of $2,312,481.
35 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
0.75% of the first $200 million of average annual net assets of the Fund, 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 0.58% of average annual net
assets in excess of $1 billion. The Fund's management fee for the year ended
October 31, 1999 was 0.75% of average annual net assets for each class of
shares.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
October 31, 1999 $47,476 $21,352 $3,929 $77,474 $4,241
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<CAPTION>
CLASS A CLASS B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 1999 $-- $2,744 $1,245
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
36 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements
to the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the fiscal year ended October 31, 1999,
payments under the Class A Plan totaled $66,179, all of which was paid by the
Distributor to recipients. Any unreimbursed expenses the Distributor incurs
with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.
--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C 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 shares before the plan was
terminated. The plans allow for the carry-forward of distribution expenses, to
be recovered from asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended October 31, 1999,
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $16,023 $15,054 $103,357 3.78%
Class C Plan 8,083 6,074 7,063 0.91
</TABLE>
37 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency exchange contract is a commitment to purchase or sell a
foreign currency at a future date, at a negotiated rate. The Fund may enter
into foreign currency exchange contracts for operational purposes and to seek
to protect against adverse exchange rate fluctuations. Risks to the Fund
include the potential inability of the counterparty to meet the terms of the
contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided
by a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Realized gains and losses are reported with all
other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of
Investments where applicable.
As of October 31, 1999, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
CONTRACT VALUATION AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATES AMOUNT (000S) OCTOBER 31, 1999 APPRECIATION DEPRECIATION
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRACTS TO PURCHASE
Euro (EUR) 11/10/99 EUR90 $ 94,664 $ -- $ 79
Euro (EUR) 11/19/99-11/24/99 EUR506 532,534 2,540 --
Japanese Yen (JPY) 12/6/99 JPY183,000 1,763,465 4,779 --
-------------------------
7,319 79
-------------------------
CONTRACTS TO SELL
Australian Dollar (AUD) 11/17/99 AUD475 302,782 4,833 --
British Pound Sterling (GBP) 11/19/99-12/13/99 GBP480 787,727 -- 420
Euro (EUR) 11/10/99 EUR86 90,638 78 --
Japanese Yen (JPY) 11/24/99 JPY27,040 260,023 1,995 --
-------------------------
6,906 420
-------------------------
Total Unrealized Appreciation and Depreciation $14,225 $499
-------------------------
-------------------------
</TABLE>
38 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
6. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
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 (initial margin) in an amount 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 may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
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.
As of October 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS OCTOBER 31, 1999 (DEPRECIATION)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS TO PURCHASE
Euro-Bobl 12/8/99 2 $ 219,407 $ 1,482
Euro-Bund 12/8/99 4 445,204 10,301
Euro-Schatz 12/8/99 10 1,085,576 4,310
U.S. Long Bond 12/20/99 4 454,375 (7,969)
----------
8,124
----------
CONTRACTS TO SELL
Japanese Bond, 10 yr. 3/9/00 1 1,254,599 1,437
U.K. Long Gilt 12/24/99 1 177,135 (2,904)
U.S. Treasury Nts., 10 yr. 12/20/99 1 109,719 (586)
----------
(2,053)
----------
$ 6,071
----------
----------
</TABLE>
39 OPPENHEIMER WORLD BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered 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.
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 note
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 October 31, 1999, was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
---------------------------- -----------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding as of
October 31, 1998 216,915,000 $ 53,812 600,989 $ 46,740
Options written 297,846,846 128,948 235,314,827 165,099
Options closed or expired (298,091,203) (101,699) (232,257,209) (139,728)
Options exercised (216,670,643) (81,061) (1,339,317) (59,429)
------------------------------------------------------------
Options outstanding as of
October 31, 1999 -- $ -- 2,319,290 $ 12,682
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
40 OPPENHEIMER WORLD BOND FUND
<PAGE>
--------------------------------------------------------------------------------
8. ILLIQUID OR RESTRICTED SECURITIES
As of October 31, 1999, investments in securities included issues that are
illiquid or restricted. Restricted 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. A security may also
be considered illiquid if it lacks a readily available market or if its
valuation has not changed for a certain period of time. The Fund intends to
invest no more than 10% of its net assets (determined at the time of purchase
and reviewed periodically) in illiquid or restricted securities. Certain
restricted securities, eligible for resale to qualified institutional
investors, are not subject to that limitation. The aggregate value of illiquid
or restricted securities subject to this limitation as of October 31, 1999, was
$3,191,383, which represents 8.38% of the Fund's net assets.
--------------------------------------------------------------------------------
9. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.08% per annum.
The Fund had no borrowings outstanding during the year ended
October 31, 1999.
41 OPPENHEIMER WORLD BOND FUND
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER WORLD BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer World Bond Fund as of October 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers; and where
confirmations 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
referred to above present fairly, in all material respects, the financial
position of Oppenheimer World Bond Fund as of October 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 19, 1999
42 OPPENHEIMER WORLD BOND FUND
<PAGE>
FEDERAL INCOME TAX INFORMATION UNAUDITED
--------------------------------------------------------------------------------
In early 2000, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 1999.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because
of the complexity of the federal regulations which may affect your individual
tax return and the many variations in state and local tax regulations, we
recommend that you consult your tax advisor for specific guidance.
43 OPPENHEIMER WORLD BOND FUND
<PAGE>
OPPENHEIMER WORLD BOND FUND
--------------------------------------------------------------------------------
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Arthur P. Steinmetz, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
--------------------------------------------------------------------------------
INVESTMENT ADVISOR OppenheimerFunds, Inc.
--------------------------------------------------------------------------------
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
--------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER
SERVICING AGENT OppenheimerFunds Services
--------------------------------------------------------------------------------
CUSTODIAN OF PORTFOLIO
SECURITIES The Bank of New York
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS KPMG LLP
--------------------------------------------------------------------------------
LEGAL COUNSEL Mayer, Brown & Platt
This is a copy of a report to shareholders of
Oppenheimer World Bond Fund. This report must be
preceded or accompanied by a Prospectus of Oppenheimer
World Bond Fund. For material information concerning
the Fund, see the Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
43 OPPENHEIMER WORLD BOND FUND
<PAGE>
OPPENHEIMERFUNDS FAMILY
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Developing Markets Fund Global Fund
International Small Company Fund Quest Global Value Fund
Europe Fund Global Growth & Income Fund
International Growth Fund
-----------------------------------------------------------------------------------------------------------------------------------
EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
STOCK STOCK & BOND
Enterprise Fund(1) Main Street-Registered Trademark- Growth & Income Fund
Discovery Fund Quest Opportunity Value Fund
Main Street-Registered Trademark- Small Cap Fund Total Return Fund
Quest Small Cap Value Fund Quest Balanced Value Fund
MidCap Fund Capital Income Fund(2)
Capital Appreciation Fund Multiple Strategies Fund
Growth Fund Disciplined Allocation Fund
Disciplined Value Fund Convertible Securities Fund
Quest Value Fund
Trinity Growth Fund SPECIALTY
Trinity Core Fund Real Asset Fund
Trinity Value Fund Gold & Special Minerals Fund
-----------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME
-----------------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL
International Bond Fund California Municipal Fund(3)
World Bond Fund Main Street-Registered Trademark-California Municipal Fund(3)
High Yield Fund Florida Municipal Fund(3)
Champion Income Fund New Jersey Municipal Fund(3)
Strategic Income Fund New York Municipal Fund(3)
Bond Fund Pennsylvania Municipal Fund(3)
Senior Floating Rate Fund Municipal Bond Fund
U.S. Government Trust Insured Municipal Fund
Limited-Term Government Fund Intermediate Municipal Fund
ROCHESTER DIVISION
Rochester Fund Municipals
Limited Term New York Municipal Fund
-----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET(4)
-----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Cash Reserves
</TABLE>
1. Effective July 1, 1999, this fund is closed to new investors. See prospectus
for details.
2. On 4/1/99, the Fund's name was changed from "Oppenheimer Equity Income
Fund."
3. Available to investors only in certain states.
4. An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
these funds may seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in these funds. Oppenheimer
funds are distributed by OppenheimerFunds Distributor, Inc., Two World Trade
Center, New York, NY10048-0203.
-C- Copyright 1999 OppenheimerFunds, Inc. All rights reserved.
45 OPPENHEIMER WORLD BOND FUND
<PAGE>
INFORMATION AND SERVICES
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us
whenever you need assistance. So call us today, or visit our website--we're
here to help.
--------------------------------------------------------------------------------
INTERNET
24-hr access to account information and transactions
www.oppenheimerfunds.com
--------------------------------------------------------------------------------
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
--------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
--------------------------------------------------------------------------------
PHONELINK
24-hr automated information and automated transactions
1.800.533.3310
--------------------------------------------------------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD)
Mon-Fri 8:30am-7pm ET
1.800.843.4461
--------------------------------------------------------------------------------
OPPENHEIMERFUNDS INFORMATION HOTLINE
24 hours a day, timely and insightful messages on the economy and issues that
may affect your investments
1.800.835.3104
--------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
--------------------------------------------------------------------------------
[LOGO] OPPENHEIMERFUNDS-Registered Trademark-
Distributor, Inc.
RA0705.001.1099 December 30, 1999
<PAGE>
[PHOTO]
SEMIANNUAL REPORT APRIL 30, 2000
OPPENHEIMER
WORLD BOND FUND
[OPPENHEIMER LOGO]
<PAGE>
CONTENTS
1 President's Letter
3 An Interview with Your Fund's Managers
8 Financial Statements
34 Officers and Trustees
REPORT HIGHLIGHTS
------------------------------------------------------------------------------
Of the various foreign markets, EMERGING-MARKET BONDS CONTRIBUTED THE MOST TO
THE FUND'S PERFORMANCE.
WE TOOK ADVANTAGE OF WEAKNESS IN U.S. MORTGAGE-BACKED SECURITIES to add what we
believed were a number of compelling high-quality holdings.
We believe that THE FUND'S HOLDINGS MAY BENEFIT AS THE GLOBAL FIXED-INCOME
INVESTMENT ENVIRONMENT AND DEMAND FOR HIGHER-YIELDING SECURITIES IMPROVES.
CUMULATIVE
TOTAL RETURNS*
For the 6-Month Period
Ended 4/30/00
Class A
Without With
Sales Chg. Sales Chg.
------------------------------------
3.44% -1.47%
Class B
Without With
Sales Chg. Sales Chg.
------------------------------------
2.94% -1.99%
Class C
Without With
Sales Chg. Sales Chg.
------------------------------------
2.92% 1.93%
*SEE NOTES ON PAGE 7 FOR FURTHER DETAILS.
<PAGE> 3
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
World Bond Fund
PRESIDENT'S LETTER
DEAR SHAREHOLDER,
--------------------------------------------------------------------------------
For many years, we have encouraged investors to consider whether they could
tolerate more risk in their long-term investments by participating in the stock
market, which has historically provided higher long-term returns than any other
asset class. Today, however, we have a very different concern: some investors
may have assumed too much risk by concentrating their investments in just a
handful of stocks or sectors or by "chasing performance."
Several months ago, Alan Greenspan, the Chairman of the Federal Reserve
Board, stated his view that the spectacular returns some sectors of the market
were then experiencing may have been partly responsible for pushing our economy
to growth rates that could lead to higher inflation. Today it is clear that the
dramatic rise in the prices of a narrow segment of the market created enormous
wealth for some investors. The result of this newfound wealth has been a
substantial increase in spending that the Federal Reserve Board believes could
threaten the healthy growth of our economy.
That's why the Fed has been raising interest rates steadily and decisively
over the past year. By making borrowing more expensive, the Fed has been
attempting to slow economic growth. It is a precarious balancing act: too much
tightening creates the risk of recession, while too little opens the door to
inflation.
The implications of the Fed's resolve are clear: investors must continue to
be prepared for near-term market volatility. In the bond market, higher interest
rates usually lead to lower bond prices. In the stock market, slower economic
growth often reduces corporate earnings and puts downward pressure on stock
prices. Highly valued stocks can be particularly vulnerable to a correction. The
Securities and Exchange Commission Chairman, Arthur Levitt, has been cautioning
investors against the expectation that the types of returns seen in the recent
bull market will last forever.
1 OPPENHEIMER WORLD BOND FUND
<PAGE> 4
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
Because of the prospect of continued market volatility, we encourage you to
consider diversifying your investments. Indeed, diversification may help you
mitigate the effects of sharp declines in any one area. It may also help you
better position your portfolio to seek greater returns over the long run.
While some "new economy" stocks have risen over the last year, many
so-called "old economy" stocks are selling at low prices. In the bond market,
higher interest rates over the short term may reduce inflation concerns, which
should be beneficial over the long term. By buying out-of-favor investments, you
may be able to profit when and if they return to favor.
What specific investments should you consider today so that you are prepared
for tomorrow? The answer depends on your individual investing goals, risk
tolerance and financial circumstances. We urge you to talk with your financial
advisor about ways to diversify your portfolio. This may include con-sidering
global diversification as part of your strategy. While investing abroad has
special risks, such as the effects of foreign currency fluctuations, it also
offers opportunities to participate in global economic growth and to hedge
against the volatility in U.S. markets.
We thank you for your continued confidence in OppenheimerFunds, The Right
Way to Invest.
Sincerely,
/s/ BRIDGET A. MACASKILL
Bridget A. Macaskill
May 19, 2000
2 OPPENHEIMER WORLD BOND FUND
<PAGE> 5
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM(L TO R)
Art Steinmetz
Ruggero de' Rossi
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
HOW DID OPPENHEIMER WORLD BOND FUND PERFORM OVER THE SIX-MONTH PERIOD THAT ENDED
APRIL 30, 2000?
A. We are generally pleased with the Fund's returns in what has been a mixed bag
for global bond markets. During the six-month reporting period, stronger than
expected economic growth throughout the world fueled concerns that inflationary
pressures might reemerge. As a result, tighter monetary policy worldwide pushed
many bond yields higher. Because bond yields and prices generally move in
opposite directions, higher interest rates eroded the value of many fixed income
securities. However, by focusing on what we believed were the highest yielding,
positive performing sectors of the global bond market, we were able to provide a
competitive yield in a declining market.(1)
WHAT WAS THE ECONOMIC ENVIRONMENT LIKE DURING THE PERIOD?
When the reporting period began on November 1, 1999, it had become apparent that
many of the world's economies were growing robustly. The emerging markets of
Asia, Eastern Europe and, to a lesser extent, Latin America, had made a
remarkable recovery from the 1998 global financial crisis. Many developed
markets stabilized, with most European economies experiencing moderate growth,
while Japan's economy showed only budding signs of recovery after nearly a
decade of recession.
1. Investing in foreign bonds, especially in emerging markets, entails higher
expenses and risks, such as foreign currency fluctuations. Investing in high
yield junk bonds carries greater risk of volatility and default. Please see the
prospectus for more information on the risks of investing in the Fund.
3 OPPENHEIMER WORLD BOND FUND
<PAGE> 6
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
"Although the past six months have been challenging for many bonds, our focus on
high-yielding securities helped enhance the Fund's performance."
In the United States, the economy was robust, but a combination of tight
labor markets, rising commodity prices and high levels of consumer borrowing
raised fears of higher inflation down the road. Additionally, Federal Reserve
Chairman Alan Greenspan voiced concern over the "wealth effect," as stock
valuations continued to rise and income from investments in the stock market
fueled vigorous household spending. Questioning the economy's ability to sustain
its rapid growth, the Federal Reserve Board continued to raise short-term
interest rates, with additional hikes in November, February and March.
While many bond investors were prepared for these moves, they were less so
for the U.S. Treasury Department's buyback program, announced in late January of
this year. This repurchase of a larger-than-expected portion of outstanding
Treasury debt created an acute imbalance between supply and demand for U. S.
Treasury securities, particularly on the long end of the maturity spectrum. With
long bonds already in short supply, increased demand drove prices up
dramatically. However, as yields on longer-term bonds dipped below yields on
shorter issues, inverting the yield curve, longer issues still in circulation
became even more valuable.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We have focused on seeking to maximize income in a rising interest rate
environment. We generally avoided lower yielding securities from countries with
relatively low rates of economic growth. Instead, we emphasized higher yielding
bonds from countries with strong economies. Focusing on credit-sensitive rather
than interest rate-sensitive bonds helped provide above-average income streams,
which helped offset the effects of declining bond prices.
4 OPPENHEIMER WORLD BOND FUND
<PAGE> 7
AVERAGE ANNUAL
TOTAL RETURNS
For the Periods Ended 3/31/00(2)
Class A
1-Year 5-Year 10-Year
----------------------------------------
6.36% 7.21% 7.15%
Class B Since
1-Year 5-Year Inception
----------------------------------------
5.81% N/A 0.94%
Class C Since
1-Year 5-Year Inception
----------------------------------------
9.81% N/A 2.66%
Because of ongoing market volatility,
the Fund's returns may fluctuate and may
be less than the results shown.
-----------------------------------------
STANDARDIZED YIELDS(3)
For the 30-days Ended 4/30/00
-----------------------------------------
Class A 9.26%
-----------------------------------------
Class B 8.92
-----------------------------------------
Class C 8.91
WHERE HAVE YOU FOUND THE MOST ATTRACTIVE OPPORTUNITIES FOR INVESTMENT DURING THE
PAST SIX MONTHS?
Of the various international markets, emerging-market bonds contributed the most
to performance. Consistent with our value orientation, we purchased many of our
current holdings in 1998, when they fell out of favor due to the global
financial crisis. As market conditions and investor interest have improved, we
have taken a more aggressive stance.
On the other hand, our holdings of foreign bonds from many developed markets
were negatively influenced by the strength of the U.S. dollar relative to most
European currencies, including the euro. Many European economies were growing at
slower rates than the U.S. economy, making U.S. investments relatively more
attractive to domestic and foreign investors alike. However, we believe there
are investment opportunities in the United Kingdom and many Scandinavian
countries.
In the United States, we allocated part of the portfolio to "spread
products" such as mortgage-backed securities. These types of securities
typically provide extra yield above Treasuries, and generally perform better in
a rising-rate environment. Throughout the last six months, we sought to take
advantage of weakness in the mortgage-backed securities sector to add what we
believed were a number of compelling high-quality holdings.
(2.) See Notes on page 7 for further details
(3.) Standardized yield is based on net investment income for the 30-day period
ended April 30, 2000. Falling share prices will tend to artificially raise
yields.
5 OPPENHEIMER WORLD BOND FUND
<PAGE> 8
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
REGIONAL ALLOCATION
Percentage of invested assets(4)
[PIE CHART]
<TABLE>
<S> <C>
United States/
Canada 53.0%
Latin America 15.9
Europe 15.1
Asia 7.5
Emerging
Europe 5.7
Middle East/
Africa 2.8
</TABLE>
WHAT IS YOUR OUTLOOK OVER THE FORESEEABLE FUTURE?
We remain optimistic. We expect the Federal Reserve and other central banks to
employ tighter monetary policy until they see evidence that inflation will
remain under control. In our view, U.S. investors could expect to see several
more interest-rate increases, which we believe have already been priced into
long-term bond yields. Because of its size and scope, the U.S. economy
influences many worldwide markets. However, we believe that any further price
erosion among longer-term bonds should be limited.
We will seek to continue to manage the Fund in a way that takes advantage of
the changing relationships among the various sectors of the global bond market.
In fact, adhering to our long-term investment discipline is just one of the many
reasons why Oppenheimer World Bond Fund is an important part of The Right Way to
Invest.
<TABLE>
<CAPTION>
TOP TEN COUNTRY HOLDINGS(4)
-----------------------------------------------------------------------------
<S> <C>
United States 49.8%
-----------------------------------------------------------------------------
Mexico 5.0
-----------------------------------------------------------------------------
France 4.0
-----------------------------------------------------------------------------
Argentina 3.7
-----------------------------------------------------------------------------
Canada 3.2
-----------------------------------------------------------------------------
Russia 3.1
-----------------------------------------------------------------------------
Brazil 2.8
-----------------------------------------------------------------------------
Italy 2.8
-----------------------------------------------------------------------------
Korea, Republic of (South) 2.0
-----------------------------------------------------------------------------
Algeria 1.8
</TABLE>
(4.) Portfolio is subject to change. Percentages are as of April 30, 2000, and
are based on total market value of investments.
6 OPPENHEIMER WORLD BOND FUND
<PAGE> 9
NOTES
--------------------------------------------------------------------------------
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. FOR QUARTERLY
UPDATES ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL
US AT 1.800.525.7048 OR VISIT OUR WEBSITE AT WWW.OPPENHEIMERFUNDS.COM.
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized. The Fund's total returns and yields
shown do not show the effects of income taxes on an individual's investment.
Taxes may reduce your actual investment returns on income or gains paid by the
Fund or any gains you may realize if you sell your shares.
CLASS A shares of the Fund were first publicly offered on 11/23/88. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 4.75%. Class A shares are subject to an annual 0.25% asset-based sales
charge.
CLASS B shares of the Fund were first publicly offered on 4/27/98. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 4% (since inception). Class B shares are subject
to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 4/27/98. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
7 OPPENHEIMER WORLD BOND FUND
<PAGE> 10
STATEMENT OF INVESTMENTS April 30, 2000 / Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
MORTGAGE-BACKED OBLIGATIONS--11.6% AMOUNT SEE NOTE 1
----------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--8.3%
----------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--7.5%
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
<S> <C> <C>
Conduit Pass-Through Certificates, Series 2054, Cl. TE, 6.25%, 4/15/24 $ 109,000 $ 101,199
---------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 197, Cl. IO, 11.248%, 4/1/28(1) 1,333,331 423,437
Series 199, Cl. IO, 18.28%, 8/1/28(1) 1,243,955 408,756
--------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Mtg.-Backed Certificates:
11.50%, 1/1/18 25,000 26,462
13%, 5/1/19 157,250 175,288
---------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.50%, 3/1/28 2,062,368 1,928,769
----------
3,063,911
---------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.8%
Government National Mortgage Assn.:
7.50%, 5/15/24 34,068 33,626
7.50%, 1/15/26(2,3) 265,064 261,123
11%, 10/20/19 45,525 49,030
----------
343,779
----------------------------------------------------------------------------------------------------------------
PRIVATE--3.3%
---------------------------------------------------------------------------------------------------------------
COMMERCIAL--3.3%
Commercial Mortgage Acceptance Corp., Interest-Only Stripped
Mtg.-Backed Security, Series 1996-C1, Cl. X-2, 25.531%, 12/25/20(1,4) 5,003,131 62,539
---------------------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. E, 7.50%, 3/1/11(4) 190,000 169,100
---------------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through
Certificates, Series 1997-CHL1, Cl. C, 7.993%, 7/25/06(4,5) 200,000 182,625
---------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through
Certificates, Series 1995-C2, Cl. D, 7.777%, 6/15/21(5) 107,226 105,007
---------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through
Certificates, Series 1996-C1, Cl. E, 7.416%, 3/15/06(4,5) 553,342 456,248
---------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., Multifamily Mtg. Pass-Through
Certificates, Series 1996-MC1, Cl. G, 7.15%, 6/15/06(6) 250,000 205,879
---------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1995-C1, Cl. F, 6.90%, 2/25/27 84,164 75,965
---------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through Certificates,
Series 1995-C4, Cl. E, 8.744%, 6/25/26(4,5) 100,000 96,625
----------
1,353,988
----------
Total Mortgage-Backed Obligations (Cost $4,762,029) 4,761,678
---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--16.7%
U.S. Treasury Bonds:
8.875%, 2/15/19 275,000 351,570
STRIPS, 5.97%, 11/15/18(7) 4,050,000 1,308,109
STRIPS, 6.24%, 2/15/20(7) 837,000 601,979
</TABLE>
8 OPPENHEIMER WORLD BOND FUND
<PAGE> 11
<TABLE>
<CAPTION>
Principal Market Value
Amount See Note 1
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
<S> <C> <C>
5.25%, 5/15/04 $3,000,000 $2,862,189
5.625%, 11/30/00 750,000 746,954
7%, 7/15/06(8) 1,000,000 1,023,438
-----------
Total U.S. Government Obligations (Cost $7,001,867) 6,894,239
---------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--36.0%
---------------------------------------------------------------------------------------------------------------
ARGENTINA--3.5%
Argentina (Republic of) Bonds, Series PRE3, 2.951%, 9/1/02(5)[ARP] 370,335 333,054
---------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Disc. Bonds, 6.875%, 3/31/23(5) 288,000 245,880
---------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Unsec. Unsub. Nts., 11.75%, 4/7/09 299,000 294,365
---------------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Series PBA1, 2.951%, 4/1/07(5) [ARP] 241,534 173,103
---------------------------------------------------------------------------------------------------------------
City of Buenos Aires Bonds, Series 3, 10.50%, 5/28/04 [ARP] 460,000 407,385
----------
1,453,787
---------------------------------------------------------------------------------------------------------------
BRAZIL--2.6%
Brazil (Federal Republic of) Bonds:
12.25%, 3/6/30 45,000 41,242
Series 15 yr., 7.437%, 4/15/09(5) 132,000 108,570
--------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Conversion Bonds:
Series 18 yr., 7.437%, 4/15/12(5) 695,000 502,137
Series 20 yr., 6.916%, 4/15/14 277,067 199,488
--------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Eligible Interest Bonds:
7.375%, 4/15/06(5) 68,820 61,594
7.375%, 4/15/06(5) 199,950 178,955
----------
1,091,986
--------------------------------------------------------------------------------------------------------------
BULGARIA--0.3%
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.75%, 7/28/12(5) 150,000 104,625
--------------------------------------------------------------------------------------------------------------
CANADA--3.1%
Canada (Government of) Bonds:
1.90%, 3/23/09 [JPY] 33,000,000 310,794
7%, 12/1/06 [CAD] 1,350,000 949,036
----------
1,259,830
--------------------------------------------------------------------------------------------------------------
COLOMBIA--0.3%
Colombia (Republic of) Bonds, 9.75%, 4/23/09 160,000 126,000
--------------------------------------------------------------------------------------------------------------
DENMARK--0.5%
Nykredit AS, 7% Cv. Bonds, 10/1/29 [DKK] 1,673,000 203,566
--------------------------------------------------------------------------------------------------------------
FRANCE--3.7%
France (Government of) Obligations Assimilables du Tresor Bonds,
5.50%, 4/25/10 [EUR] 1,020,000 936,339
--------------------------------------------------------------------------------------------------------------
France (Government of) Treasury Nts., 3.50%, 7/12/04 [EUR] 705,000 607,083
----------
1,543,422
</TABLE>
9 OPPENHEIMER WORLD BOND FUND
<PAGE> 12
STATEMENT OF INVESTMENTS Unaudited/Continued
<TABLE>
<CAPTION>
Principal Market Value
Amount See Note 1
--------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS Continued
--------------------------------------------------------------------------------------------------------------
GERMANY--1.2%
Germany (Republic of) Bonds:
<S> <C> <C>
6.25%, 4/26/06 [EUR] 460 $ 442
Series 95, 7.375%, 1/3/05 [DEM] 85,000 84,540
Series 97, 6%, 1/4/07 [EUR] 30,000 28,452
Series 125, 5%, 11/12/02 [EUR] 400,000 366,343
----------
479,777
--------------------------------------------------------------------------------------------------------------
GREAT BRITAIN--1.2%
United Kingdom Treasury Bonds, 5.75%, 12/7/09 [GBP] 90,000 146,747
--------------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts., 10%, 9/8/03 [GBP] 210,000 365,741
----------
512,488
--------------------------------------------------------------------------------------------------------------
GREECE--0.4%
Hellenic (Republic of) Bonds, 8.60%, 3/26/08 [GRD] 53,300,000 166,351
--------------------------------------------------------------------------------------------------------------
ITALY--2.6%
Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali:
6.75%, 2/1/07 [EUR] 430,000 421,052
9.50%, 2/1/06 [EUR] 575,000 630,736
10.50%, 9/1/05 [EUR] 30,810 34,768
----------
1,086,556
--------------------------------------------------------------------------------------------------------------
IVORY COAST--0.2%
Ivory Coast (Government of) Past Due Interest Bonds, Series F, 1.90%,
3/29/18(9) [FRF] 3,899,750 92,103
--------------------------------------------------------------------------------------------------------------
JAPAN--0.8%
Japan (Government of) 10 yr. Bonds:
Series 135, 7.20%, 12/20/00 [JPY] 5,400,000 52,069
Series 136, 6.90%, 12/20/00 [JPY] 27,500,000 264,377
----------
316,446
--------------------------------------------------------------------------------------------------------------
JORDAN--0.8%
Hashemite (Kingdom of Jordan) Disc. Bonds, 7%, 12/23/23(5) 405,000 320,962
--------------------------------------------------------------------------------------------------------------
KOREA, REPUBLIC OF (SOUTH)--1.0%
Korea (Republic of) Bonds, 8.875%, 4/15/08 410,000 423,838
--------------------------------------------------------------------------------------------------------------
MEXICO--0.8%
Petroleos Mexicanos Debs., 14.50%, 3/31/06 [GBP] 100,000 196,805
--------------------------------------------------------------------------------------------------------------
United Mexican States Bonds:
11.375%, 9/15/16 3,000 3,402
Series A, 7.313%, 12/31/19(5) 50,000 49,125
--------------------------------------------------------------------------------------------------------------
United Mexican States Collateralized Fixed Rate Par Bonds:
Series W-A, 6.25%, 12/31/19 15,000 12,375
Series W-B, 6.25%, 12/31/19 35,000 28,875
--------------------------------------------------------------------------------------------------------------
United Mexican States Disc. Bonds:
Series B, 6.942%, 12/31/19(5) 25,000 24,539
Series C, 6.836%, 12/31/19(5) 25,000 24,563
----------
339,684
</TABLE>
10 OPPENHEIMER WORLD BOND FUND
<PAGE> 13
<TABLE>
<CAPTION>
Principal Market Value
Amount See Note 1
---------------------------------------------------------------------------------------------------------------
NORWAY--1.3%
<S> <C> <C>
Norway (Government of) Bonds, 9.50%, 10/31/02 [NOK] 4,480,000 $ 532,873
--------------------------------------------------------------------------------------------------------------
PANAMA--0.5%
Panama (Republic of) Interest Reduction Bonds, 4.25%, 7/17/14(5) 48,000 37,920
--------------------------------------------------------------------------------------------------------------
Panama (Republic of) Past Due Interest Debs., 6.381%, 7/17/16(5) 191,353 154,518
----------
192,438
--------------------------------------------------------------------------------------------------------------
PERU--1.4%
Peru (Republic of) Sr. Nts., Zero Coupon, 4.53%, 2/28/16(7) 1,208,978 566,890
--------------------------------------------------------------------------------------------------------------
POLAND--0.7%
Poland (Republic of) Bonds:
13%, 2/12/01 [PLZ] 726,000 156,331
Series 0602, 12%, 6/12/02 [PLZ] 267,000 55,262
Series 5 yr., 12%, 2/12/02 [PLZ] 292,000 60,526
----------
272,119
--------------------------------------------------------------------------------------------------------------
RUSSIA--2.7%
Russia (Government of) Principal Loan Debs., Series 24 yr., 12/15/20(9,10) 1,701,000 467,775
--------------------------------------------------------------------------------------------------------------
Russian Federation Bonds, 2.25%, 3/31/30(5,11) 440,000 147,675
--------------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%, 7/24/05 294,000 209,475
10%, 6/26/07 356,000 255,430
12.75%, 6/24/28 32,000 26,080
----------
1,106,435
--------------------------------------------------------------------------------------------------------------
SLOVAKIA--0.8%
Vseobenona Uverova Banka Unsec. Sub. Nts., 7.75%, 12/28/06(5) 380,000 323,000
--------------------------------------------------------------------------------------------------------------
SPAIN--0.9%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
8.80%, 4/30/06 [EUR] 180,000 192,621
10%, 2/28/05 [EUR] 180,000 196,767
----------
389,388
--------------------------------------------------------------------------------------------------------------
SWEDEN--0.7%
Sweden (Kingdom of) Bonds, Series 1034, 9%, 4/20/09 [SEK] 2,000,000 278,737
--------------------------------------------------------------------------------------------------------------
THE NETHERLANDS--1.4%
The Netherlands (Government of) Bonds:
6%, 1/15/06 [EUR] 105,000 99,275
7.75%, 3/1/05 [EUR] 480,000 485,103
----------
584,378
--------------------------------------------------------------------------------------------------------------
TURKEY--0.3%
Turkey (Republic of) Sr. Unsec. Unsub. Nts., 11.875%, 1/15/30 125,000 135,631
--------------------------------------------------------------------------------------------------------------
VENEZUELA--1.7%
Venezuela (Republic of) Disc. Bonds, Series DL, 7%, 12/18/07(5) 575,999 452,160
--------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) New Money Bonds, Series A, 7.125%, 12/18/05(5) 310,588 245,171
--------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Unsec. Bonds, 13.625%, 8/15/18 15,000 13,688
----------
711,019
</TABLE>
11 OPPENHEIMER WORLD BOND FUND
<PAGE> 14
STATEMENT OF INVESTMENTS Unaudited/Continued
<TABLE>
<CAPTION>
Principal Market Value
Amount See Note 1
--------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS Continued
--------------------------------------------------------------------------------------------------------------
VIETNAM--0.6%
<S> <C> <C>
Vietnam (Government of) Bonds, 3.25%, 3/12/28(5) $ 740,000 $ 233,100
----------
Total Foreign Government Obligations (Cost $15,570,546) 14,847,429
--------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--3.0%
Algeria (Republic of) Reprofiled Debt Loan Participation Nts., Tranche
1,7.188%, 9/4/06(4,5) 548,181 442,657
--------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Trust III Nts., Tranche 3, 1%, 3/4/10(4,5) [JPY] 23,800,000 130,479
--------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts., 6.615%, 1/22/01(4) [JPY] 16,200,000 145,774
--------------------------------------------------------------------------------------------------------------
ING Barings LLC, Bank Mandiri Loans, Series 5C, 7.313%, 6/1/05(4,5) 250,000 204,375
--------------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 3 yr., 9.625%, 8/25/01(4,5) 180,000 163,800
Series 4 yr., 9.875%, 8/25/02(4,5) 90,000 78,750
--------------------------------------------------------------------------------------------------------------
Trinidad & Tobago Loan Participation Agreement, Tranche A, 1.058%,
9/30/00(4,5) [JPY] 9,554,472 80,449
----------
Total Loan Participations (Cost $1,095,779) 1,246,284
--------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--7.6%
AB Spintab, 5.50% Bonds, Series 169, 9/17/03 [SEK] 900,000 99,462
--------------------------------------------------------------------------------------------------------------
Bakrie Investindo, Zero Coupon Promissory Nts., 3/16/1999(4,9,10) [IDR] 850,000,000 16,088
--------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc., 11.50% Promissory Nts., 8/1/1995(9,10) 2,000 --
--------------------------------------------------------------------------------------------------------------
Empresa Electrica del Norte Grande SA, 7.75% Bonds, 3/15/06(6) 250,000 75,625
--------------------------------------------------------------------------------------------------------------
Export-Import Bank of Japan, 4.375% Unsec. Nts., 10/1/03 [JPY] 24,000,000 249,071
--------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.875% Sr. Unsec. Nts., 6/7/02 [GBP] 290,000 455,358
--------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Nts., Series EC, 9/9/04 [GBP] 60,000 93,794
--------------------------------------------------------------------------------------------------------------
Hanvit Bank:
0%/12.75% Unsec. Sub. Nts., 3/1/10(6,12) 315,000 318,938
0%/12.75% Unsec. Sub. Nts., 3/1/10(12) 40,000 40,500
--------------------------------------------------------------------------------------------------------------
Moran Energy, Inc., 8.75% Cv. Sub. Debs., 1/15/08 200,000 190,500
--------------------------------------------------------------------------------------------------------------
Netia Holdings BV, 0%/11% Sr. Disc. Nts., 11/1/07(12) [DEM] 200,000 68,260
--------------------------------------------------------------------------------------------------------------
Netia Holdings II BV, 13.50% Sr. Nts., 6/15/09 [EUR] 100,000 95,459
--------------------------------------------------------------------------------------------------------------
NTL, Inc., 9.50% Sr. Unsec. Unsub. Nts., Series B, 4/1/08 [GBP] 65,000 95,609
--------------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Sec. Nts., 3/29/04(4,9,10) 185,000 6,475
--------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
11% Nts., 6/18/03(4,9,10) 50,000 6,500
20% Nts., 3/6/00(9,10) [IDR] 1,000,000,000 16,404
24% Nts., 6/19/03(9,10) [IDR] 492,900,000 8,085
--------------------------------------------------------------------------------------------------------------
Reliance Industries Ltd., 10.25% Unsec. Debs., Series B, 1/15/97 520,000 481,310
--------------------------------------------------------------------------------------------------------------
SanLuis Corp., SA de CV, 8.875% Sr. Unsec. Nts., 3/18/08 190,000 172,900
--------------------------------------------------------------------------------------------------------------
Telewest Communications plc, 0%/9.875% Sr. Nts., 4/15/09(6,12) [GBP] 160,000 145,839
--------------------------------------------------------------------------------------------------------------
Transportacion Maritima Mexicana SA de CV, 10% Sr. Unsec. Nts., 11/15/06 145,000 119,988
--------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(6) 184,770 100,700
--------------------------------------------------------------------------------------------------------------
Westpac Banking, 0.875% Sr. Unsec. Unsub. Bonds, 9/22/03 [JPY] 28,000,000 258,976
----------
Total Corporate Bonds and Notes (Cost $3,754,459) 3,115,841
</TABLE>
12 OPPENHEIMER WORLD BOND FUND
<PAGE> 15
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
--------------------------------------------------------------------------------------------------------------
COMMON STOCKS--0.1%
<S> <C> <C>
Optel, Inc.(4,10) 45 $ 1
--------------------------------------------------------------------------------------------------------------
Price Communications Corp. 1,105 22,376
----------
Total Common Stocks (Cost $11) 22,377
</TABLE>
<TABLE>
<CAPTION>
UNITS
---------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
<S> <C> <C>
Gothic Energy Corp. Wts., Exp. 1/23/03 206 --
--------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 1/23/03(4) 119 1
--------------------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts., Exp. 9/1/04(4) 350 --
--------------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05 495 10,817
--------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp. 1/15/07(4) 50 594
--------------------------------------------------------------------------------------------------------------
Mexico Value Rts., Exp. 6/30/03 30,000 --
--------------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp. 6/1/06(6) 100 8,500
--------------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc. Wts., Exp. 6/30/05(4) 640 64
----------
Total Rights, Warrants and Certificates (Cost $1,731) 19,976
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS--3.2%
<S> <C> <C>
Citibank NA (Nassau Branch), Mexican Peso Linked Nts.:
18.85%, 3/3/03 [MXN] 4,351,530 444,560
26.10%, 10/29/01 [MXN] 1,828,750 205,342
27.40%, 9/20/01 338,000 356,421
--------------------------------------------------------------------------------------------------------------
Citibank NA (New York), Mexican Peso Linked Nts., 23.95%, 11/5/01 [MXN] 1,816,800 199,851
--------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch), Russian OFZ Linked Nts.:
Series 25030, Zero Coupon, 146.53%, 12/15/01(4,7) [RUR] 259,000 3,983
Series 27001, 25%, 2/6/02(4,5) [RUR] 167,330 3,489
Series 27002, 25%, 5/22/02(4,5) [RUR] 75,800 1,502
Series 27003, 25%, 6/5/02(4,5) [RUR] 75,800 1,500
Series 27004, 24.868%, 9/18/02(4,5) [RUR] 83,250 1,593
Series 27005, 24.868%, 10/9/02(4,5) [RUR] 137,770 2,562
Series 27006, 24.868%, 1/22/03(4,5) [RUR] 83,320 1,495
Series 27007, 25%, 2/5/03(4,5) [RUR] 83,450 1,497
Series 27008, 25%, 5/21/03(4,5) [RUR] 75,800 1,316
Series 27009, 25%, 6/4/03(4,5) [RUR] 357,620 6,190
Series 27009, 25%, 6/4/03(4,5) [RUR] 772,702 13,374
Series 27010, 24.868%, 9/17/03(4,5) [RUR] 75,800 1,276
Series 27011, 24.868%, 10/8/03(4,5) [RUR] 420,370 6,820
Series 28001, 24.868%, 1/21/04(4,5) [RUR] 75,800 1,221
Series L, 24.868%, 9/18/02(4,5) [RUR] 68,820 1,317
Series L, 24.868%, 10/9/02(4,5) [RUR] 68,820 1,280
Series L, 24.868%, 1/22/03(4,5) [RUR] 68,820 1,235
Series L, 24.868%, 9/17/03(4,5) [RUR] 68,820 1,158
Series L, 24.868%, 10/8/03(4,5) [RUR] 68,820 1,117
Series L, 24.868%, 1/21/04(4,5) [RUR] 68,820 1,109
Series L, 25%, 2/6/02(4,5) [RUR] 68,820 1,435
Series L, 25%, 5/22/02(4,5) [RUR] 68,820 1,363
Series L, 25%, 6/5/02(4,5) [RUR] 68,820 1,362
Series L, 25%, 2/5/03(4,5) [RUR] 68,820 1,235
</TABLE>
13 OPENHEIMER WORLD BOND FUND
<PAGE> 16
STATEMENT OF INVESTMENTS Unaudited/Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount See Note 1
--------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS Continued
<S> <C> <C>
Series L, 25%, 5/21/03(4,5) [RUR] 68,820 $ 1,195
Series L, 25%, 6/4/03(4,5) [RUR] 68,820 1,191
Series L, Zero Coupon, 53.77%, 12/15/01(4,7) [RUR] 235,000 3,614
ING Barings LLC, Zero Coupon USD Russian Equity Linked Nts., 4/19/01 550 50,649
----------
Total Structured Instruments (Cost $1,368,226) 1,323,252
</TABLE>
<TABLE>
<CAPTION>
DATE STRIKE CONTRACTS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPTIONS PURCHASED--0.2%
Australian Dollar Call 7/3/00 AUD0.630 270,000 186
--------------------------------------------------------------------------------------------------------------
South Korean Won Call 6/1/00 KRW1100.0 704,000,000 2,021
--------------------------------------------------------------------------------------------------------------
Thailand Baht Call(4) 12/6/00 THB38.00 97,090,000 65,147
----------
Total Options Purchased (Cost $71,988) 67,354
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
--------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--16.8%
<S> <C> <C>
Repurchase agreement with Deutsche Bank Securities Inc., 5.70%, dated 4/28/00,
to be repurchased at $6,903,278 on 5/1/00, collateralized by U.S. Treasury
Bonds, 5.25%-11.625%, 11/15/02-2/15/29, with a value
of $7,057,579 (Cost $6,900,000) $6,900,000 6,900,000
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $40,526,636) 95.2% 39,198,430
--------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 4.8 1,988,606
-------------------------------
NET ASSETS 100.0% $41,187,036
===============================
</TABLE>
<TABLE>
<CAPTION>
FOOTNOTES TO STATEMENT OF INVESTMENTS
PRINCIPAL AMOUNT IS REPORTED IN U.S. DOLLARS, EXCEPT FOR THOSE DENOTED IN THE FOLLOWING CURRENCIES:
<S> <C> <C> <C>
ARP Argentine Peso IDR Indonesian Rupiah
AUD Australian Dollar JPY Japanese Yen
CAD Canadian Dollar KRW South Korean Won
DEM German Mark MXN Mexican Nuevo Peso
DKK Danish Krone NOK Norwegian Krone
EUR Euro PLZ Polish Zloty
FRF French Franc RUR Russian Ruble
GBP British Pound Sterling SEK Swedish Krona
GRD Greek Drachma THB Thailand Baht
</TABLE>
(1.) 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.
(2.) Option footnote: Note: Insert worksheet option.
(3.) A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
(4.) Identifies issues considered to be illiquid--See Note 8 of Notes to
Financial Statements.
(5.) Represents the current interest rate for a variable or increasing rate
security.
14 OPPENHEIMER WORLD BOND FUND
<PAGE> 17
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
(6.) Represents a security sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $855,481 or 2.08% of the Fund's net assets
as of April 30, 2000.
(7.) For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.
(8.) Securities with an aggregate market value of $118,312 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
(9.) Issuer is in default.
(10.) Non-income-producing security.
(11.) When-issued security to be delivered and settled after April 30, 2000.
(12.) Denotes a step bond: a zero coupon bond that converts to a fixed or
variable interest rate at a designated future date.
DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC DIVERSIFICATION, AS A
PERCENTAGE OF TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
GEOGRAPHICAL DIVERSIFICATION MARKET VALUE PERCENT
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States $ 19,492,385 49.8%
Mexico 1,939,444 5.0
France 1,543,421 4.0
Argentina 1,453,788 3.7
Canada 1,268,330 3.2
Russia 1,223,513 3.1
Brazil 1,091,988 2.8
Italy 1,086,557 2.8
Korea, Republic of (South) 783,275 2.0
Algeria 718,909 1.8
Venezuela 711,018 1.8
Great Britain 658,327 1.7
The Netherlands 584,378 1.5
Japan 565,517 1.4
Norway 532,873 1.4
Peru 566,890 1.4
Indonesia 500,478 1.3
Germany 479,777 1.2
India 481,310 1.2
Poland 435,838 1.1
Spain 389,388 1.0
Sweden 378,199 1.0
Jordan 320,963 0.8
Slovakia 323,000 0.8
Australia 258,976 0.7
Vietnam 233,100 0.6
Denmark 203,566 0.5
Panama 192,438 0.5
Greece 166,351 0.4
Bulgaria 104,625 0.3
Colombia 126,000 0.3
Turkey 135,631 0.3
Chile 75,625 0.2
Ivory Coast 92,103 0.2
Trinidad & Tobago 80,449 0.2
----------------------------------
TOTAL $39,198,430 100.0%
==================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15 OPPENHEIMER WORLD BOND FUND
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES April 30, 2000 / Unaudited
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Investments, at value (including repurchase agreement of $6,900,000)
(cost $40,526,636)--see accompanying statement $ 39,198,430
--------------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 62,092
--------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 2,413,272
Interest, dividends and principal paydowns 690,419
Shares of beneficial interest sold 318,332
Closed foreign currency contracts 54,945
Daily variation on futures contracts 198
Other 267
----------
Total assets 42,737,955
--------------------------------------------------------------------------------------------------------------
LIABILITIES
Bank overdraft 512,349
--------------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 113,673
--------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $1,192)--see accompanying statement 2,684
--------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $161,311 purchased on a when-issued basis) 518,325
Dividends 140,231
Trustees' compensation 78,086
Shareholder reports 75,049
Closed foreign currency contracts 24,901
Transfer and shareholder servicing agent fees 23,241
Shares of beneficial interest redeemed 20,640
Distribution and service plan fees 7,005
Other 34,735
----------
Total liabilities 1,550,919
--------------------------------------------------------------------------------------------------------------
NET ASSETS $41,187,036
===========
--------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Par value of shares of capital stock $ 58,780
--------------------------------------------------------------------------------------------------------------
Additional paid-in capital 51,898,243
--------------------------------------------------------------------------------------------------------------
Undistributed net investment income 54,544
--------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (9,448,904)
--------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies (1,375,627)
-----------
NET ASSETS $41,187,036
===========
</TABLE>
16 OPPENHEIMER WORLD BOND FUND
<PAGE> 19
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
<S> <C>
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $34,790,384 and 4,965,320 shares of beneficial interest outstanding) $7.01
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $7.36
--------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets
of $4,962,447 and 707,832 shares of beneficial interest outstanding) $7.01
--------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net
assets of $1,434,205 and 204,913 shares of beneficial interest outstanding) $7.00
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17 OPPENHEIMER WORLD BOND FUND
<PAGE> 20
STATEMENT OF OPERATIONS UNAUDITED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED APRIL 30, 2000
---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Interest $ 2,332,916
---------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $11) 65
------------
Total income 2,332,981
---------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 148,035
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 34,733
Class B 19,305
Class C 5,879
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 46,003
---------------------------------------------------------------------------------------------------------------
Shareholder reports 27,325
---------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 22,754
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 8,360
---------------------------------------------------------------------------------------------------------------
Other 13,404
-----------
Total expenses 325,798
Less expenses paid indirectly (3,845)
-----------
Net expenses 321,953
---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,011,028
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (including premiums on options exercised) 568,661
Closing of futures contracts 378,595
Closing and expiration of option contracts written 6,123
Foreign currency transactions (1,550,466)
-----------
Net realized loss (597,087)
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 530,994
Translation of assets and liabilities denominated in foreign currencies (710,063)
-----------
Net change (179,069)
-----------
Net realized and unrealized loss (776,156)
---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,234,872
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18 OPPENHEIMER WORLD BOND FUND
<PAGE> 21
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
---------------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C>
Net investment income $ 2,011,028 $ 4,341,652
--------------------------------------------------------------------------------------------------------------
Net realized loss (597,087) (2,898,137)
--------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (179,069) 1,221,282
--------------------------------
Net increase in net assets resulting from operations 1,234,872 2,664,797
--------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (1,609,030) (2,671,354)
Class B (159,584) (69,360)
Class C (48,146) (50,388)
--------------------------------------------------------------------------------------------------------------
Tax return of capital:
Class A -- (1,017,454)
Class B -- (80,561)
Class C -- (22,828)
--------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A 721,200 (3,211,011)
Class B 2,304,904 1,832,386
Class C 679,022 219,731
--------------------------------------------------------------------------------------------------------------
NET ASSETS
Total increase (decrease) 3,123,238 (2,406,042)
--------------------------------------------------------------------------------------------------------------
Beginning of period 38,063,798 40,469,840
--------------------------------
End of period [including undistributed (overdistributed) net
investment income of $54,544 and $(139,724), respectively] $41,187,036 $38,063,798
================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19 OPPENHEIMER WORLD BOND FUND
<PAGE> 22
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 2000 OCTOBER 31,
CLASS A (UNAUDITED) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.10 $7.33 $8.28 $8.31 $7.91 $7.93
---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .37 .80 .72 .72 .73 .71
Net realized and unrealized gain (loss) (.13) (.31) (.97) (.08) .34 (.05)
-----------------------------------------------------------------
Total income (loss) from
investment operations .24 .49 (.25) .64 1.07 .66
---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.33) (.51) (.64) (.67) (.67) (.68)
Tax return of capital -- (.21) (.06) -- -- --
---------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.33) (.72) (.70) (.67) (.67) (.68)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.01 $7.10 $7.33 $8.28 $8.31 $7.91
=================================================================
Market value, end of period N/A N/A N/A $8.06 $7.50 $7.00
=================================================================
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 3.44% 7.07% (3.25)% 7.94% 14.14% 8.81%
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(2) N/A N/A N/A 16.42% 16.40% 9.09%
---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $34,790 $34,553 $38,950 $54,781 $54,962 $52,340
---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $34,598 $36,620 $48,542 $55,339 $53,309 $51,207
---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 10.32% 11.16% 8.94% 8.65% 9.04% 9.20%
Expenses 1.57% 1.74% 1.56%4 1.20%4 1.28%4 1.24%4
Expenses, net of indirect expenses 1.55% 1.72% N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 75% 237% 344% 289% 261% 344%
</TABLE>
(1.) Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
(2.) Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
(3.) Annualized for periods of less than one full year.
(4.) Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
(5.) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended April 30, 2000 were $26,987,197 and $30,999,680, respectively. Prior to
the period ended October 31, 1996, purchases and sales of investment securities
included mortgage dollar-rolls.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20 OPPENHEIMER WORLD BOND FUND
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 2000 OCTOBER 31,
CLASS B (UNAUDITED) 1999 1998(1)
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C>
Net asset value, beginning of period $7.11 $7.34 $8.15
---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 .72 .25
Net realized and unrealized loss (.15) (.29) (.73)
--------------------------------
Total income (loss) from
investment operations .21 .43 (.48)
---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.31) (.45) (.27)
Tax return of capital -- (.21) (.06)
----------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.31) (.66) (.33)
----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.01 $7.11 $7.34
================================
Market value, end of period N/A N/A N/A
================================
----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 2.94% 6.22% (5.93)%
----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(3) N/A N/A N/A
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $4,962 $2,736 $933
----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $3,891 $1,607 $340
----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 9.17% 10.81% 10.97%(5)
Expenses 2.36% 2.49% 2.74%(5,6)
Expenses, net of indirect expenses 2.34% 2.47% N/A
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 75% 237% 344%
</TABLE>
(1.) For the period from April 27, 1998 (inception of offering) to October 31,
1998.
(2.) Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
(3.) Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
(4.) Annualized for periods of less than one full year.
(5.) This information may not be representative of future ratios.
(6.) Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
(7.) 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 April 30, 2000 were $26,987,197 and $30,999,680, respectively. Prior to
the period ended October 31, 1996, purchases and sales of investment securities
included mortgage dollar-rolls.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21 OPPENHEIMER WORLD BOND FUND
<PAGE> 24
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 2000 OCTOBER 31,
CLASS C (UNAUDITED) 1999 1998(1)
---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C>
Net asset value, beginning of period $7.10 $7.33 $8.15
---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 .75 .34
Net realized and unrealized loss (.14) (.31) (.83)
--------------------------------
Total income (loss) from
investment operations .21 .44 (.49)
---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.31) (.46) (.27)
Tax return of capital -- (.21) (.06)
---------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.31) (.67) (.33)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.00 $7.10 $7.33
================================
Market value, end of period N/A N/A N/A
================================
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 2.92% 6.24% (6.09)%
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE(3) N/A N/A N/A
---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $1,434 $775 $587
---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,185 $809 $253
---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 9.09% 10.14% 9.24%(5)
Expenses 2.35% 2.54% 2.62%(5,6)
Expenses, net of indirect expenses 2.33% 2.52% N/A
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 75% 237% 344%
</TABLE>
(1.) For the period from April 27, 1998 (inception of offering) to October 31,
1998.
(2.) Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of of offering), 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. Prior
to April 27, 1998, the Fund operated as a closed-end investment company and
total return was calculated based on market value.
(3.) Assumes a hypothetical purchase at the current market price on the business
day before the first day of the fiscal period (or inception of offering), with
all dividends and distributions reinvested in additional shares on the
reinvestment date, and a sale at the current market price on the last business
day of the period. Total return does not reflect sales charges or brokerage
commissions. Total returns are not annualized for periods of less than one full
year.
(4.) Annualized for periods of less than one full year.
(5.) This information may not be representative of future ratios.
(6.) Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
(7.) 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 April 30, 2000 were $26,987,197 and $30,999,680, respectively. Prior to
the period ended October 31, 1996, purchases and sales of investment securities
included mortgage dollar-rolls.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22 OPPENHEIMER WORLD BOND FUND
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS Unaudited
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer World Bond Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek total return. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus an initial
sales charge. Class B and Class C shares are sold without an initial sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C shares have separate distribution and/or service
plans. 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.
--------------------------------------------------------------------------------
SECURITIES VALUATION. Securities for which quotations are readily available are
valued at the last sale price, or if in the absence of a sale, at the last sale
price on the prior trading day if it is within the spread of the closing bid and
asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Foreign currency 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, dealer
or pricing service. Short-term "money market type" debt securities with
remaining maturities of sixty days or less are valued at cost (or last
determined market value) and adjusted for amortization or accretion to maturity
of any premium or discount.
--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes may be leveraged, which increases the notes'
volatility relative to the face of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of April 30, 2000, the market value of these securities
comprised 3.21% of the Fund's net assets and resulted in realized and unrealized
losses of $322,391. The Fund also hedges a portion of the foreign currency
exposure generated by these securities, as discussed in Note 5.
23 OPPENHEIMER WORLD BOND FUND
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. Normally the
settlement date occurs within six months after the transaction date; however,
the Fund may, from time to time, purchase securities whose settlement date
extends beyond six months and possibly as long as two years or more beyond trade
date. During this period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior to their
delivery. The Fund maintains segregated assets with a market value equal to or
greater than the amount of its purchase commitments. The purchase of securities
on a when-issued or forward commitment basis may increase the volatility of the
Fund's net asset value to the extent the Fund makes such purchases while
remaining substantially fully invested. As of April 30, 2000, the Fund had
entered into net outstanding when-issued or forward commitments of $161,311.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage dollar-rolls in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records each dollar-roll as a sale and a new purchase transaction.
-------------------------------------------------------------------------------
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. As of April 30, 2000, securities with an
aggregate market value of $613,430, representing 1.49% 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 foreign 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.
24 OPPENHEIMER WORLD BOND FUND
<PAGE> 27
-------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
-------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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. As of October 31, 1999, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $8,678,000, which expires between 2002 and 2007.
The Manager believes that for the Fund's fiscal year ending October 31,
2000, a tax return of capital is likely to occur. The dollar and per share
amounts for the fiscal year are not estimable as of April 30, 2000.
-------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended April 30, 2000, a credit of $6,368 was made for the Fund's projected
benefit obligations and payments of $2,592 were made to retired trustees,
resulting in an accumulated liability of $78,308 as of April 30, 2000.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
-------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
25 OPPENHEIMER WORLD BOND FUND
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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 the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of distributions made
during the year from net investment income or net realized gains may differ from
its 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 fiscal year in which the income or realized gain
was recorded by the Fund.
-------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
-------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of 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. Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on payment-in-kind
debt instruments is accrued as income at the coupon rate and a market adjustment
is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
26 OPPENHEIMER WORLD BOND FUND
<PAGE> 29
===============================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
for the six months ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 2000 YEAR ENDED OCTOBER 31, 1999
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 637,479 $ 4,549,603 390,587 $ 2,817,009
Dividends and/or
distributions reinvested 79,831 565,789 163,761 1,175,569
Redeemed (616,731) (4,394,192) (1,001,683) (7,203,589)
---------------------------------------------------------------------
Net increase (decrease) 100,579 $ 721,200 (447,335) $(3,211,011)
=====================================================================
-----------------------------------------------------------------------------------------------------------------
CLASS B
Sold 391,157 $2,792,563 361,517 $ 2,585,614
Dividends and/or
distributions reinvested 12,762 90,542 13,053 93,470
Redeemed (81,039) (578,201) (116,778) (846,698)
---------------------------------------------------------------------
Net increase 322,880 $2,304,904 257,792 $ 1,832,386
=====================================================================
-----------------------------------------------------------------------------------------------------------------
CLASS C
Sold 122,018 $ 867,427 102,151 $ 744,459
Dividends and/or
distributions reinvested 3,278 23,219 4,047 29,065
Redeemed (29,593) (211,624) (77,118) (553,793)
---------------------------------------------------------------------
Net increase 95,703 $ 679,022 29,080 $ 219,731
=====================================================================
=================================================================================================================
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of April 30, 2000, net unrealized depreciation on securities and options
written of $1,329,698 was composed of gross appreciation of $1,097,776, and
gross depreciation of $2,427,474.
27 OPPENHEIMER WORLD BOND FUND
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
===============================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.75% of
the first $200 million of average annual net assets of the Fund, 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 0.58% of average annual net assets
in excess of $1 billion. The Fund's management fee for the six months ended
April 30, 2000 was 0.75% of average annual net assets for each class of shares,
annualized for periods of less than one full year.
-------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SIX SALES CHARGES SALES CHARGES SHARES SHARES SHARES
MONTHS ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 30, 2000 $62,744 $19,346 $-- $73,413 $8,134
</TABLE>
(1.) The Distributor advances commission payments to dealers for certain sales
of Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SIX CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED
MONTHS SALES CHARGES SALES CHARGES SALES CHARGES
ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
April 30, 2000 $-- $3,375 $1,074
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
28 OPPENHEIMER WORLD BOND FUND
<PAGE> 31
-------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the six months ended April 30, 2000, payments
under the Class A plan totaled $34,733, all of which was paid by the Distributor
to recipients. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
-------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and asset-based sales charges from the Fund under
the plans. If any 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 shares before the plan was terminated. The plans
allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the six months ended April 30,
2000, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $19,305 $17,419 $172,423 3.47%
Class C Plan 5,879 3,101 16,055 1.12
</TABLE>
29 OPPENHEIMER WORLD BOND FUND
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
===============================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided by
a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Realized gains and losses are reported with all
other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.
As of April 30, 2000, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
CONTRACT VALUATION
AMOUNT AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATE (000s) APRIL 30, 2000 APPRECIATION DEPRECIATION
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRACTS TO PURCHASE
British Pound Sterling (GBP) 5/12/00 GBP270 $422,528 $ -- $ 3,540
Euro (EUR) 6/27/00 EUR175 160,104 -- 9,497
Japanese Yen (JPY) 5/8/00-6/7/00 JPY340,300 3,167,644 -- 73,052
---------------------
-- 86,089
---------------------
CONTRACTS TO SELL
Brazilian Real (BRR) 5/2/00 BRR842 466,734 -- 13,490
British Pound Sterling (GBP) 5/15/00 GBP175 273,866 2,984
Euro (EUR) 5/4/00-6/27/00 EUR798 729,425 17,674 495
Japanese Yen (JPY) 5/8/00-6/5/00 JPY168,600 1,565,432 41,434 --
Polish Zloty (PLZ) 6/5/00 PLZ1,252 280,105 -- 4,105
South African Rand (ZAR) 5/2/00 ZAR5,719 843,155 -- 9,494
---------------------
62,092 27,584
---------------------
Total Unrealized Appreciation and Depreciation $62,092 $113,673
=====================
</TABLE>
30 OPPENHEIMER WORLD BOND FUND
<PAGE> 33
-------------------------------------------------------------------------------
6. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
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 (initial margin) in an amount 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 may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
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.
As of April 30, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS APRIL 30, 2000 (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
<S> <C> <C> <C> <C>
Euro-Bobl 6/8/00 5 $470,550 $ 2,369
Euro-Bund 6/8/00 6 574,283 11,920
------------
14,289
------------
CONTRACTS TO SELL
Euro-Schatz 6/8/00 10 931,531 (820)
------------
$13,469
============
</TABLE>
31 OPPENHEIMER WORLD BOND FUND
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
===============================================================================
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered 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.
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 note
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 six months ended April 30, 2000 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
----------------------------- -------------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at
October 31, 1999 -- $ -- 2,319,290 $ 12,682
Options written 80,000,000 8,283 270,000 1,192
Options closed or expired (80,000,000) (8,283) -- --
Options exercised -- -- (2,319,290) (12,682)
-----------------------------------------------------------------------
Options outstanding at
April 30, 2000 -- $ -- 270,000 $ 1,192
=======================================================================
</TABLE>
32 OPPENHEIMER WORLD BOND FUND
<PAGE> 35
-------------------------------------------------------------------------------
8. ILLIQUID SECURITIES
As of April 30, 2000, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 10% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of April
30, 2000 was $2,374,720, which represents 5.77% of the Fund's net assets.
-------------------------------------------------------------------------------
9. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the six months ended April
30, 2000.
33 OPPENHEIMER WORLD BOND FUND
<PAGE> 36
OPPENHEIMER WORLD BOND FUND
<TABLE>
<CAPTION>
===============================================================================
<S> <C>
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Clayton K. Yeutter, Trustee
Ruggero de'Rossi, Vice President
Arthur P. Steinmetz, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
-------------------------------------------------------------------------------
INVESTMENT ADVISOR OppenheimerFunds, Inc.
-------------------------------------------------------------------------------
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
-------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
-------------------------------------------------------------------------------
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
-------------------------------------------------------------------------------
INDEPENDENT AUDITORS KPMG LLP
-------------------------------------------------------------------------------
LEGAL COUNSEL Mayer, Brown & Platt
The financial statements included herein have been taken from
the records of the Fund without examination of those records by
the independent auditors.
This is a copy of a report to shareholders of Oppenheimer World
Bond Fund. This report must be preceded or accompanied by a
Prospectus of Oppenheimer World Bond Fund. For material
information concerning the Fund, see the Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT GUARANTEED BY ANY BANK, ARE NOT INSURED BY THE
FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OPPENHEIMER FUNDS ARE DISTRIBUTED BY OPPENHEIMERFUNDS
DISTRIBUTOR, INC., TWO WORLD TRADE CENTER, NEW YORK, NY
10048-0203.
</TABLE>
(C)Copyright 2000 OppenheimerFunds, Inc. All rights reserved.
34 OPPENHEIMER WORLD BOND FUND
<PAGE> 37
OPPENHEIMERFUNDS FAMILY
================================================================================
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY
Developing Markets Fund Global Fund
International Small Company Fund Quest Global Value Fund
Europe Fund Global Growth & Income Fund
International Growth Fund
-----------------------------------------------------------------------------------------------------------------
EQUITY
Stock Stock & Bond
Enterprise Fund(1) Main Street(R) Growth & Income Fund
Discovery Fund Quest Opportunity Value Fund
Main Street(R) Small Cap Fund Total Return Fund
Quest Small Cap Value Fund Quest Balanced Value Fund
MidCap Fund Capital Income Fund(2)
Capital Appreciation Fund Multiple Strategies Fund
Growth Fund Disciplined Allocation Fund
Disciplined Value Fund Convertible Securities Fund
Quest Value Fund
Trinity Growth Fund Specialty
Trinity Core Fund Real Asset Fund
Trinity Value Fund Gold & Special Minerals Fund
-----------------------------------------------------------------------------------------------------------------
FIXED INCOME
Taxable Municipal
International Bond Fund California Municipal Fund(3)
World Bond Fund Main Street(R) California Municipal Fund(3)
High Yield Fund Florida Municipal Fund(3)
Champion Income Fund New Jersey Municipal Fund(3)
Strategic Income Fund New York Municipal Fund(3)
Bond Fund Pennsylvania Municipal Fund(3)
Senior Floating Rate Fund Municipal Bond Fund
U.S. Government Trust Insured Municipal Fund
Limited-Term Government Fund Intermediate Municipal Fund
Rochester Division
Rochester Fund Municipals
Limited Term New York Municipal Fund
-----------------------------------------------------------------------------------------------------------------
MONEY MARKET(4)
Money Market Fund Cash Reserves
</TABLE>
(1.) Effective July 1, 1999, this fund is closed to new investors. See
prospectus for details.
(2.) On 4/1/99, the Fund's name was changed from "Oppenheimer Equity Income
Fund."
(3.) Available to investors only in certain states.
(4.) An investment in money market funds is neither insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although these funds may seek to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in these funds.
35 OPPENHEIMER WORLD BOND FUND
<PAGE> 38
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 39
INFORMATION AND SERVICES
-------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special
services designed to make investing simple. Whether it's
automatic investment plans, timely market updates, or immediate
account access, you can count on us whenever you need
assistance. So call us today, or visit our website==we're here
to help.
-------------------------------------------------------------------------------
INTERNET
24-hr access to account information and transactions(1)
WWW.OPPENHEIMERFUNDS.COM
---------------------------------------------------------------
GENERAL INFORMATION
Mon-Fri 8am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
---------------------------------------------------------------
TELEPHONE TRANSACTIONS
Mon-Fri 8am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
---------------------------------------------------------------
PHONELINK
24-hr automated information and automated transactions
1.800.533.3310
---------------------------------------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD)
Mon-Fri 9am-6:30pm
ET 1.800.843.4461
---------------------------------------------------------------
OPPENHEIMERFUNDS MARKET HOTLINE
24 hours a day, timely and insightful messages on the economy
and issues that may affect your investments
1.800.835.3104
---------------------------------------------------------------
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
---------------------------------------------------------------
TICKER SYMBOLS Class A: OWBAX Class B: N/A Class C: N/A
-------------------------------------------------------------------------------
(1.) At times this website may be inaccessible or its
transaction feature may be unavailable.
[OPPENHEIMER FUNDS LOGO]
OPPENHEIMER WORLD BOND FUND
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to the provisions of Article Seventh of Registrant's
Amended and Restated Declaration of Trust filed as Exhibit 23(a) to this
Registration Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person, Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust of Registrant dated 4/16/98:
Previously filed with Registrant's Pre-Effective Amendment No. 2, 4/23/98,
and incorporated herein by reference.
(2) Amended and Restated By-Laws as of 6/04/98: Previously filed with
Registrant's Post-Effective Amendment No. 1, 12/28/98, and incorporated
herein by reference.
(3) N/A.
(4) Agreement and Plan of Reorganization: See Exhibit A to Part A of the
Registration Statement.
(5) (a) Specimen Class A Share Certificate: Previously filed with
Registrant's Post- Effective Amendment No. 3 (2/22/00), and incorporated
herein by reference.
(b) Specimen Class B Share Certificate: Previously filed with Registrant's
Post- Effective Amendment No. 3 (2/22/00), and incorporated herein by
reference.
(c) Specimen Class C Share Certificate: Previously filed with Registrant's
Post-Effective Amendment No. 3 (2/22/00), and incorporated herein by
reference.
(6) Investment Advisory Agreement dated 4/16/98: Previously filed with
Registrant's Pre-Effective Amendment No. 2, 4/23/98, and incorporated
herein by reference.
(7) (a) General Distributor's Agreement dated 4/23/98: Previously filed
with Registrant's Pre-Effective Amendment No. 2, 4/23/98, and incorporated
herein by reference.
(b) Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(c) Form of Agency Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(d) Form of Broker Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(8) (a) Retirement Plan for Non-Interested Trustees or Directors (adopted
by Registrant - 6/7/90): Previously filed with Post-Effective Amendment No.
97 of Oppenheimer Fund (Reg. No. 2-14586), 8/30/90, refiled with
Post-Effective Amendment No. 45 of Oppenheimer Growth Fund (Reg. No.
2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and incorporated
herein by reference.
(b) Form of Deferred Compensation Plan for Disinterested
Trustees/Directors: Filed with Post-Effective Amendment No. 33, of the
Registration Statement for Oppenheimer Gold & Special Minerals Fund (Reg.
No. 2-82590), 10/28/98, and incorporated herein by reference.
(9) (a) Custody Agreement dated 4/16/98: Previously filed with Registrant's
Pre-Effective Amendment No. 2, 4/23/98, and incorporated herein by
reference.
(b) Foreign Custody Manager Agreement between Registrant and The Bank of
New York: Previously filed with Pre-Effective Amendment No. 2 to the
Registration Statement of Oppenheimer World Bond Fund (Reg. 333-48973),
4/23/98, and incorporated herein by reference.
(10) (a) Service Plan and Agreement for Class A shares under Rule 12b-1 of
the Investment Company Act of 1940 dated as of 4/16/98: Previously filed
with Registrant's Pre-Effective Amendment No. 2, 4/23/98, and incorporated
herein by reference.
(b) Distribution and Service Plan and Agreement for Class B Shares dated
4/16/98: Previously filed with Registrant's Pre-Effective Amendment No. 2,
4/23/98, and incorporated herein by reference.
(c) Distribution and Service Plan and Agreement for Class C Shares dated
4/16/98: Previously filed with Registrant's Pre-Effective Amendment No. 2,
4/23/98, and incorporated herein by reference.
(11) Opinion and Consent of Counsel: To be filed by amendment.
(12) Tax Opinions Relating to the Reorganization: Draft Tax Opinion - Filed
herewith.
(13) N/A.
(14) (a) Consent of Deloitte & Touche LLP: Draft - Filed herewith.
(b) Consent of KPMG LLP: Draft - Filed herewith.
(15) N/A.
(16) Powers of Attorney (including Certified Board resolutions): For all
trustees, previously filed with Registrant's Pre-Effective Amendment No. 1,
4/9/98, and incorporated herein by reference. Powers of Attorney for Mr.
Griffiths: Previously filed with Pre-Effective Amendment No. 1 to the
Registration Statement of Oppenheimer Trinity Value Fund (Reg. No.
333-79707), 8/4/99, and incorporated herein by reference.
(17) N/A.
Item 17. Undertakings
(1) N/A.
(2) N/A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 18th day of September, 2000.
Oppenheimer World Bond Fund
/s/ Leon Levy* Chairman of the
----------------------------- Board
of Trustees
Leon Levy
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:
Signatures Title Date
/s/ Leon Levy* Chairman of the September 18, 2000
------------------------------------- Board of Trustees
Leon Levy
/s/ Donald W. Spiro* Vice Chairman and September 18, 2000
------------------------------------- Trustee
Donald W. Spiro
/s/ Robert G. Galli* Trustee September 18, 2000
-------------------------------------
Robert G. Galli
/s/ Phillip A. Griffiths Trustee
September 18, 2000
------------------------------------
Phillip A. Griffiths
/s/ Benjamin Lipstein* Trustee September 18, 2000
-------------------------------------
Benjamin Lipstein
/s/ Bridget A. Macaskill* President, September 18, 2000
------------------------------------- Principal Executive
Bridget A. Macaskill Officer, Trustee
/s/ Elizabeth B. Moynihan* Trustee September 18, 2000
-------------------------------------
Elizabeth B. Moynihan
/s/ Kenneth A. Randall* Trustee September 18, 2000
-------------------------------------
Kenneth A. Randall
<PAGE>
/s/ Edward V. Regan* Trustee September 18, 2000
-------------------------------------
Edward V. Regan
/s/ Russell S. Reynolds, Jr.* Trustee September 18, 2000
-------------------------------------
Russell S. Reynolds, Jr.
/s/ Brian W. Wixted* Treasurer September 18, 2000
-------------------------------------
Brian W. Wixted
/s/ Clayton K. Yeutter* Trustee September 18, 2000
-------------------------------------
Clayton K. Yeutter
*By: /s/ Robert G. Zack
---------------------------------------------
September 18, 2000
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER WORLD BOND FUND
EXHIBIT INDEX
Exhibit No. Description
16(12) Draft Tax Opinion Relating to Reorganization
