-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ub5yCkUUiQ0pkkTq1sgQwEVzWfdZe7SSmYOLTD6LncNajTJuF4oPzK76mT6Mz76P /WWbWSjGPlaclZ0cvhqorQ== 0000701265-95-000017.txt : 19950724 0000701265-95-000017.hdr.sgml : 19950724 ACCESSION NUMBER: 0000701265-95-000017 CONFORMED SUBMISSION TYPE: N14AE24 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950721 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER INTEGRITY FUNDS CENTRAL INDEX KEY: 0000701265 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042912220 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N14AE24 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61195 FILM NUMBER: 95555174 BUSINESS ADDRESS: STREET 1: 3410 S GALENA CITY: DENVER STATE: CO ZIP: 80231 BUSINESS PHONE: 3036713200 MAIL ADDRESS: STREET 2: 3410 SOUTH GALENA STREET 3RD FL CITY: DENVER STATE: CO ZIP: 80231 FORMER COMPANY: FORMER CONFORMED NAME: MASSMUTUAL INTEGRITY FUNDS DATE OF NAME CHANGE: 19910329 FORMER COMPANY: FORMER CONFORMED NAME: MASSMUTUAL LIQUID ASSETS TRUST DATE OF NAME CHANGE: 19880403 N14AE24 1 Preliminary Copy Registration No. 2-76547 File No. 811-3420 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 INTEGRITY FUNDS (Exact Name of Registrant as Specified in Charter) 3410 South Galena Street, Denver, Colorado 80231 (Address of Principal Executive Offices) 212-323-0200 (Registrant's Telephone Number) Andrew J. Donohue, Esq. Executive Vice President & General Counsel Oppenheimer Management Corporation 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) It is proposed that this filing will become effective on August 21, 1995, pursuant to Rule 488. No filing fee is due because the Registrant has previously registered an indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice for the year ended December 31, 1994 was filed on February 28, 1995. 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 Strategic Investment Grade Bond Fund and Prospectus for Oppenheimer Bond Fund Part B Statement of Additional Information Part C Other Information Signatures Exhibits FORM N-14 OPPENHEIMER INTEGRITY FUNDS 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 Table (b) Synopsis (c) Principal Risk Factors 4 (a) Synopsis; Approval of the Reorganization; Comparison between the Fund and Strategic Income Fund; Method of Carrying Out the Reorganization; Miscellaneous Information (b) Approval of the Reorganization - Capitalization Table (Unaudited) 5 (a) Registrant's Prospectus; Additional Information (b) * (c) * (d) * (e) Comparison between Strategic Investment Grade Bond Fund and Bond Fund (f) Comparison between Strategic Investment Grade Bond Fund and Bond Fund 6 (a) Prospectus of Oppenheimer Strategic Investment Grade Bond Fund; Front Cover Page (b) Comparison between Strategic Investment Grade Bond Fund and Bond Fund (c) * (d) * 7 (a) Introduction; Synopsis (b) * (c) Introduction; Approval of the Reorganization 8 (a) Proxy Statement (b) * 9 * Part B of Form N-14 Item No. Statement of Additional Information Heading - --------- ------------------------------------------- 10 Cover Page 11 Table of Contents 12 (a) Oppenheimer Bond Fund's Statement of Additional Information (b) * 13 (a) Oppenheimer Strategic Investment Grade Bond Fund's Statement of Additional Information (b) * 14 Registrant's Statement of Additional Information; Statement of Additional Information about Oppenheimer Strategic Investment Grade Bond Fund; Annual Report of Oppenheimer Strategic Investment Grade Bond Fund at 9/30/94; unaudited financial statements of Oppenheimer Strategic Investment Grade Bond Fund at 3/31/95; Oppenheimer Bond Fund Annual Report at 12/31/94 Pro Forma financials Part C of Form N-14 Item No. Other Information Heading - --------- ------------------------- 15 Indemnification 16 Exhibits 17 Undertakings _______________ * Not Applicable or negative answer SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the registrant / X / Filed by a party other than the registrant / / Check the appropriate box: / X / Preliminary proxy statement / / Definitive proxy statement / / Definitive additional materials / / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 Oppenheimer Integrity Funds - ------------------------------------------------------------------ (Name of Registrant as Specified in Its Charter) Oppenheimer Strategic Investment Grade Bond Fund - ------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): / / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a- 6(j)(2). / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - ------------------------------------------------------------------ (2) Aggregate number of securities to which transaction applies: - ------------------------------------------------------------------ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(1) - ------------------------------------------------------------------ (4) Proposed maximum aggregate value of transaction: - ------------------------------------------------------------------ / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. - ------------------------------------------------------------------ (1) Amount previously paid: - ------------------------------------------------------------------ (2) Form, schedule or registration statement no.: - ------------------------------------------------------------------ (3) Filing Party: - ------------------------------------------------------------------ (4) Date Filed: - ----------------------- (1) Set forth the amount on which the filing fee is calculated and state how it was determined. August 1995 Dear Oppenheimer Strategic Investment Grade Bond Fund Shareholder: Several weeks ago, I sent a letter to let you know about some positive changes being proposed for your Fund. A shareholder meeting has been scheduled in September and all shareholders of record on July 14 are being asked to vote either in person or by proxy. You will find a notice of the meeting, a ballot card, a proxy statement detailing the proposal and a postage-paid return envelope enclosed for your use. What is being proposed? In April, your Board of Trustees, which represents your interests in the management of the Fund, recommended approval of the merger of Strategic Investment Grade Bond Fund into another Oppenheimer fund, Oppenheimer Bond Fund. Why does the Board of Trustees recommend this change? The consolidation of Strategic Investment Grade Bond Fund into Bond Fund makes sense because both funds share a similar objective -- high current income. So while the investment objective will continue to be substantially the same, the investment adviser believes Bond Fund offers more flexibility in responding to changing market and economic conditions. In addition, by merging into a larger fund, shareholders of Strategic Investment Grade Bond Fund may benefit from a lower expense ratio as administrative costs are spread among a larger number of shareholders. Shareholders should also benefit from the larger asset size of Bond Fund because the portfolio managers can generally invest larger amounts of money more efficiently, thereby lowering the cost to your fund. The Board of Trustees believes that the shareholders of Strategic Investment Grade Bond Fund will benefit by reorganizing into Bond Fund, and recommends that you vote for this change. How do you vote? 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 adviser, 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, [JSF signature] Preliminary Copy - For the Information of the Securities and Exchange Commission Only OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 20, 1995 To the Shareholders of Oppenheimer Strategic Investment Grade Bond Fund: Notice is hereby given that a Special Meeting of the Shareholders of Oppenheimer Strategic Investment Grade Bond Fund ("Strategic Investment Grade Bond Fund"), a registered management investment company, will be held at 3410 South Galena Street, Denver, Colorado 80231, at 10:00 A.M., Denver time, on September 20, 1995, or any adjournments thereof (the "Meeting"), for the following purposes: 1. To approve or disapprove an Agreement and Plan of Reorganization between Strategic Investment Grade Bond Fund and Oppenheimer Bond Fund ("Bond Fund"), and the transactions contemplated thereby, including the transfer of substantially all the assets of Strategic Investment Grade Bond Fund, in exchange for Class A and Class B shares of Bond Fund, the distribution of such shares to the Class A and Class B shareholders of Strategic Investment Grade Bond Fund in complete liquidation of Strategic Investment Grade Bond Fund, the de-registration of Strategic Investment Grade Bond Fund as an investment company under the Investment Company Act of 1940, as amended, and the cancellation of the outstanding shares of Strategic Investment Grade Bond Fund (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 July 14, 1995 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. Strategic Investment Grade Bond Fund's Board of Trustees 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, George C. Bowen, Secretary August 21, 1995 _______________________________________________________________________ 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. 285 Preliminary Copy - For the Information of the Securities and Exchange Commission Only OPPENHEIMER BOND FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 PROXY STATEMENT AND PROSPECTUS This Proxy Statement of Strategic Investment Grade Bond Fund relating to the Reorganization Agreement and the transactions contemplated thereby (the "Reorganization") also constitutes a Prospectus of Bond Fund included in a Registration Statement on Form N-14 filed by Bond Fund with the securities and Exchange Commission (the "SEC"). Such Registration Statement relates to the registration of shares of Bond Fund to be offered to the shareholders of Strategic Investment Grade Bond Fund pursuant to the Reorganization Agreement. Strategic Investment Grade Bond Fund is located at 3410 South Galena Street, Denver, Colorado 80231 (telephone 1- 800-525-7048). This Proxy Statement and Prospectus sets forth concisely information about Bond Fund that shareholders of Strategic Investment Grade Bond Fund should know before voting on the Reorganization. A copy of the Prospectus for Bond Fund, dated July 10, 1995, supplemented July 14, 1995 and is enclosed, and is incorporated herein by reference. The following documents have been filed with the SEC and are available without charge upon written request to Oppenheimer Shareholder Services ("OSS"), the transfer and shareholder servicing agent for Bond Fund and Strategic Investment Grade Bond Fund, at P.O. Box 5270, Denver, Colorado 80217, or by calling the toll-free number shown above: (i) a Prospectus for Strategic Investment Grade Bond Fund, dated February 1, 1995, supplemented July 14, 1995; (ii) a Statement of Additional Information about Strategic Investment Grade Bond Fund, dated February 1, 1995, supplemented July 14, 1995; and (iii) a Statement of Additional Information about Bond Fund, dated July 10, 1995 (the "Bond Fund Additional Statement"). The Bond Fund Additional Statement, which is incorporated herein by reference, contains more detailed information about Bond Fund and its management. A Statement of Additional Information relating to the Reorganization, dated August 21, 1995, has been filed with the SEC as part of the Bond Fund Registration Statement on Form N-14 and is incorporated by reference herein, and is available by written request to OSS at the same address immediately above or by calling the toll-free number shown above. Investors are advised to read and retain this Proxy Statement and Prospectus for future reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Proxy Statement and Prospectus is dated August 21, 1995. TABLE OF CONTENTS PROXY STATEMENT AND PROSPECTUS Page Introduction General Record Date; Vote Required; Share Information Proxies Costs of the Solicitation and the Reorganization Comparative Fee Table Synopsis Parties to the Reorganization Shares to be Issued The Reorganization Reasons for the Reorganization Tax Consequences of the Reorganization Investment Objectives and Policies Investment Advisory and Distribution and Service Plan Fees Purchases, Exchanges and Redemptions Principal Risk Factors Approval of the Reorganization (The Proposal) Reasons for the Reorganization The Reorganization Tax Aspects of the Reorganization Capitalization Table (Unaudited) Comparison Between Strategic Investment Grade Bond Fund and Bond Fund Investment Objectives and Policies Permitted Investments by Strategic Investment Grade Bond Fund and Bond Fund Investment Restrictions Portfolio Turnover Description of Brokerage Practices Expense Ratios and Performance Shareholder Services Rights of Shareholders Management and Distribution Arrangements Purchase of Additional Shares Method of Carrying Out the Reorganization Miscellaneous Additional Information Financial Information Public Information Other Business Annex A - Agreement and Plan of Reorganization, by and between Oppenheimer Strategic Investment Grade Bond Fund and Oppenheimer Bond Fund A-1 Preliminary Copy - For the Information of the Securities and Exchange Commission Only OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 PROXY STATEMENT AND PROSPECTUS Special Meeting of Shareholders to be held September 20, 1995 INTRODUCTION General This Proxy Statement and Prospectus is being furnished to the shareholders of Oppenheimer Strategic Investment Grade Bond Fund ("Strategic Investment Grade Bond Fund"), a registered management investment company, in connection with the solicitation by the Board of Trustees (the "Board") of proxies to be used at the Special Meeting of Shareholders of Strategic Investment Grade Bond Fund to be held at 3410 South Galena Street, Denver, Colorado 80231, at 10:00 A.M., Denver time, on September 20, 1995, or any adjournments thereof (the "Meeting"). It is expected that the mailing of this Proxy Statement and Prospectus will commence on or about August 15, 1995. At the Meeting, shareholders of Strategic Investment Grade Bond Fund will be asked to approve an Agreement and Plan of Reorganization (the "Reorganization Agreement") between Strategic Investment Grade Bond Fund and Oppenheimer Bond Fund ("Bond Fund"), and the transactions contemplated thereby (the "Reorganization"), including the transfer of substantially all the assets of Strategic Investment Grade Bond Fund, in exchange for Class A and Class B shares of Bond Fund, the distribution of such shares to the shareholders of Strategic Investment Grade Bond Fund in complete liquidation of Strategic Investment Grade Bond Fund, the de-registration of Strategic Investment Grade Bond Fund as an investment company, under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the cancellation of the outstanding shares of Strategic Investment Grade Bond Fund. Bond Fund currently offers Class A shares with a sales charge imposed at the time of purchase and Class B and Class C shares without an initial sales charge. There is no initial sales charge on purchases of Class B or Class C shares, however a contingent deferred sales charge may be imposed, depending on when the shares are sold. The Class A and Class B shares issued pursuant to the Reorganization will be issued at net asset value without a sales charge and without the imposition of the contingent deferred sales charge. Additional information with respect to these changes by Bond Fund is set forth herein, in the Prospectus of Bond Fund accompanying this Proxy Statement and Prospectus and in the Bond Fund Additional Statement which is incorporated herein by reference. Record Date; Vote Required; Share Information The Board has fixed the close of business on July 14, 1995 as the record date (the "Record Date") for the determination of shareholders entitled to notice of, and to vote at, the Meeting. An affirmative vote of the holders of a majority of the outstanding voting securities of all of the Class A and Class B shares in the aggregate of Strategic Investment Grade Bond Fund is required to approve the Reorganization. That level of vote is defined in the Investment Company Act of 1940 as the vote of the holders of the lesser of: (i) 67% or more of the voting securities present or represented by proxy at the shareholders meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (ii) more than 50% of the outstanding voting securities. Each shareholder will be entitled to one vote for each share and a fractional vote for each fractional share held of record at the close of business on the Record Date. Only shareholders of Strategic Investment Grade Bond Fund will vote on the Reorganization. The vote of shareholders of Bond Fund is not being solicited. At the close of business on the Record Date, there were approximately 8,007,873.184 shares of Strategic Investment Grade Bond Fund issued and outstanding, consisting of 4,746,684.138 shares of Class A shares and 3,261,189.046 Class B shares. At the close of business on the Record Date, there were 11,686,850.128 shares of Bond Fund issued and outstanding, consisting of 10,976,686.128 shares of Class A shares and 710,164.480 Class B shares. The presence in person or by proxy of the holders of a majority of the shares constitutes a quorum for the transaction of business at the Meeting. To the knowledge of Strategic Investment Grade Bond Fund, as of the Record Date, no person owned of record or beneficially owned 5% or more of its outstanding shares. As of the Record Date, to the knowledge of Bond Fund, no person owned of record or beneficially owned 5% or more of its outstanding shares except for MML Reinsurance (Bermuda) Ltd., c/o Investment Services, 1295 State Street, Springfield, MA 0111-0001, which owned of record 789,794.139 Class A shares of Bond Fund as of such date (7.20% of the outstanding Class A shares of Bond Fund which represented 6.75% of the outstanding shares of Bond Fund) and Smith Barney, Inc., 388 Greenwich Street, New York, NY 10013, which of record owned 102,753.693 shares of Class B shares of Bond Fund (14.47% of the outstanding Class B shares of Bond Fund as of such date which represented less than 5% of the outstanding shares of Bond Fund). In addition, as of the record date, the Trustees and officers of Strategic Investment Grade Bond Fund and Bond Fund owned less than 1% of the outstanding shares of either Strategic Investment Grade Bond Fund or Bond Fund, respectively. Proxies The enclosed form of proxy, if properly executed and returned, will be voted (or counted as an abstention or withheld from voting) in accordance with the choices specified thereon, and will be included in determining whether there is quorum to conduct the Meeting. The proxy will be voted in favor of the Proposal unless a choice is indicated to vote against or to abstain from voting on the Proposal. 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, the broker-dealer may (if permitted under applicable stock exchange rules), as record holder, vote such shares on the Proposal in the same proportion as that broker-dealer votes street account shares for which voting instructions were received in time to be voted. If a shareholder executes and returns a proxy but fails to indicate how the votes should be cast, the proxy will be voted in favor of the Proposal. The proxy may be revoked at any time prior to the voting thereof by: (i) writing to the Secretary of Strategic Investment Grade Bond Fund at 3410 South Galena Street, Denver, Colorado 80231; (ii) attending the Meeting and voting in person; or (iii) signing and returning a new proxy (if returned and received in time to be voted). Costs of the Solicitation and the Reorganization All expenses of this solicitation, including the cost of printing and mailing this Proxy Statement and Prospectus, will be borne by Strategic Investment Grade Bond Fund. 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. In addition to the solicitation of proxies by mail, proxies may be solicited by officers of Strategic Investment Grade Bond Fund or officers and employees of OSS, personally or by telephone or telegraph; any expenses so incurred will be borne by OSS. Proxies may also be solicited by a proxy solicitation firm hired at Strategic Investment Grade Bond Fund's expense for such purpose. Brokerage houses, banks and other fiduciaries may be requested to forward soliciting material to the beneficial owners of shares of Strategic Investment Grade Bond Fund and to obtain authorization for the execution of proxies. For those services, if any, they will be reimbursed by Strategic Investment Grade Bond Fund for their reasonable out-of-pocket expenses. With respect to the Reorganization, Strategic Investment Grade Bond Fund and Bond Fund will bear the cost of their respective tax opinions. Any other out-of-pocket expenses of Strategic Investment Grade Bond Fund and Bond Fund associated with the Reorganization, including legal, accounting and transfer agent expenses, will be borne by Strategic Investment Grade Bond Fund and Bond Fund, respectively, in the amounts so incurred by each. COMPARATIVE FEE TABLE Strategic Investment Grade Bond Fund and Bond Fund each pay a variety of expenses for management of their assets, administration, distribution of their shares and other services, and those expenses are reflected in net asset value per share. Shareholders pay other expenses directly, such as sales charges. The following table is provided to help you compare the direct expenses of investing in each class of Strategic Investment Grade Bond Fund with the direct expenses of investing in each class of Bond Fund.
Strategic Investment Grade Bond Fund Bond Fund Class A Class B Class A Class B Class C Shares Shares Shares Shares Shares Shareholder Transaction Expenses Maximum Sales Charge on 4.75% None 4.75% None None Purchases (as a % of offering price) Sales Charge on None None None None None Reinvested Dividends Deferred Sales None(1) 5% in the None(1) 5% in the 1% if Charge (as a % first year, first year, shares are of the lower declining declining redeemed of the original to 1% in the to 1% in the within 12 purchase price sixth year and sixth year and months of or redemption eliminated eliminated purchase proceeds) thereafter thereafter Exchange Fee None None None None None Pro Forma Surviving Oppenheimer Bond Fund Class A Class B Class C Shares Shares Shares Shareholder Transaction Expenses Maximum Sales Charge on 4.75% None None Purchases (as a % of offering price) Sales Charge on None None None Reinvested Dividends Deferred Sales Charge None(1) 5% in the 1% if (as a % of the lower first year, shares are of the original declining redeemed purchase price to 1% in the within 12 or redemption sixth year and months of proceeds eliminated purchase thereafter Exchange Fee None None None
(1) If you invest more than $1 million in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the calendar month during which you purchased those shares. The following tables are projections of the operating expenses of Class A and Class B of Strategic Investment Grade Bond Fund based on expenses for the six month period (annualized) ended March 31, 1995 (unaudited). Class C shares were not publicly offered during the six month period ended March 31, 1995 and therefore these amounts are estimates based on Class B shares. Class C shares will not be issued as part of the Reorganizations and the information with respect to these shares for informational purposes only. The pro forma information is an estimate of the business expenses of the surviving Bond Fund after giving effect to the reorganization. The management fees with respect to the pro forma information have been restated to reflect the Bond Funds new investment advisory agreement dated July 10, 1995 with Oppenheimer Management Corporation. As of that date management fee rates were increased. Had these rates been in effect as of March 31, 1995, the total operating expenses of Bond Fund (which was formerly named Oppenheimer Investment Grade Bond Fund) would have been higher. However, the increased management fee rates are identical to those of Strategic Investment Grade Bond Fund. All amounts shown are a percentage of net assets of each class of each of the funds for that year.
Strategic Investment Grade Bond Fund Bond Fund Pro Forma Surviving Bond Fund Class A Class B Class A Class B Class C Class A Class B Class C Management Fees .75% .75% .50% .50% .50% .75% .75% .75% 12b-1 Distribution and Service Plan Fees .24% 1.00% .24% 1.00% 1.00% .24% 1.00% 1.00% Other Expenses .44% .43% .30% .30% .30% .28% .28% .28% Total Fund Operating Expenses 1.43% 2.18% 1.04% 1.80% 1.80% 1.27% 2.03% 2.03%
The 12b-1 fees for Class A shares of Strategic Investment Grade Bond Fund and Bond Fund are service plan fees. The Service Plan Fees is a maximum of 0.25% of average annual net assets of Class A shares of each fund. The 12b-1 fees for Class B shares and Class C shares of Bond Fund are Distribution and Service Plan fees which include a service fee of 0.25% and an asset-based sales charge of 0.75%. Examples To try and show the effect of the expenses in an investment over time, the hypotheticals shown below have been created. Assume that you make a $1,000 investment in Class A and Class B shares of Strategic Investment Grade Bond Fund, or Class A or Class B shares of Bond Fund, or Class A or Class B of the pro forma surviving Bond Fund (Class C shares are shown for information purposes only since such shares are not a part of the merger and will not be issued to shareholders of Strategic Investment Grade Bond Fund) and that the annual return is 5% and that the operating expenses for each fund are the ones shown in the chart above. If you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of each period shown.
1 year 3 years 5 years 10 years Oppenheimer Strategic Investment Grade Bond Fund Class A Shares $61 $91 $122 $211 Class B Shares $72 $98 $137 $215* Oppenheimer Bond Fund Class A Shares $58 $79 $102 $169 Class B Shares $68 $87 $117 $173 Class C Shares $28 $57 $97 $212* Pro Forma Surviving Oppenheimer Bond Fund Class A Shares $60 $86 $114 $194 Class B Shares $71 $94 $129 $198* Class C Shares $31 $64 $109 $236** If you did not redeem your investment, it would incur the following expenses: 1 year 3 years 5 years 10 years Oppenheimer Strategic Investment Grade Bond Fund Class A Shares $61 $91 $122 $211 Class B Shares $22 $68 $117 $215* Oppenheimer Bond Fund Class A Shares $58 $79 $102 $169 Class B Shares $18 $57 $97 $173* Class C Shares $18 $57 $97 $212** Pro Forma Surviving Oppenheimer Bond Fund Class A Shares $60 $86 $114 $194 Class B Shares $21 $64 $109 $198* Class C Shares $21 $64 $109 $236**
* The Class B expenses in years 7 through 10 are based on the Class A expenses shown above, because each of the funds automatically converts your Class B shares into Class A shares after 6 years. Long term Class B shareholders could pay the economic equivalent of more than the maximum front-end sales charge allowed under applicable regulations, because of the effect of the asset-based sales charge and contingent deferred sales charge. The automatic conversion of Class B shares to Class A Shares is designed to minimize the likelihood that this will occur. Because of the asset-based sales charge imposed and the contingent deferred sales charge on Class C shares, long-term Class C shareholders could pay the economic equivalent of an amount greater than the maximum front-end sales charge allowed under applicable regulatory requirements. The examples show the effect of expenses on an investment, but are not meant to state or predict actual or expected costs or investment returns of the Fund, all of which will vary. SYNOPSIS The following is a synopsis of certain information contained in or incorporated by reference in this Proxy Statement and Prospectus and presents key considerations for shareholders of Strategic Investment Grade Bond Fund to assist them in determining whether to approve the Reorganization. This synopsis is only a summary and is qualified in its entirety by the more detailed information contained in or incorporated by reference in this Proxy Statement and Prospectus and by the Reorganization Agreement, a copy of which is attached as an Annex hereto. Shareholders should carefully review this Proxy Statement and Prospectus and the Reorganization Agreement in their entirety and, in particular, the current Prospectus of Bond Fund which accompanies this Proxy Statement and Prospectus and is incorporated by reference herein. Parties to the Reorganization Strategic Investment Grade Bond Fund is a diversified, open-end management investment company organized in 1991 as a Massachusetts business trust. Oppenheimer Integrity Funds (the "Trust") is an investment company organized in 1982 as a multi-series Massachusetts business trust and Bond Fund is a series of that Trust. Strategic Investment Grade Bond Fund and Bond Fund are each located at 3410 South Galena Street, Denver, Colorado 80231. The members of the Board of Trustees of Strategic Investment Grade Bond Fund and of the Board of Trustees of the Trust are the same. Oppenheimer Management Corporation (the "Manager") whose address is Two World Trade Center, New York, New York 10048-0203, acts as investment adviser to Strategic Investment Grade Bond Fund and Bond Fund (collectively referred to herein as the "funds"). Additional information about the parties is set forth below. Shares to be Issued. All shareholders of Strategic Investment Grade Bond Fund who own Class A shares will receive Class A shares of Bond Fund in exchange for their Class A shares of Strategic Investment Grade Bond Fund. Shareholders of Strategic Investment Grade Bond Fund who own Class B shares will receive Class B shares of Bond Fund in exchange for their Class B shares of Strategic Investment Grade Bond Fund. All classes of shares vote together in the aggregate as to certain matters, however shares of a particular class vote together on matters that affect that class alone. The Class A and Class B shares of Strategic Investment Grade Bond Fund, and Class A and Class B shares of Bond Fund to be issued in the reorganization are substantially similar. The Reorganization The Reorganization Agreement provides for the transfer of substantially all the assets of Strategic Investment Grade Bond Fund to Bond Fund in exchange for Class A and Class B shares of Bond Fund. Presently Strategic Investment Grade Bond Fund has two classes of shares which are Class A and Class B shares. The net asset value of Bond Fund Class A and Class B shares issued in the exchange will equal the value of the assets of Strategic Investment Grade Bond Fund received by Bond Fund. Following the Closing of the Reorganization presently scheduled for September 22, 1995, Strategic Investment Grade Bond Fund will distribute the Class A and Class B shares of Bond Fund received by Strategic Investment Grade Bond Fund on the Closing Date to holders of Class A and Class B shares of Strategic Investment Grade Bond Fund, respectively, which are issued shares and outstanding as of the Valuation Date (as hereinafter defined). As a result of the Reorganization, each Class A or Class B Strategic Investment Grade Bond Fund shareholder will receive that number of full and fractional Bond Fund Class A or Class B shares equal in value to such shareholder's pro rata interest in the assets transferred to Bond Fund as of the Valuation Date. The Board of Oppenheimer Integrity Funds, on behalf of Strategic Investment Grade Bond Fund, has determined that the interests of existing Strategic Investment Grade Bond Fund shareholders will not be diluted as a result of the Reorganization. For the reasons set forth below under "The Reorganization - Reasons for the Reorganization," the Board, including the trustees who are not "interested persons" of the Trust (the "Independent Trustees'), as that term is defined in the Investment Company Act, has concluded that the Reorganization is in the best interests of Strategic Investment Grade Bond Fund and its shareholders and recommends approval of the Reorganization by Strategic Investment Grade Bond Fund shareholders. If the Reorganization is not approved, Strategic Investment Grade Bond Fund will continue in existence and the Board will determine whether to pursue alternative actions. Reasons for the Reorganization The Manager proposed to the Board a reorganization into Bond Fund (formerly Oppenheimer Investment Grade Bond Fund) so that shareholders of Strategic Investment Grade Bond Fund may be shareholders of a larger fund, which after such reorganization allows shareholders to experience a reduction in expenses. When the Board considered the reorganization, the investment advisory fee rate of Bond Fund was lower than that of Strategic Investment Grade Bond Fund. However, the Board of Oppenheimer Integrity Funds, on behalf of Bond Fund had approved a proposal, approved by shareholders of Bond Fund to increase the investment advisory fee which would make it identical to the investment advisory fee of Strategic Investment Grade Bond Fund. The Board considered pro form information which indicated the expense ratio of a combined fund (after the increase in investment advisory fee) would be lower than that of Strategic Investment Grade Bond Fund. The ratio of expenses for Strategic Investment Grade Bond Fund for the fiscal year ended September 30, 1994 was 1.33% (after reimbursement for Class A shares). Before reimbursement the ratio of expenses for Strategic Investment Grade Bond Fund for the fiscal year ended September 30, 1994 was 1.38%. The ratio of expenses for Strategic Investment Grade Bond Fund for the fiscal year ended September 30, 1994 for Class B shares was 2.12% (after reimbursement) and 2.16% (before reimbursement). For the fiscal year ended December 31, 1994 the ratio of expenses for Bond Fund was 1.06% for Class A shares and 1.78% for Class B shares. The pro forma fees for Class A shares of the combined fund at December 31, 1994 (assuming the new management fee was in effect at such time) would have been 1.31% for Class A shares and 2.03% for Class B shares. In addition to the above the Board also considered information with respect to the historical performance of Strategic Investment Grade and Bond Fund. The Board analyzed that as of the date of the meeting the average annual returns at net asset value was better for Class A shares of Bond Fund than Class A shares of Strategic Investment Grade Bond Fund. As of July 10, 1995, the investment policies of Bond Fund changed. Previously, Bond Fund's investments were substantially limited to investment grade bonds, U.S. government securities and money market instruments. The Manager expects that the approved changes permitting Bond Fund to seek a high level of current income by investing mainly in debt instruments and permitting it, as a non-fundamental policy to expand its permissible investments to include up to 35% of its total assets in non-investment grade debt securities will improve the investment performance of Bond Fund. Although past performance is not predictive of future results, shareholders of Oppenheimer Bond Fund would have an opportunity to become shareholders of a fund with a better performance history. The Board also considered that the Reorganization would be a tax free reorganization, and would be no sales charge imposed in effecting the Reorganization. The Board concluded that the Reorganization would not result in dilution to shareholders of Strategic Investment Grade Bond Fund and it would not result in dilution to shareholders of Bond Fund. Tax Consequences of the Reorganization In the opinion of Deloitte & Touche LLP, tax adviser to Strategic Investment Grade Bond Fund, the Reorganization will qualify as a tax-free reorganization for Federal income tax purposes. As a result, no gain or loss will be recognized by, or the shareholders of either fund for Federal income tax purposes as a result of the Reorganization. For further information about the tax consequences of the Reorganization, see "Approval of the Reorganization - Tax Aspects" below. Investment Objectives and Policies Strategic Investment Grade Bond Fund Strategic Investment Grade Bond Fund's investment objective is to seek a high level of current income, consistent with the stability of principal, as is available from a portfolio of investment grade debt securities. In seeking its investment objective, Strategic Investment Grade Bond Fund intends to invest principally in the following three sectors: (i) U.S. government securities; (ii) foreign fixed-income securities; and (iii) investment grade corporate bonds and debentures. Although under normal market conditions Strategic Investment Grade Bond Fund intends to invest in each of these three sectors, from time to time the Manager may adjust the amounts the Fund invests in each sector depending upon, among other things, the Manager's evaluation of economic and market conditions. Distributable income will fluctuate as Strategic Investment Grade Bond Fund shifts its assets among the three sectors. Under normal circumstances, the assets of Strategic Investment Grade Bond Fund will principally be invested in each of the three respective sectors described above, and at least 65% of Strategic Investment Grade Bond Fund's total assets (the "65% Policy") will be invested in U.S. government securities and domestic and foreign bonds and debentures rated at least investment grade. Strategic Investment Grade Bond Fund may from time to time invest up to 35% of its total assets including securities rated below investment grade. Lower-rated securities (often called "junk bonds") are considered speculative and involve greater volatility of price and risk of principal and income default than securities in the higher-rated categories. Bond Fund Under normal market conditions, the Fund invests at least 65% of its total assets in investment grade debt securities, U.S. Government securities, and money market instruments. Investment-grade debt securities are those rated in one of the four highest categories by Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investors Service, Inc. or other nationally-recognized rating organization. A description of these rating categories is included as an Appendix to Bond Fund's Statement of Additional Information. Debt securities (often referred to as "fixed-income "securities") are used by issuers to borrow money from investors. The issuer promises to pay the investor interest at a fixed or variable rate, and to pay back the amount it borrowed (the "principal") at maturity. Some debt securities, such as zero coupon bonds do not pay current interest. The Fund may invest up to 35% of its total assets in debt securities rated less than investment grade or, if unrated, judged by the Manager to be of comparable quality to such lower-rated securities (collectively, "lower-grade securities"). Lower-grade securities (often called "junk bonds") are considered speculative and involve greater risk. Bond Fund may also write covered calls and use certain types of securities called "derivatives" and hedging instruments to try to manage investment risks. Investment Advisory and Distribution and Service Plan Fees The terms and conditions of each investment advisory agreement are substantially the same. Both funds obtain investment management services from the Manager. Prior to July 10, 1995, the Manager had contracted with Massachusetts Mutual Life Insurance Company ("MassMutual") to act as the Fund's Sub-Adviser. Effective July 10, 1995, the Sub-Advisory agreement between the Manager and MassMutual terminated, and the Manager is responsible for selecting Bond Funds investments as well as its day to day business pursuant to an investment advisory agreement dated July 10, 1995. The management fee is payable monthly and computed on the net asset value of each fund as of the close of business each day. Both funds pay the same management fee rate of 0.75% of the first $200 million of aggregate net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.66% of the next $200 million, 0.60% of the next $200 million and 0.50% of net assets in excess of $1 billion. Strategic Investment Grade Bond Fund and Bond Fund have both adopted Service Plans for their respective Class A shares. Both Service Plans provide for 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 each plan, reimbursement is made at an annual rate that may not exceed 0.25% of the average annual net assets of Class A of each of the funds. Strategic Investment Grade Bond Fund and Bond Fund have adopted a Distribution and Service Plans (the "Plans") for Class B shares under which each fund pays the Distributor for its services in connection with and costs in distributing Class B shares and servicing accounts. Under each Plan, the funds pay the Distributor an asset-based sales charge of 0.75% per annum of Class B shares outstanding for six years or less, and also pays the Distributor a service fee of 0.25% per annum, each of which is computed on the average annual net assets of Class B shares determined as of the close of each regular business day of each fund. The Plan for Strategic Investment Grade Bond Fund makes payments to reimburse the Distributor for its distribution expenses. The Plan for Bond Fund is a compensation plan under which Bond Fund pays the Distributor for certain distribution services but Bond Fund payments are not tied to reimbursing the Distributor for its expenses. Under Bond Fund's compensation plan, the payments Bond Fund makes may over time be greater than the payments to be made by Strategic Investment Grade Bond Fund. Purchases, Exchanges and Redemptions Both Strategic Investment Grade Bond Fund and Bond Fund are part of the OppenheimerFunds complex of mutual funds. The procedures for purchases, exchanges and redemptions of shares of the funds are substantially the same. Shares of either fund may be exchanged only for Class A or Class B shares of certain of other OppenheimerFunds offering such shares. Both Strategic Investment Grade Bond Fund and Bond Fund have an initial sales charge of 4.75% on Class A shares. Investors who purchase more than $1 million in Class A shares may have to pay a sales charge of up to 1% if shares are sold within 18 calendar months from the end of the calendar month during which shares are purchased. Each of the funds has a contingent deferred sales charge imposed on the proceeds of Class B shares redeemed within six years of buying them. The contingent deferred sales charge ("CDSC") varies depending on how long you hold your shares. Class A and Class B shares of Bond Fund received in the Reorganization will be issued at net asset value, without a sales charge and no CDSC will be imposed as a result of the Reorganization. Services available to shareholders of both funds include purchase and redemption of shares through OppenheimerFunds AccountLink and PhoneLink (an automated telephone system), telephone redemptions, and exchanges by telephone to other OppenheimerFunds which offer Class A and Class B shares, and reinvestment privileges. Please see "Shareholder Services," and you should refer to Strategic Investment Grade Bond Fund's prospectus and Bond Fund's prospectus included with this document for further information. PRINCIPAL RISK FACTORS In evaluating whether to approve the Reorganization and invest in Bond Fund, shareholders should carefully consider the following risk factors, the information set forth in this Proxy Statement and Prospectus and the more complete description of risk factors set forth in the documents incorporated by reference herein, including the Prospectuses of the funds and their respective Statements of Additional Information. Strategic Investment Grade Bond Fund Strategic Investment Grade Bond Fund in seeking its investment objectives as described above, in lends to invest principally in the following three sectors: (i) U.S. government securities; (ii) foreign fixed-income securities; and (iii) investment grade corporate bonds and debentures. There are risks of foreign investing. For example, foreign issuers are not required to use generally-accepted accounting principles. If foreign securities are not registered for sale in the U.S. under U.S. securities laws, the issuer does not have to comply with the disclosure requirements of our laws, which are generally more stringent than foreign laws. The values of foreign securities investments will be affected by other factors, including exchange control regulations or currency blockage and possible expropriation or nationalization of assets. There are risks of changes in foreign currency values. Because Strategic Investment Grade Bond Fund may purchase securities denominated in foreign currencies, a change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of Strategic Investment Grade Bond Fund securities denominated in that currency. The currency rate change will also affect its income available for distribution. Although the Strategic Investment Grade Bond Fund investment income from foreign securities may be received in foreign currencies, Strategic Investment Grade Bond Fund will be required to absorb the cost of currency fluctuations. If Strategic Investment Grade Bond Fund suffers a loss on foreign currencies after it has distributed its income during the year, Strategic Investment Grade Bond Fund may find that it has distributed more income than was available from actual investment income. There may also be changes in governmental administration or economic or monetary policy in the U.S. or abroad that can affect foreign investing. In addition, it is generally more difficult to obtain court judgments outside the United States if the Fund has to sue a foreign broker or issuer. Additional costs may be incurred because foreign broker commissions are generally higher than U.S. rates, and there are additional custodial costs associated with holding securities abroad. If Strategic Investment Grade Bond Fund's assets are held abroad, the countries in which they are held and the sub-custodians holding them must be approved by Strategic Investment Grade Bond Fund's Board of Trustees. No more than 25% of Strategic Investment Grade Bond Fund's total assets, at the time of purchase, will be invested in government securities of any one foreign country or in debt securities issued by companies organized under the laws of the foreign country. More information about the risks and potential rewards of investing in foreign securities is contained in Strategic Investment Grade Bond Fund's Statement of Additional Information. Strategic Investment Grade Bond Fund may from time to time invest up to 35% of its total assets (including securities downgraded below investment grade subsequent to purchase) in other investments, such as non-investment grade domestic and foreign bonds and debentures, notes, preferred stocks, dividend-paying common stocks, participation interests, zero coupon securities, asset-backed securities, sinking fund and callable bonds, municipal securities, as well as short-term debt obligations issued by foreign governments or domestic or foreign corporations denominated in U.S. dollars or selected foreign currencies (including, among others, participation interests, commercial paper and bank obligations, discussed below). Strategic Investment Grade Bond Fund may invest in such securities if, in the Manager's judgment, Strategic Investment Grade Bond Fund has the opportunity of seeking a high level of current income without undue risk to principal. Lower-rated securities (often called "junk bonds") are considered speculative and involve greater volatility of price and risk of principal and income default than securities in the higher-rated categories. They may be less liquid than higher-rated securities. If Strategic Investment Grade Bond Fund were forced to sell a lower-rated debt security during a period of rapidly-declining prices, it might experience significant losses especially if a substantial number of other holders decide to sell at the same time. Debt securities have both interest rate and credit risks. Debt securities are subject to changes in their value due to changes in prevailing interest rates. When prevailing interest rates fall, the values of already-issued debt securities generally rise. When interest rates rise, the values of already-issued debt securities generally decline. The magnitude of these fluctuations will often be greater for longer-term debt securities than shorter-term debt securities. Changes in the value of securities held by Strategic Investment Grade Bond Fund mean that Strategic Investment Grade Bond Fund's share prices can go up or down when interest rates change, because of the effect of the change on the value of Strategic Investment Grade Bond Fund's portfolio of debt securities. Debt securities are also subject to credit risks. Credit risk relates to the ability of the issuer of a debt security to make interest or principal payments on the security as they become due. Generally, higher-yielding, lower-rated bonds (which Strategic Investment Grade Bond Fund may hold) are subject to greater credit risk than higher-rated bonds. Securities issued or guaranteed by the U.S. Government are subject to little, if any, credit risk. While the Manager may rely to some extent on credit ratings by nationally recognized rating agencies, such as Standard & Poor's or Moody's, in evaluating the credit risk of securities selected for the Fund's portfolio, it may also use its own research and analysis. However, many factors affect an issuer's ability to make timely payments, and there can be no assurance that the credit risks of a particular security will not change over time. Bond Fund Under normal market conditions, the Fund invests at least 65% of its total assets in a diversified portfolio of investment grade fixed-income securities. These include (i) investment-grade debt securities rated BBB or above by Standard and Poor's Corporation or Baa or above by Moody's Investors Service, Inc. or, if unrated, are of comparable quality as determined by the Fund's Manager; (ii) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities or obligations secured by such securities ("U.S. Government Securities"); and (iii) high-quality, short-term money market domestic and foreign instruments. Bond Fund may (as a matter of non- fundamental policy) invest up to 35% of its total assets in non-investment grade debt instruments. These lower rated securities (often called "junk bonds" are considered speculative and involve greater risks. They have the same risks as those lower rated securities which may be purchase by Strategic Investment Grade Bond Fund. The Manager anticipates that the Fund would generally invest at least 75% of its total assets in: (i) U.S. corporate bonds rated "A" or better and (ii) U.S. government and agency bonds. The Manager further anticipates that the Fund would invest an additional 15% of its total assets in non- investment grade domestic corporate bonds and 10% of total assets in non- investment grade foreign bonds. These anticipated investment targets, including the allocation between domestic and foreign lower-grade debt securities, are subject to fluctuation and may be changed by the Manager without further notice to shareholders or amended prospectus disclosure. Under normal market conditions, the target duration will be approximately five. Duration is a measure of the anticipated rise or decline in value for a 1% change in interest rates. For example, a duration of 2 in a portfolio indicates that for every 1% rise in general interest rates, the portfolio's value would be expected to fall 2%, and vice versa. While both funds may invest in foreign fixed-income securities, Bond Fund is not restricted in the amount of assets it may invest in foreign countries, nor is it restricted with respect to which countries it can invest in. Investments in securities of foreign governments and companies present the same risks as those discussed with respect to Strategic Investment Grade Bond Fund. Debt securities present the same credit and interest risks as those discussed with respect to Strategic Investment Grade Bond Fund. Although both funds may invest up to 35% of their total assets in non- investment grade bonds ("junk bonds"), Oppenheimer Bond Fund has the ability, without shareholder approval, to increase the percentage of its assets invested in junk bonds. However, such a change may only be made with the approval of the Board of Oppenheimer Integrity Funds, on behalf of Bond Fund, which has no plans for such a change. APPROVAL OF THE REORGANIZATION (The Proposal) Reasons for the Reorganization At a meeting of the Board of Trustees (the "Board") held April 19, 1995, the Trustees reviewed and discussed materials relevant to the proposed Reorganization. The Board, including the Independent Trustees unanimously approved and recommend to shareholders of Strategic Investment Grade that they approve the Reorganization. Strategic Investment Grade is organized as a Massachusetts business trust. Both funds offer Class A and Class B shares and the terms and conditions of their offer, sale, redemption and exchange, distribution arrangements, expenses borne separately by each class and other related matters are essentially the same. The Board considered that this will facilitate an exchange. In the reorganization, Class A and Class B shareholders of Strategic Investment Grade Bond Fund will receive Class A and Class B shares, respectively, of Bond Fund (formerly Oppenheimer Investment Grade Bond Fund). In considering the proposed merger, the Board reviewed information which demonstrated that Strategic Investment Grade Bond Fund is a significantly smaller fund with $38,670.437 assets as of March 31, 1995. In comparison, Bond Fund had $115,885,874 assets as of March 31, 1995. It is not anticipated that Strategic Investment Grade Bond Fund will increase substantially in size in the near future. After the reorganization, the shareholders of Strategic Investment Grade Bond Fund will be shareholders of a larger fund and will incur lower operating, transfer agency and other expenses. Thus economics of scale will benefit shareholders of Strategic Investment Grade Bond Fund. Among several factors the Board focused on the investment objectives of the two funds. Strategic Investment Grade seeks a high level of current income, consistent with stability of principal, as is available from a portfolio of investment grade debt securities. Bond Fund, at the time of the meeting, had the investment objective of seeking to achieve a high level of current income consistent with prudent investment risk and the stability of capital primarily through investment. The current investment objective, which was proposed at the time of the meeting, and was subsequently approved by shareholders at a meeting held on July 10, 1995, is to seek a high level of current income by investing mainly in debt instruments. This is also consistent with the objective of Strategic Investment Grade Bond Fund. Both funds may invest up to 35% of their total assets in securities rated below investment grade. The Board took the proposed changes, including the change in Bond Fund's investment objective and policies into consideration and determined that the objectives were substantially similar and that the Board's proposed investment policy, which was approved by shareholders would be essentially the same. The Board, in reviewing financial information, considered the investment advisory fee of both funds. At the time of the April meeting the management fees paid by Bond Fund, were lower than Strategic Investment Grade Bond Fund. On July 10, 1995, Bond Fund's shareholders approved an increase in the investment advisory fee rate (also known as the "management fee rate"). The management fee rates of both funds which declines as each fund grows and is as follows: 0.75% of the first $200 million of aggregate assets; 0.72% of the next $200 million, 0.69% of the next $200 million, and 0.50% of net assets in excess of $1 billion. The higher investment advisory fee rates were not in effect for this time period. Had they been in effect, Bond Fund's ratio of expenses for the period ended December 31, 1994 would have been higher. However, the higher investment advisory rates are identical to Strategic Investment Grade Bond Fund's investment advisory rates. If the two funds were combined shareholders of the Strategic Investment Grade Bond Fund would continue to have a management fee of 0.75% but they would be much closer to the $200 million breakpoint. The Board considered pro form information which indicated the expense ratio of a combined fund would still be slighter lower than that of Strategic Investment Grade Fund. The ratio of expenses for Strategic Investment Grade for the fiscal year ended September 30, 1994 was 1.38% for Class A shares (before reimbursement). The ratio of expenses for Strategic Investment Grade Bond Fund for the fiscal year ended September 30, 1994 was 1.33% for Class A shares (after reimbursement). Up until November 24, 1993, the Manager had undertaken to assume Strategic Investment Grade Bond Fund's expenses (other than extraordinary non-recurring expenses) to enable Strategic Investment Grade Bond Fund to pay a dividend of $.378 per share per annum, with the limitation that the dividend could not exceed Strategic Investment Grade Bond Fund's annual gross earnings per share per annum. For the fiscal year ended December 31, 1994 the ratio of expenses for Bond Fund for Class A shares was 1.06% and 1.78% for Class B shares. The investment policies of Bond Fund were changed by shareholder approval. Prior to such change Bond Fund's investments were limited to investment grade bonds, U.S. government securities and money market securities. The Manager expects that the approved changes which expands its permissible investments will improve Bond Fund's investment performance. The pro forma fees for Class A shares of the combined fund at December 31, 1994 (after an increase, in Bond Fund's investment advisory fee) would have been 1.31%. In addition to the above, the Board also considered information with respect to the historical performance of Strategic Investment Grade and Bond Fund. The Board analyzed that as of the date of the meeting the average annual returns at net asset value was better for Class A of Bond Fund than Class A shares of Strategic Investment Grade Bond Fund. Although past performance is not predictive of future results, shareholders of Oppenheimer Bond Fund would have an opportunity to become shareholders of a fund with a better performance history. The Board also considered that the Reorganization would be a tax free reorganization, and would be no sales charge imposed in effecting the Reorganization. The Board concluded that the Reorganization would not result in dilution to shareholders of Strategic Investment Grade Bond Fund and it would not result in dilution to shareholders of Bond Fund. The Reorganization The Reorganization Agreement (a copy of which is set forth in full as Annex A to this Proxy Statement and Prospectus) contemplates a reorganization under which (i) all of the assets of Strategic Investment Grade Bond Fund (other than the cash reserve described below (the "Cash Reserve")) will be transferred to Bond Fund in exchange for Class A and Class B shares of Bond Fund, (ii) these shares will be distributed among the shareholders of Strategic Investment Grade Bond Fund in complete liquidation of Strategic Investment Grade Bond Fund, (iii) the outstanding shares of Strategic Investment Grade Bond Fund will be cancelled. Bond Fund will not assume any of Strategic Investment Grade Bond Fund's liabilities except for portfolio securities purchased which have not settled and outstanding shareholder redemption and dividend checks. The result of effectuating the Reorganization would be that: (i) Bond Fund will add to its gross assets all of the assets (net of any liability for portfolio securities purchased but not settled and outstanding shareholder redemption and dividend checks) of Strategic Investment Grade Bond Fund other than its Cash Reserve; and (ii) the shareholders of Strategic Investment Grade Bond Fund as of the close of business on the Closing Date will become shareholders of either Class A or Class B shares of Bond Fund. The effect of the Reorganization will be that shareholders of Strategic Investment Grade Bond Fund who vote their Class A and Class B shares in favor of the Reorganization will be electing to redeem their shares of Strategic Investment Grade Bond Fund (at net asset value on the Valuation Date referred to below under "Method of Carrying Out the Reorganization Plan," calculated after subtracting the Cash Reserve) and reinvest the proceeds in Class A or Class B shares of Bond Fund at net asset value without sales charge and without recognition of taxable gain or loss for Federal income tax purposes (see "Tax Aspects of the Reorganization" below). The Cash Reserve is that amount retained by Strategic Investment Grade Bond Fund which is sufficient in the discretion of the Board for the payment of: (a) Strategic Investment Grade Bond Fund's expenses of liquidation, and (b) its liabilities, other than those assumed by Bond Fund. Strategic Investment Grade Bond Fund and Bond Fund will bear all of their respective expenses associated with the Reorganization, as set forth under "Costs of the Solicitation and the Reorganization" above. Management estimates that such expenses associated with the Reorganization to be borne by Strategic Investment Grade Bond Fund will not exceed $30,000. Liabilities as of the date of the transfer of assets will consist primarily of accrued but unpaid normal operating expenses of Strategic Investment Grade Bond Fund, excluding the cost of any portfolio securities purchased but not yet settled and outstanding shareholder redemption and dividend checks. See "Method of Carrying Out the Reorganization Plan" below. The Reorganization Agreement provides for coordination between the funds as to their respective portfolios so that, after the closing, Bond Fund will be in compliance with all of its investment policies and restrictions. Strategic Investment Grade Bond Fund will recognize capital gain or loss on any sales made pursuant to this paragraph. As noted in "Tax Aspects of the Reorganization" below, if Strategic Investment Grade Bond Fund realizes net gain from the sale of securities in 1995, such gain, to the extent not offset by capital loss carry forward, will be distributed to shareholders prior to the Closing Date and will be taxable to shareholders as capital gain. Tax Aspects of the Reorganization Immediately prior to the Valuation Date referred to in the Reorganization Agreement, Strategic Investment Grade Bond Fund will pay a dividend or dividends which, together with all previous such dividends, will have the effect of distributing to Strategic Investment Grade Bond Fund's shareholders all of Strategic Investment Grade Bond Fund's 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 gain, 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 Strategic Investment Grade Bond Fund's shareholders as ordinary income and capital gain, respectively. The exchange of the assets of Strategic Investment Grade Bond Fund for Class A and Class B shares of Bond Fund and the assumption by Bond Fund of certain liabilities of Strategic Investment Grade Bond Fund is intended to qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). Strategic Investment Grade Bond Fund has represented to Deloitte & Touche LLP, tax adviser to Strategic Investment Grade Bond Fund, that there is no plan or intention by any Fund shareholder who owns 5% or more of Strategic Investment Grade Bond Fund's outstanding shares, and, to Strategic Investment Grade Bond Fund's best knowledge, there is no plan or intention on the part of the remaining Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Bond Fund Class A or Class B shares received in the transaction that would reduce Strategic Investment Grade Bond Fund shareholders' ownership of 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 the formerly outstanding Fund shares as of the same date. Oppenheimer Bond Fund and Strategic Investment Grade Bond Fund have represented to Deloitte & Touche LLP, that, as of the Closing Date, it will qualify as a regulated investment company or will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code. As a condition to the closing of the Reorganization, Bond Fund and Strategic Investment Grade Bond Fund will receive the opinion of Deloitte & Touche LLP to the effect that, based on the Reorganization Agreement, the above representations, existing provisions of the Code, Treasury Regulations issued thereunder, current Revenue Rulings, Revenue Procedures and court decisions, for Federal income tax purposes: 1. The transactions contemplated by the Reorganization Agreement will qualify as a tax-free "reorganization" within the meaning of Section 368(a)(1) of the Code. 2. Strategic Investment Grade Bond Fund and 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 Strategic Investment Grade Bond Fund upon the distribution of Class A or Class B shares of beneficial interest in Bond Fund to the shareholders of Strategic Investment Grade 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 Strategic Investment Grade Bond Fund by reason of the transfer of its assets solely in exchange for Class A or Class B shares of Bond Fund. 5. Under Section 1032 of the Code no gain or loss will be recognized by Bond Fund by reason of the transfer of Strategic Investment Grade Bond Fund's assets solely in exchange for Class A or Class B shares of Bond Fund. 6. The shareholders of Strategic Investment Grade Bond Fund will have the same tax basis and holding period for the shares of beneficial interest in Bond Fund that they receive as they had for Strategic Investment Grade Bond Fund stock that they previously held, pursuant to Sections 358(a) and 1223(1) of the Code, respectively. 7. The securities transferred by Strategic Investment Grade Bond Fund to Bond Fund will have the same tax basis and holding period in the hands of Bond Fund as they had for Strategic Investment Grade Bond Fund, pursuant to Sections 362(b) and 1223(1) of the Code, respectively. Shareholders of Strategic Investment Grade Bond Fund should consult their tax advisors regarding the effect, if any, of the Reorganization in light of their individual circumstances. Since the foregoing discussion only relates to the Federal income tax consequences of the Reorganization, shareholders of Strategic Investment Grade Bond Fund should also consult their tax advisers as to state and local tax consequences, if any, of the Reorganization. Capitalization Table (Unaudited) The table below sets forth the capitalization of Strategic Investment Grade Bond Fund and Bond Fund and indicates the pro forma combined capitalization as of March 31, 1995 as if the Reorganization had occurred on that date.
March 31, 1995 Net Asset Shares Value Net Assets Outstanding Per Share Oppenheimer Strategic Investment Grade Bond Class A $ 23,190,699 4,906,735 $ 4.73 Class B $ 15,479,738 3,278,697 $ 4.72 Oppenheimer Bond Fund Class A $109,961,008 10,644,112 $10.33 Class B $ 5,924,866 573,516 $10.33 Class C Oppenheimer Bond Fund (Pro Forma Surviving Fund) Class A $133,151,707 12,889,097 $10.33 Class B $ 21,404,604 2,072,039 $10.33
Reflects issuance of 2,244,985 of Class A shares and 1,498,523 of Class B shares of Bond Fund in a tax-free exchange for the net assets of Strategic Investment Grade Bond Fund, aggregating $38,670,437. The pro forma ratio of expenses to average annual net assets of the Class A shares at March 31, 1995 would have been 1.27%. The pro forma ratio of expenses to average net assets of Class B shares at March 31, 1995 would have been 2.03%. The pro forma ratio of expenses to average net assets of Class C shares at March 31, 1995 would have been 2.03%. COMPARISON BETWEEN STRATEGIC INVESTMENT GRADE BOND FUND AND BOND FUND Information about Strategic Investment Grade Bond Fund and Bond Fund is presented below. Additional information about Bond Fund is set forth in its Prospectus, accompanying this Proxy Statement and Prospectus, and additional information about both funds is set forth in documents that may be obtained upon request of the transfer agent and upon review at the offices of the SEC. See "Miscellaneous - Public Information." Investment Objectives and Policies Summary Under normal market conditions, Bond Fund invests at least 65% of its total assets in a diversified portfolio of investment grade fixed-income securities. The Fund may invest up to 35% of its total assets in non- investment grade debt instruments. Bond Fund may also lend its portfolio securities, enter into repurchase agreements, purchase illiquid and restricted securities, purchase and make short sales against-the-box, borrow for leverage, buy participation interests, and purchase certain derivatives. It may also purchase and sell certain kinds of futures contracts, and options on futures, securities indices and securities, or enter into interest rate swap agreements. Strategic Investment Grade Bond Fund seeks a high level of current income, consistent with stability of principal, as is available from a portfolio of investment grade debt securities. It intends to invest its assets principally in the following three sectors (1) U.S. government securities, (ii) foreign fixed-income securities, and (iii) investment grade corporate bonds and debenture. Under normal circumstances, at least 65% of its total assets will be invested in U.S. government securities and domestic and foreign bonds and debentures rated at least investment grade. It may invest up to 35% of its total assets in certain of the investments, including securities rated below investment grade, such as non-investment grade domestic and foreign bonds and debentures, notes, preferred stocks, dividends-paying common stocks, participation interests, zero coupon securities, asset backed securities, sinking fund and callable bonds and municipal securities, as well as short-term debt obligations issued by foreign governments or domestic corporations denominated in U.S. dollars or selected foreign currencies (including, among others participation interests, commercial paper and bank obligations discussed below.) Strategic Investment Grade Bond Fund may also invest in money market securities, lend its portfolio securities, enter into repurchase agreement, purchase illiquid and restricted securities, purchase and make short sales against the box, borrow for leveraging, buy participation interests and preferred stock and purchase certain derivatives. It may also purchase and sell certain kinds of futures contracts, and options on futures, securities indices and securities, or enter into interest rate swap agreements. These are all referred to as hedging instruments. Both of the funds invest in fixed income securities which are subject to interest rate risks and credit risks. All debt securities, including U.S. Government Securities are subject to changes in value due to changes in prevailing interest rates, when prevailing interest rates fail, the value of outstanding debt securities generally rise. Conversely, when interest rates rise, the values of outstanding debt securities generally decline. The magnitude of these fluctuations will be greater when the average maturity of the portfolio securities is larger. Debt securities are also subject to credit risks. Credit risks relate to the ability of the issuer of a debt security to make interest or principal payments on the security as they become due. Generally higher-yielding, lower-rated bonds which each fund may hold are subject to greater credit risks than higher-rated bonds. Securities issued or guaranteed by the U.S. Government are subject to little, if any credit risk. These risks mean that each of the funds may not achieve the expected income from lower-grade securities. Each fund's net asset value per share may be affected by declines in the value of these securities. There are also certain risks associated with investments in foreign securities, including those related to changes in foreign currency rates, that are not present in domestic stocks. The securities in which Bond Fund and Strategic Investment Grade Bond Fond invest are summarized below. Both funds invest in substantially the same type of securities. Although both funds may invest up to 35% of their total assets in non-investment grade debt securities, Bond Fund has the ability, without shareholder approval to change (increase or decrease) the percentage of its assets invested in non-investment grade debt (often called "junk bonds"). However, it may only do so with approval of the Board of Oppenheimer Integrity Funds, which has no plans to make such a change. For more information on all of these securities, please refer to each fund's prospectus and statement of additional information. Bond Fund Under normal market conditions, the Fund invests at least 65% of its total assets in a diversified portfolio of investment grade fixed-income securities. These include (i) investment-grade debt securities rated BBB or above by Standard and Poor's Corporation or Baa or above by Moody's Investors Service, Inc. or, if unrated, are of comparable quality as determined by the Fund's Manager; (ii) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities or obligations secured by such securities ("U.S. Government Securities"); and (iii) high-quality, short-term money market domestic and foreign instruments. Bond Fund may also invest up to 35% of its total assets in non-investment grade debt instruments. The Manager anticipates that the Fund would generally invest at least 75% of its total assets in: (i) U.S. corporate bonds rated "A" or better and (ii) U.S. government and agency bonds. The Manager further anticipates that the Fund would invest an additional 15% of its total assets in non- investment grade domestic corporate bonds and 10% of total assets in non- investment grade foreign bonds. These anticipated investment targets, including the allocation between domestic and foreign lower-grade debt securities, are subject to fluctuation and may be changed by the Manager without further notice to shareholders or amended prospectus disclosure. Under normal market conditions, the target duration will be approximately five. Duration is a measure of the anticipated rise or decline in value for a 1% change in interest rates. For example, a duration of 2 in a portfolio indicates that for every 1% rise in general interest rates, the portfolio's value would be expected to fall 2%, and vice versa. Bond Fund may invest in debt securities issued or guaranteed by foreign companies and debt securities of foreign governments or their agencies. These securities may include debt obligations such as government bonds, debentures issued by companies, as well as notes. Bond Fund may also invest in certain U.S. Government securities, including U.S. Treasury bills, notes and bonds and mortgage participation certificates guaranteed by Government National Mortgage Association ("Ginnie Mae") which are supported by the full faith and credit of the U.S. government. Bond Fund may also invest in mortgage-related U.S. Government securities that are issued or guaranteed by federal agencies or government-sponsored entities but are not supported by the full faith and credit of U.S. Government. The Bond Fund may also invest in mortgage-backed securities, whether issued by the U.S. government or private issuer, as well as CMOs. It may also invest in asset backed securities. Strategic Investment Grade Bond Fund Under normal circumstances, the assets of Strategic Investment Grade Bond Fund will principally be invested in each of the three respective sectors described above, and at least 65% of the Fund's total assets (the "65% Policy") will be invested in U.S. government securities and domestic and foreign bonds and debentures rated at least investment grade. Investment grade debt securities are rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or at least "BBB" by Standard & Poor's Corporation ("Standard & Poor's") or, if unrated, are determined by the Manager as offering risks comparable to securities meeting those rating requirements. Strategic Investment Grade Bond Fund may from time to time invest up to 35% of its total assets (including securities downgraded below investment grade subsequent to purchase) in other investments, such as non-investment grade domestic and foreign bonds and debentures, notes, preferred stocks, dividend-paying common stocks, participation interests, zero coupon securities, asset-backed securities, sinking fund and callable bonds, as well as short-term debt obligations issued by foreign dollars or selected foreign currencies (including, among others, participation interests, commercial paper and bank obligations. Permitted Investments by Both Strategic Investment Grade Bond Fund and Bond Fund U.S. Government Securities Both of the funds may invest in debt obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S. Government Securities"). Both of the funds may invest in obligations supported by the full faith and credit of the U.S. Government such as mortgage-backed securities guaranteed by the Government National Mortgage Association ("Ginnie Maes") or they may invest in other securities, issued or guaranteed by federal agencies or government-sponsored enterprises that are not supported by the full faith and credit of the United States, and securities of agencies and instrumentalities that are supported by the discretionary authority of the U.S. Government to purchase such securities which include: Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, and Federal Intermediate Credit Banks and Freddie Mac. Both of the funds may invest in mortgaged-backed securities, including collateralized mortgage-backed obligations ("CMOs"), of fully-modified pass-through type, such as GNMA certificates, which are guaranteed as to timely payment of principal and interest by the full faith and credit of the United States Government or which are issued or guaranteed by agencies of the U.S. Government, such as Federal Home Loan Mortgage Corporation ("Freddie Mac") or the Federal National Mortgage Association ("Fannie Mae"). Both funds have the ability to invest in mortgage-backed securities, including CMO's that may be issued by private issuers, such as commercial banks, savings and loan institutions and private mortgage insurance companies and other secondary market issuers. There can be no assurance that private issuers will be able to meet their obligations. The effective maturity of a mortgage-backed security may be shortened by unscheduled or early payment of principal and interest on the underlying mortgages, which may affect the effective yield of such securities. The principal that is returned may be invested in instruments having a higher or lower yield than the prepaid instruments, depending on then-current market conditions. Such securities therefore may be less effective as a means of "locking in" attractive long-term interest rates and may have less potential for appreciation during periods of declining interest rates than conventional bonds with comparable stated maturities. Mortgage- backed securities purchased at a premium, prepayments of principal and foreclosures of mortgages may result in some loss of the principal investment to the extent of the premium paid. Payment of the interest and principal generated by the pool of mortgages is passed through to the holders as the payments are received by the issuer of the CMO. CMOs may be issued in a variety of classes or series ("tranches") that have different maturities. The principal value of certain CMO tranches may be more volatile than other types of mortgage- related securities, because of the possibility that the principal value of the CMO may be prepaid earlier than the maturity of the CMO as a result of prepayments of the underlying mortgage loans by the borrowers. Both funds may invest in "stripped" mortgage-backed securities or CMOs or other securities issued by agencies or instrumentalities of the U.S. Government. Stripped mortgage-backed securities usually have two classes. The classes receive different proportions of the interest and principal distributions on the pool of mortgage assets that act as collateral for the security. In certain cases, one class will receive all of the interest payments (and is known as an "I/O"), while the other class will receive all of the principal value on maturity (and is known as a "P/O"). The yield to maturity on the class that receives only interest is extremely sensitive to the rate of payment of the principal on the underlying mortgages. Principal prepayments increase that sensitivity. Stripped securities that pay "interest only" are therefore subject to greater price volatility when interest rates change, and they have the additional risk that if the underlying mortgages are prepaid, a Fund will lose the anticipated cash flow from the interest on the prepaid mortgages. The value of "principal only" securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Stripped securities are generally purchased and sold by institutional investors through investment banking firms. At present, established trading markets have not yet developed for these securities. Therefore, some stripped securities may be deemed "illiquid." Zero Coupon Securities Both funds may invest in zero coupon securities issued by the U.S. Treasury. In general, zero coupon U.S. Treasury securities include (1) U.S. Treasury notes or bonds that have been "stripped" of their interest coupons, (2) U.S. Treasury bills issued without interest coupons, or (3) certificates representing an interest in stripped securities. A zero coupon Treasury security pays no current interest and trades at a deep discount from its face value. It will be subject to greater market fluctuations from changes in interest rates than interest-paying securities. Either fund accrues interest on zero coupon securities without receiving the actual cash. As a result of holding these securities, either fund could possibly be forced to sell portfolio securities to pay cash dividends or meet redemptions. Both may also invest in zero coupon securities issued by corporations or private issuers. These zero coupon securities are: (i) notes or debentures that do not pay current interest and are issued at substantial discounts from par value, or (ii) notes or debentures that pay no current interest until a stated date one or more years into the future, after which the issuer is obligated to pay interest until maturity, usually at a higher rate than if interest were payable from the date of issuance. Such zero coupon securities are subject to certain risks, in addition to the risks identified above for zero coupon securities issued by the U.S. Treasury, such as the risk of the issuer's failure to pay interest and repay principal in accordance with the terms of the obligation. When-Issued and Delayed Delivery Transactions The funds may purchase securities on a "when-issued" basis and may purchase or sell securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery. There may be a risk of loss to either fund if the value of the security declines prior to the settlement date. Repurchase Agreements Each of the funds may enter into repurchase agreements. Neither of the funds will enter into repurchase agreements that will cause more than 10% of their net assets to be subject to repurchase agreements having a maturity beyond seven days. However, if the vendor fails to pay the resale price on the delivery date, the funds may experience costs in disposing of the collateral and losses if there is any delay in doing so. Foreign Securities Both funds debt securities issued or guaranteed by foreign companies, and debt securities of foreign governments or their agencies. These foreign securities may include debt obligations such as government bonds, debentures issued by companies, as well as notes. Some of these debt securities may have variable interest rates or "floating" interest rates that change in different market conditions. Those changes will affect the income each fund receives. Strategic Investment Grade Bond Fund will have no more than 25% of its total assets invested in government securities of any one foreign country or in debt securities issued by companies organized under the laws of any one foreign country. Bond Fund has no such restriction. Neither fund has a restriction with respect to the amount it may invest in foreign securities. However, the Manager anticipates, with respect to Bond Fund, that 10% of its total assets would be invested in non-investment grade foreign bonds. Foreign securities have special risks. For example, the values of foreign securities investments may be affected by changes in foreign currency rates, exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political and economic factors. Hedging Both funds may use hedging investments. As described below, each of the funds may purchase and sell certain kinds of futures contracts, put and call options, forward contracts, and options on futures, securities indices and securities, or enter into interest rate swap agreements. These are all referred to as "hedging instruments." The funds do not use hedging instruments for speculative purposes, and has limits on the use of them, described below. The hedging instruments each fund may use are described below and in greater detail in the Statement of Additional Information for each fund. The funds may buy and sell options, futures and forward contracts for a number of purposes. It may do so to try to manage its exposure to the possibility that the prices of its portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities. It may do so to try to manage its exposure to changing interest rates. Some of these strategies, such as selling futures, buying puts and writing covered calls, hedge a fund's portfolio against price fluctuations. Other hedging strategies, such as buying futures and call options, tend to increase a fund's exposure to the securities market. Forward contracts are used to try to manage foreign currency risks on each of the funds foreign investments. Foreign currency options are used to try to protect against declines in the dollar value of foreign securities the Fund owns, or to protect against an increase in the dollar cost of buying foreign securities. Writing covered call options may also provide income to each of the funds for liquidity purposes or to raise cash to distribute to shareholders. The hedging investments which the funds may use are summarized below and you should refer to each fund's prospectus and statement of additional information for a more complete discussion of these investments and their risks. Neither fund uses hedging investments for speculative purposes. Both funds may buy and sell futures contracts and options thereon that relate to financial futures such as bond indexes; buy and sell foreign currencies and forward contracts and options thereon; purchase put options on futures whether or not the fund owns the future; and may also use "cross hedging." The funds may buy and sell futures contracts and options thereon that relate (1) to broadly-based bond indices ("Bond Index Futures") and (2) interest rated ("Interest Rate Futures"). The fund may purchase calls on (1) debt securities, (2) futures, (3) broadly-based bond indices and (4) foreign currencies, or to terminate its obligation on a call that a fund previously wrote. The fund may write covered call options on debt securities to raise cash for income to distribute to shareholders for defensive reasons. The funds may purchase and write put options on (1) securities they own, (2) interest rate futures, (3) Bond index futures and (4) foreign currencies. Both funds may buy and sell puts and calls only if certain conditions are met: (1) calls each fund sells must be listed on a securities exchange, or traded in the over-the-counter market; (2) calls each fund buys must be listed on a securities or commodities exchange, quoted on the Automated Quotation System of the National Association of Securities Dealers, Inc. (NASDAQ) or traded in the over-the-counter market; (3) in the case of puts and calls on foreign currency, they must be traded on a securities or commodities exchange, or quoted by recognized dealers in those options; (4) each call the funds write must be "covered" while it is outstanding: that means the funds must own the investment on which the call was written or it must own other securities that are acceptable for the escrow arrangements required for calls; (5) puts each of the funds buy and sell must be listed on a securities or commodities exchange, quoted on NASDAQ or traded in the over-the-counter market and any put sold must be covered by segregated liquid assets with not more than 50% of a fund's assets subject to puts; (6) each of the funds may write calls on Futures contracts it owns, but these calls must be covered by securities or other liquid assets that fund owns and segregated to enable it to satisfy its obligations if the call is exercised; and (7) a call or put option may not be purchased if the value of all of the funds put and call options would exceed 5% of that fund's total assets. Both of the funds may enter into interest rate swaps. The funds enter into swaps only on securities they own. The funds may not enter into swaps with respect to more than 25% of their total respective assets. Also, the funds will segregate liquid assets (such as cash or U.S. Government securities or other appropriate high grade debt obligations) 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. Interest rate swaps are subject to credit risks (if the other party fails to meet its obligations) and also to interest rate risks. A fund could be obligated to pay more under its swap agreements than it receives under them, as a result of interest rate changes. Hedging instruments can be volatile investments and may involve special risks. The use of hedging instruments requires special skills and knowledge of investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce a fund's return. A fund could also experience losses if the prices of its futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums and has special tax effects on the fund. There are also special risks in particular hedging strategies and they are addressed in each fund's prospectus and statement of additional information. Loan of Portfolio Securities Both funds may lend their portfolio securities to brokers, dealers and other financial institutions. These loans are limited to 25% of each funds respective net assets and are subject to the conditions in each funds Statements of Additional Information. Neither fund presently intends to lend its portfolio securities, but if they do the value of the securities based is not expected to exceed 5% of each funds total assets. Illiquid and Restricted Securities Both of the funds may invest in illiquid and restricted securities. Investments may be illiquid because of the absence of an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. A restricted security is one that has a contractual restriction on its resale or which cannot be sold publicly until it is registered under the Securities Act of 1933. The funds will not invest more than 10% of their net assets in illiquid or restricted securities (that limit may increase to 15% if certain state laws are changed or if the fund's shares are no longer sold in those states). The funds percentage limitation on these investments does not apply to certain restricted securities that are eligible for resale to qualified institutional purchasers. Derivative Investments Strategic Investment Grade Bond Fund and Bond Fund can invest in a number of different kinds of "derivative investments." Each fund may use some types of derivatives for hedging purposes, and may invest in others because they offer the potential for increased income. In general, a "derivative investment" is a specially-designed investment whose performance is linked to the performance of another investment or security, such as an option, future, index, currency or commodity. The funds may not purchase or sell physical commodities; however, the funds may purchase and sell foreign currency in hedging transactions. This shall not prevent the funds from buying or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities. In the broadest sense, derivative investments include exchange-traded options and futures contracts (please refer to "Hedging," above). One risk of investing in derivative investments is that the company issuing the instrument might not pay the amount due on the maturity of the instrument. There is also the risk that the underlying investment or security might not perform the way the Manager expected it to perform. The performance of derivative investments may also be influenced by interest rate changes in the U.S. and abroad. All of these risks can mean that the fund will realize less income than expected from its investments, or that it can lose part of the value of its investments, which will affect the fund's share price. Certain derivative investments held by a fund may trade in the over-the-counter markets and may be illiquid. The funds may invest in different types of derivatives. "Index-linked" or "commodity-linked" notes are debt securities of companies that call for interest payments and/or payment on the maturity of the note in different terms than the typical note where the borrower agrees to make fixed interest payments and/or to pay a fixed sum on the maturity of the note. Principal and/or interest payments on an index-linked note depend on the performance of one or more market indices, such as the S & P 500 Index or a weighted index of commodity futures, such as crude oil, gasoline and natural gas. The Fund may invest in "debt exchangeable for common stock" of an issuer or "equity-linked" debt securities of an issuer. At maturity, the principal amount of the debt security is exchanged for common stock of the issuer or is payable in an amount based on the issuer's common stock price at the time of maturity. In either case there is a risk that the amount payable at maturity will be less than the principal amount of the debt. The funds may also invest in currency-indexed securities. Typically, these are short-term or intermediate-term debt securities having a value at maturity, and/or an interest rate, determined by reference to one or more foreign currencies. The currency-indexed securities purchased by the Fund may make payments based on a formula. The payment of principal or periodic interest may be calculated as a multiple of the movement of one currency against another currency, or against an index. These investments may entail increased risk to principal and increased price volatility. Borrowing for Leverage Strategic Investment Grade Bond Fund may borrow money from banks to buy securities. It will borrow only if it can do so without putting up assets as security for a loan. This investment technique may subject the Strategic Investment Grade Bond Fund to greater risks and costs that funds that do not borrow. These risks may include the possible reduction of income and the possibility that Strategic Investment Grade Bond Fund net asset value per share will fluctuate more than funds that don't borrow since Strategic Investment Grade Bond Fund pays interest on borrowing and interest expense affects the fund's share price and yield. Borrowing is subject to the limitations under the Investment Company Act of 1940. Bond Fund's fundamental investment policy on borrowing is different and is set forth under "Investment Restrictions" on page __ of this Prospectus. Although both funds are authorized to borrow money, neither fund has any present plans to borrow money. Participation Interests Both funds may acquire participation interests in loans that are made to U.S. or foreign companies (the "borrower"). They may be interests in, or assignments of, the loan and are acquired from banks or brokers that have made the loan or are members of the lending syndicate. No more than 5% of each fund's net assets can be invested in participation interest of the same issuer. See "Illiquid and Restricted Securities." Asset-Backed Securities. Both funds may invest in asset-backed securities. Asset-backed securities are fractional interests in pools of consumer loans and other trade receivables, similar to mortgage-backed securities. They are issued by trusts and special purpose corporations. They are backed by a pool of assets, such as credit card or auto loan receivables, which are the obligations of a number of different parties. Preferred Stocks The funds may invest in common and preferred stocks issued by domestic or foreign corporations. Municipal Securities The funds may invest in municipal bonds, municipal notes, tax-exempt commercial paper, certificates of participation and other debt obligations issued by or on behalf of the states and the District of Columbia, their political subdivisions, or any commonwealth, territory or possession of the United States or their respective agencies, instrumentalities or authorities. Money Market Instruments Bond Fund may invest in high quality, short-term money market securities which include U.S. Treasury and agency obligations; commercial paper (short-term unsecured, negotiable promissory notes of a domestic or foreign company), short-term obligations of corporate issuers; bank participation certificates; and certificates of deposit and bankers acceptance (time drafts drawn on commercial banks usually in connection with international transactions) of banks and savings and loans association. Strategic Investment Grade Bond Fund has a substantially similar policy with respect to money market instruments. Investment Restrictions Strategic Investment Grade Bond Fund and Bond Fund have certain investment restrictions that, together with their investment objectives, are fundamental policies, changeable only by shareholder approval. Set forth below is a summary of these investment restrictions which are different for each fund. Other investment restrictions for each fund are substantially the same. Under these fundamental policies, the fund named cannot do the following: (1) with respect to Bond Fund it will not borrow money or enter into reverse repurchase agreements, except that it may borrow money from banks and enter into reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes (but not for the purpose of making investments) provided that the aggregate amount of all such borrowings and commitments under such agreements does not, at the time of borrowing or of entering into such an agreement, exceed 10% of its total assets taken at current market value; it will not purchase additional portfolio securities at any time that the aggregate amount of its borrowings and its commitments under reverse repurchase agreements exceeds 5% of its assets (for purposes of this restriction, entering into portfolio lending agreements shall not be deemed to constitute borrowing money); (2) with respect to Strategic Investment Grade Bond Fund it will not buy securities of an issuer which, together with any predecessor, has been in operation for less than three years, if as a result, the aggregate of such investments would exceed 5% of the value of its total assets, Bond Fund has the same policy, but not fundamental; (3) with respect to the Bond Fund it will not pledge, mortgage or hypothecate its assets, except that, to secure permitted borrowings, it may pledge securities having a market value at the time of the pledge not exceeding 15% of the cost of Bond Fund's total assets and except in connection with permitted transactions in options, futures contracts and options on futures contracts, and except for reverse repurchase agreements and securities lending, with respect to Bond Fund make loans to an officer, trustee or employee of the Trust or to any officer, director or employee of MassMutual or to MassMutual; (4) with respect to Strategic Investment Grade Bond Fund it will not buy or sell commodities or commodity contracts, including futures contracts, however, it may buy and sell any of the Hedging Instruments which it may use as approved by the Board, whether or not such Hedging Instrument is considered to be a commodity or commodity contract, Bond Fund has no fundamental policy in this regard; (5) with respect to Strategic Investment Grade Bond Fund it may not buy securities on margin, except that Strategic Investment Grade Bond Fund may make margin deposits in connection with any of the Hedging Instruments which it may use; Bond Fund has no fundamental policy in this regard. In connection with qualifications of its shares in certain states, Strategic Investment Grade Bond Fund has undertaken that it will not (a) invest in real estate limited partnerships or (b) invest more than 10% of its total assets in other investment companies as defined in the Investment Company Act, except in connection with a merger, consolidation, reorganization or acquisition of assets. Portfolio Turnover Holding a portfolio security for any particular length of time is not generally a consideration in investment decisions. As a result of each fund's investment policies and market factors, their portfolio securities are actively traded to try to benefit from short-term yield differences among debt securities. As a result, portfolio turnover of each of the funds may be higher than other mutual funds. This strategy may involve greater transaction costs from brokerage commissions and dealer mark-ups. Neither fund however, incurs significant brokerage costs for U.S. Government Securities. Additionally, high portfolio turnover may result in increased short-term capital gains and affect the ability of each of the funds to qualify for tax deductions for payments made to shareholders as a "regulated investment company" under the Internal Revenue Code. Strategic Investment Grade Bond Fund and Bond Fund each qualified in their last fiscal year and intend to do so in the coming year, although they reserve the right not to qualify. For the fiscal year ended September 30, 1994, and December 31, 1994 the portfolio turnover rate for Strategic Investment Grade Bond Fund and Bond Fund was 68.6% and 70.3%, respectively. For the six months ended March 31, 1995 (unaudited), the portfolio turnover rate for Strategic Investment Grade Bond Fund and Bond Fund was 42.6% and 13.9%, respectively. Description of Brokerage Practices The brokerage practices of the two funds are substantially similar and are conducted in accordance with the terms and conditions of each fund's investment advisory agreement and other brokerage policies of the Manager. Purchases of U.S. Government Securities, money market instruments and debt obligations by both funds are normally principal transactions at net prices and each fund incurs little or no brokerage costs for these transactions. Principal transactions include purchases of securities from underwriters, which include a commission or concession paid by the issuer to the underwriter, and purchases from dealers which include a spread between the bid and asked price. When brokers are used, the Manager is permitted to select qualified brokers to obtain best execution. Brokerage is allocated among brokers under the supervision of the Manager's executive officers and the Manager is permitted to consider brokers which have sold shares of the funds and other OppenheimerFunds in selecting brokers for fund transactions. Commissions paid to such brokers may be higher than commissions charged by other qualified brokers. The Manager is also permitted to allocate brokerage commissions from fund transactions to brokers to obtain research services to assist the Manager in the investment-making decision process. Please refer to the Statement of Additional Information for each fund for further information on each fund's brokerage practices. Expense Ratios and Performance The ratio of expenses to average net assets for Strategic Investment Grade Bond Fund for the fiscal year ended September 30, 1994 was 1.33% for Class A shares and 2.12% for Class B shares (after reimbursement). The ratio of expenses with respect to Class A shares was 1.38% and 2.16% for Class B shares (before reimbursement). The ratio of expenses to average net assets for Bond Fund for the fiscal year ended December 31, 1994, for its Class A and Class B shares was 1.06% and 1.78%, respectively. For the six months ended March 31, 1995 (unaudited) (annualized) the ratio of expenses to average net assets for Strategic Investment Grade Bond Fund for its Class A and Class B shares was 1.43% and 2.18%, respectively. For the six months ended March 31, 1995 (unaudited) (annualized), the ratio of expenses to average net assets for Bond Fund was 1.04% for its Class A shares and 1.80% for its Class B shares. Further details are set forth under "Fund Expenses" and "Financial Highlights" in Strategic Investment Grade Bond Fund's Prospectus dated February 1, 1995, supplemented July 14, 1995, and in Strategic Investment Grade Bond Fund's Annual Report as of September 30, 1994 and financial statements (unaudited) as of March 31, 1995, and Bond Fund's Annual Report as of December 31, 1994, which are included in the Statement of Additional Information. The standardized yield for Strategic Investment Grade Bond Fund for the 30 day period ended March 31, 1995 was 6.95% for Class A shares and 6.55% for Class B shares. The average annual total return on an investment in Class A shares of Strategic Investment Grade Bond Fund for the one year period ended March 31, 1995 and from the period April 22, 1992 (commencement of operations) through March 31, 1995 was <1.61%> and 3.71%, respectively. The average annual return at net asset value on an investment in Class A shares of Strategic Investment Grade Bond Fund for the one year period ended March 31, 1995 and from the period April 22, 1992 (commencement of operations) through March 31 1995 was 3.30% and 5.44%, respectively. The average annual total return on an investment in Class B shares of Strategic Investment Grade Bond Fund for the one year period ended March 31, 1995 and from the period November 30, 1992 (inception of the class) through March 31, 1995 was <2.47%> and 3.26%. The average annual return at net asset value on an investment in Class B shares of Strategic Investment Grade Bond Fund for the one year period ended March 31, 1995 and from the period November 30, 1992 (inception of the class) through March 31 1995 was 2.35% and 4.43%, respectively. The standardized yield for Bond Fund for the 30 day period ended March 31, 1995 was 6.12% for Class A shares and 5.60% for Class B shares. The "average annual total return" on an investment in Bond Fund's Class A shares for the one year period ended March 31, 1995 was <.76%> and for the five years ended March 31, 1995 was 7.31%. The average annual return on an investment in Class A shares for the period April 15, 1988 (the date it became an open-end fund) to March 31, 1995 was 7.28%. The average annual return at net asset value for the one year period ended March 31, 1995, for the five year period ended March 31, 1995 and for the period from April 15, 1988 to March 31, 1995, was 4.19%, 8.36% and 8.03%, respectively. The average annual return on an investment in Class B shares for the one year period ended March 31, 1995 and from the period May 1, 1993 (the date it became an open-end fund) to March 31, 1995 was <1.35%> and .11%, respectively. The average annual return at net asset value on Bond Fund Class B shares for the one year ended March 31, 1995 and for the period May 1, 1993 through March 31, 1995 was 3.52% and 2.03%, respectively. The increase of the management fee rate for Bond Fund was not in effect during the time periods noted above. If the new higher fee rate had been in effect, the standard yield and average annual returns would have been lower. However, the higher fee rate would have been identical to that of Strategic Investment Grade Bond Fund. Please refer to the Statement of Additional Information which is incorporated by reference for further information concerning the investment performance of the funds. More information on performance of each fund as compared to the market, may be found in the section "Comparing the Fund's Performance To the Market" in the respective prospectus of each fund. Shareholder Services The policies of Strategic Investment Grade Bond Fund and Bond Fund with respect to minimum initial investments and subsequent investments by its shareholders are substantially the same. Both Strategic Investment Grade Bond Fund and Bond Fund 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 fund valued at $5,000 or more, (vii) reinvestment of net redemption proceeds at net asset value within six months of a redemption, (viii) AccountLink and PhoneLink arrangements, (ix) exchanges of shares for shares of the same class of certain other funds at net asset value, and (x) telephone redemption and exchange privileges. Shareholders may purchase shares through OppenheimerFunds AccountLink, which links a shareholder account to an account at a bank or financial institution and enables shareholders to send money electronically between those accounts to perform a number of types of account transactions. This includes the purchase of shares through the automated telephone system (PhoneLink). Exchanges can also be made by telephone, or automatically through PhoneLink. After AccountLink privileges have been established with a bank account, shares may be purchased by telephone up to $100,000. Shares of either Fund may be exchanged for shares of certain OppenheimerFunds at net asset value per share, however, shares of a particular class may be exchanged only for shares of the same class in other OppenheimerFunds. At present, not all of the OppenheimerFunds offer the same class of shares. Shareholders of the funds may redeem their shares by written request or by telephone request in an amount up to $50,000 in any seven-day period. Shareholders may arrange to have share redemption proceeds wired to a pre-designated account at a U.S. bank or other financial institution that is an ACH member, through ("AccountLink redemption"). There is no dollar limit on telephone redemption proceeds sent to a bank account when an AccountLink has been established. Shareholders may also redeem shares automatically by telephone by using PhoneLink. Shareholders may also have the Transfer Agent send redemption proceeds of $2,500 or more by Federal Funds wire to a designated commercial bank, which is a member of the Federal Reserve wire system. Shareholders of the funds have up to six months to reinvest redemption proceeds of their Class A shares in Class A shares of the funds or other OppenheimerFunds without paying a sales charge. Strategic Investment Grade Bond Fund and Bond Fund may redeem accounts valued at less than $200 if the account has fallen below such stated amount for reasons other than market value fluctuations. Both funds offer Automatic Withdrawal and Automatic Exchange Plans under certain conditions. Rights of Shareholders Class A shares of Strategic Investment Grade Bond Fund and Class A shares of Bond Fund are each sold at an initial sales charge of 4.75% on purchases of less than $50,000. The reduced front-end sales loads on larger purchases are the same for each fund. If Class A shares of either fund are purchased as part of an investment of at least $1 million in shares of one or more OppenheimerFunds, there is no initial sales charge, but if shares are sold within 18 months after the purchase, there may be imposed a contingent deferred sales charge ("CDSC") which will vary, depending on the amount invested. Class B shares of Strategic Investment Grade Bond Fund, and Class B shares of Bond Fund are sold at net asset value per share, without an initial sales charge. However, if Class B shares are sold within five years of purchase, there is a CDSC, depending on how long the shares are owned. Both of the funds have the same CDSC with respect to their Class B shares. The shares of each such fund, including shareholders of each class, entitle the holder to one vote per share on the election of trustees and all other matters submitted to shareholders of the fund. Class A and Class B shares of Strategic Investment Grade Bond Fund and the Class A and Class B shares of Bond Fund which Strategic Investment Grade Bond Fund shareholders will receive in the Reorganization participate equally in the fund's dividends and distributions and in the fund's net assets upon liquidation, after taking into account the different expenses paid by each class. Distributions and dividends for each class will be different and Class B dividends and distributions will be lower than Class A dividends. Class A and Class B shares of Strategic Investment Grade Bond Fund and, Class A and Class B shares of Bond Fund, when issued, are fully paid and non-assessable. It is not contemplated that Strategic Investment Grade Bond Fund or Bond Fund will hold regular annual meetings of shareholders. Under the Investment Company Act, shareholders of Strategic Investment Grade Bond Fund do not have rights of appraisal as a result of the transactions contemplated by the Reorganization Agreement. However, they have the right at any time prior to the consummation of such transaction to redeem their shares at net asset value. Shareholders of both of the funds have the right, under certain circumstances, to remove a Trustee and will be assisted in communicating with other shareholders for such purpose. Strategic Investment Grade Bond Fund was organized in 1991 as a Massachusetts business trust. Bond Fund is one of two series of Oppenheimer Integrity Funds (the "Trust"). The Trust was organized in 1982 as a multi-series Massachusetts business trust under the name MassMutual Liquid Assets Trust and changed its name to MassMutual Integrity Funds on April 15, 1988. Bond Fund was organized from a closed- end investment company into a series of the Trust on April 15, 1988. On March 29, 1991, the Trust changes its name from MassMutual Investment Grade Bond Fund to Oppenheimer Integrity Funds and Bond Fund changed its name from MassMutual Investment Grade Bond Fund to Oppenheimer Investment Grade Bond Fund. On July 10, 1995 the fund changed its name to Oppenheimer Bond Fund. Bond Fund, as a series of the Trust issues its own shares, has its own investment portfolio and its own assets and liabilities. Both Strategic Investment Grade Bond Fund and the Trust are open-end, diversified management investment companies, with an unlimited number of authorized shares of beneficial interest. Strategic Investment Grade Bond Fund is governed by a Board of Trustees (referred to as the "Board" with respect to Strategic Investment Grade Bond Fund and the "Board of Oppenheimer Integrity Funds" with respect to Bond Fund). The Board of Oppenheimer Integrity Funds has established three classes of shares with respect to Bond Fund, Class A, Class B and Class C. With respect to Strategic Investment Grade Bond Fund, the Board has established two classes of shares, Class A and Class B. With respect to Strategic Investment Grade Bond Fund and Bond Fund, each class has its own dividends and distributions and pays certain expenses which will be different for the different classes. Each class may have a different net asset value. Each share has one vote at shareholder meetings, with fractional shares voting proportionately. Shares of a particular class vote together on matters that affect that class. Most Amendments to the Declaration of Trust require the approval of a "majority" (as defined in the Investment Company Act) of a fund's shareholders. Under certain circumstances, shareholders of the funds may be held personally liable as partners for the funds' obligations, and under each Declaration of Trust such a shareholder is entitled to indemnification rights by the funds; the risk of a shareholder incurring any such loss is limited to the remote circumstances in which the fund is unable to meet its obligations. Management and Distribution Arrangements The Manager, located at Two World Trade Center, New York, New York 10048-0203, acts as the investment adviser for Strategic Investment Grade Bond Fund and also acts as the investment adviser to Bond Fund. Prior to July 10, 1995, the manager had contracted with Massachusetts Mutual Life Insurance Company ("MassMutual") to act as Bond Fund's Sub-Adviser. Effective July 10, 1995, the Sub-Advisory Agreement between the manager and MassMutual terminated and the Manager is responsible for selecting Bond Fund's investments as well as for its day to day business, pursuant to an investment advisory dated July 10, 1995. The terms and conditions of the investment advisory agreement for each fund are substantially the same. The monthly management fee payable to the Manager by each fund is set forth under "Synopsis - Investment Advisory Distribution and Service Plan Fees." The 12b-1 Distribution and Service Plan fees paid by Strategic Investment Grade Bond Fund with respect to Class A and Class B shares and paid by Bond Fund with respect to its Class A and Class B shares of Bond Fund are set forth above under "Synopsis - Investment Advisory and Service Plan Fees." Pursuant to each investment advisory agreement, the Manager supervises the investment operations of the funds and the composition of their portfolios and furnishes advice and recommendations with respect to investments, investment policies and the purchase and sale of securities. Both investment advisory agreements require the Manager to provide Strategic Investment Grade Bond Fund and Bond Fund with adequate office space, facilities and equipment and to provide and supervise the activities of all administrative and clerical personnel required to provide effective administration for the funds, including the compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of each fund. The management fees paid by Strategic Investment Grade Bond Fund for the six months ended March 31, 1995 was $144,908 (unaudited). For the fiscal year ended September 30, 1994 the management fees paid by Strategic Investment Grade Bond Fund was $319,025. For the fiscal year ended December 31, 1994, the management fee paid by Bond Fund to the Manager was $522,205, of which $360,287 was paid by the Manager to the Sub-Advisor. For the six months ended March 31, 1995 (unaudited), the fees paid by Bond Fund were $259,096, of which $180,072 were retained by the Sub-Advisor. The new higher management fee rate approved by Bond Fund shareholders was not in effect during these time periods. Had they been in effect, the management fees paid by Bond Fund to the Manager would have been higher. However, independently of the advisory agreement with Strategic Investment Grade Bond Fund, the Manager has undertaken that the total expenses of Strategic Investment Grade Bond Fund in any fiscal year (including the management fee but exclusive of taxes, interest, brokerage commissions, distribution plan payments and any extraordinary non-recurring expenses, including litigation) shall not exceed the most stringent state regulatory limitation on fund expenses applicable to the funds. The Manager has made the same undertaking with respect to Bond Fund. At present, that limitation is imposed by California and limits expenses (with specified exclusions) to 2.5% of the first $30 million of average annual net assets, 2% of the next $70 million and 1.5% of average annual net assets in excess of $100 million. Until November 24, 1993, the Manager had also undertaken to assume Strategic Investment Grade Bond Fund's expenses (other than extraordinary non-recurring expenses) to enable Strategic Investment Grade Bond Fund to pay a dividend of $.378 per share per annum, with the limitation that the dividend could not exceed Strategic Investment Grade Bond Fund's annual gross earnings per share. Strategic Investment Grade Bond fund yield and total return were higher during that period than they otherwise would have been. The undertaking terminated November 24, 1995. Any assumption of either fund's expenses, would lower Strategic Investment Grade Bond Fund's or Bond Fund's overall expense ratio and increase its total return during each period in which expenses are limited. The Manager reserves the right to change or eliminate the expense limitations at any time and there can be no assurance as to the duration of the expense limitation by either fund. It is not expected that Investment Grade Bond Fund will maintain a fixed dividend rate for either Class A and Class B shares and there can be no assurance as to the payment of any dividends or the realization of any capital gains by either fund. The Manager is controlled by OAC, a holding company owned in part by senior management of the Manager and ultimately controlled by Massachusetts Mutual Life Insurance Company, a mutual life insurance company that also advises pension plans and investment companies. The Manager has operated as an investment company adviser since 1959. The Manager and its affiliates currently advise investment companies with combined net assets aggregating over $32 billion as of March 31, 1995, with more than ___ million shareholder accounts. Oppenheimer Shareholder Services, a division of the Manager, acts as transfer and shareholder servicing agent on an at-cost basis for Strategic Investment Grade Bond Fund and Bond Fund and for certain other open-end funds managed by the Manager and its affiliates. The Distributor, under a General Distributor's Agreement for each of the funds, acts as the principal underwriter in the continuous public offering of Strategic Investment Grade Bond Fund's Class A and Class B shares, and Bond Fund's Class A, Class B and Class C shares. During Strategic Investment Grade Bond Fund's fiscal year ended September 30, 1994, the aggregate sales charges on sales of Strategic Investment Grade Bond Fund's Class A shares was $25,282, respectively, of which the Distributor and an affiliated broker-dealer retained in the aggregate $10,165. During Strategic Investment Grade Bond Fund's fiscal year ended September 30, 1994, the contingent deferred sales charges collected on Strategic Investment Grade Bond Fund's Class B shares totalled $21,115. For the fiscal year ended September 30, 1994, the aggregate amount of sales charges on sales of Bond Fund's Class A shares was $143,088, of which $67,090 was retained by the Distributor and an affiliated broker-dealer. Contingent deferred sales charges collected by the Distributor on the redemption of Class B shares and for the fiscal year ended December 31, 1994 totaled $8,916. Purchase of Additional Shares Class A shares of Strategic Investment Grade Bond Fund and Class A shares of Bond Fund may be sold with an initial sales charge of 4.75% for purchases of less than $50,000. The sales charge of 4.75% is reduced for purchases of either fund's Class A shares of $50,000 or more. If shares of Class A of either fund are redeemed within 18 months of the end of the calendar month of their purchase, a contingent sales charge may be deducted from the redemption proceeds of Class B shares of Strategic Investment Grade Bond Fund and Bond Fund are sold at net asset value without an initial sales charge, however, if Class B shares of either fund are redeemed within six years of the end of the calendar month of their purchase, a contingent deferred sales charge may be deducted. The contingent deferred sales charge on Class A shares of Bond Fund and Class B shares will only affect shareholders of Strategic Investment Grade Bond Fund to the extent that they desire to make additional purchases of shares of Bond Fund in addition to the shares which they will receive as a result of the Reorganization. The Class A and Class B shares to be issued under the Reorganization Agreement will be issued by Bond Fund at net asset value without a sales charge. Future dividends and capital gain distributions of Bond Fund, if any, may be reinvested without sales charge. Any Strategic Investment Grade Bond Fund shareholder who is entitled to a reduced sales charge on additional purchases by reason of a Letter of Intent or Rights of Accumulation based upon holdings of shares of Strategic Investment Grade Bond Fund will continue to be entitled to a reduced sales charge on any future purchase of shares of Bond Fund. METHOD OF CARRYING OUT THE REORGANIZATION The consummation of the transactions contemplated by the Reorganization Agreement is contingent upon the approval of the Reorganization by the shareholders of Strategic Investment Grade Bond Fund and the receipt of the opinions and certificates set forth in Sections 10 and 11 of the Reorganization Agreement and the occurrence of the events described in those Sections. Under the Reorganization Agreement, all the assets of Strategic Investment Grade Bond Fund, excluding the Cash Reserve, will be delivered to Bond Fund in exchange for Class A and Class B shares of Bond Fund. The Cash Reserve to be retained by Strategic Investment Grade Bond Fund will be sufficient in the discretion of the Board for the payment of Strategic Investment Grade Bond Fund's liabilities, and Strategic Investment Grade Bond Fund's expenses of liquidation. Assuming the shareholders of Strategic Investment Grade Bond Fund approve the Reorganization, the actual exchange of assets is expected to take place on September 22, 1995, or as soon thereafter as is practicable (the "Closing Date") on the basis of net asset values as of the close of business on the business day preceding the Closing Date (the "Valuation Date"). Under the Reorganization Agreement, all redemptions of shares of Strategic Investment Grade Bond Fund shall be permanently suspended on the Valuation Date; only redemption requests received in proper form on or prior to the close of business on that date shall be fulfilled by it; redemption requests received by Strategic Investment Grade Bond Fund after that date will be treated as requests for redemptions of Class A or Class B shares of Bond Fund to be distributed to the shareholders requesting redemption. The exchange of assets for shares will be done on the basis of the per share net asset value of the Class A and Class B shares of Bond Fund, and the value of the assets of Strategic Investment Grade Bond Fund to be transferred as of the close of business on the Valuation Date, in the manner used by Bond Fund in the valuation of assets. Bond Fund is not assuming any of the liabilities of Strategic Investment Grade Bond Fund, except for portfolio securities purchased which have not settled and outstanding shareholder redemption and dividend checks. The net asset value of the shares transferred by Bond Fund to Strategic Investment Grade Bond Fund will be the same as the value of the assets of the portfolio received by Bond Fund. For example, if, on the Valuation Date, Strategic Investment Grade Bond Fund were to have securities with a market value of $95,000 and cash in the amount of $10,000 (of which $5,000 was to be retained by it as the Cash Reserve), the value of the assets which would be transferred to Bond Fund would be $100,000. If the net asset value per share of Bond Fund were $10 per share at the close of business on the Valuation Date, the number of shares to be issued would be 10,000 ($100,000 divided by $10). These 10,000 shares of Bond Fund would be distributed to the former shareholders of Strategic Investment Grade Bond Fund. This example is given for illustration purposes only and does not bear any relationship to the dollar amounts or shares expected to be involved in the Reorganization. After the Closing Date, Strategic Investment Grade Bond Fund will distribute on a pro rata basis to its shareholders of record on the Valuation Date the Class A and Class B shares of Bond Fund received by Strategic Investment Grade Bond Fund at the closing, in liquidation of the outstanding shares of Strategic Investment Grade Bond Fund, and the outstanding shares of Strategic Investment Grade Bond Fund will be cancelled. To assist Strategic Investment Grade Bond Fund in this distribution, Bond Fund will, in accordance with a shareholder list supplied by Strategic Investment Grade Bond Fund, cause its transfer agent to credit and confirm an appropriate number of shares of Bond Fund to each shareholder of Strategic Investment Grade Bond Fund. Certificates for Class A and Class B shares of Bond Fund will be issued upon written request of a former shareholder of Strategic Investment Grade Bond Fund but only for whole shares with fractional shares credited to the name of the shareholder on the books of Bond Fund. Former shareholders of Strategic Investment Grade Bond Fund who wish certificates representing their shares of Bond Fund must, after receipt of their confirmations, make a written request to OSS, P.O. Box 5270, Denver, Colorado 80217. Shareholders of Strategic Investment Grade Bond Fund holding certificates representing their shares will not be required to surrender their certificates to anyone in connection with the Reorganization. After the Reorganization, however, it will be necessary for such shareholders to surrender such certificates in order to redeem, transfer, pledge or exchange any shares of Bond Fund. Under the Reorganization Agreement, within one year after the Closing Date, Strategic Investment Grade 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 Bond Fund, if such remaining amount is not material (as defined below) or (ii) distribute such remaining amount to the shareholders of Strategic Investment Grade Bond Fund who were such on the Valuation Date. Such 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 Fund shares outstanding on the Valuation Date. Within one year after the Closing Date, Strategic Investment Grade Bond Fund will complete its liquidation. Under the Reorganization Agreement, either Strategic Investment Grade Bond Fund or Bond Fund may abandon and terminate the Reorganization Agreement without liability if the other party breaches any material provision of the Reorganization Agreement or, if prior to the closing, any legal, administrative or other proceeding shall be instituted or threatened (i) seeking to restrain or otherwise prohibit the transactions contemplated by the Reorganization Agreement and/or (ii) asserting a material liability of either party, which proceeding or liability has not been terminated or the threat thereto removed prior to the Closing Date. In the event that the Reorganization Agreement is not consummated for any reason, the Board will consider and may submit to the shareholders other alternatives. MISCELLANEOUS Additional Information Financial Information The Reorganization will be accounted for by the surviving fund in its financial statements similar to a pooling. Further financial information as to Strategic Investment Grade Bond Fund is contained in its current Prospectus, which is available without charge from Oppenheimer Shareholder Services, the Transfer Agent, P.O. Box 5270, Denver, Colorado 80217, and is incorporated herein, and in its Annual Report as of September 30, 1994, and unaudited financial statements as of March 31, 1995, which are included in the Additional Statement. Financial information for Bond Fund is contained in its current Prospectus accompanying this Proxy Statement and Prospectus and incorporated herein, and in its Annual Report as of December 31, 1994, which are included in the Additional Statement. Public Information Additional information about Strategic Investment Grade Bond Fund and Bond Fund is available, as applicable, in the following documents which are incorporated herein by reference: (i) Bond Fund's Prospectus dated July 10, 1995, supplemented July 14, 1995, accompanying this Proxy Statement and Prospectus and incorporated herein; (ii) Strategic Investment Grade Bond Fund's Prospectus dated February 1, 1995, supplemented July 14, 1995, which may be obtained without charge by writing to OSS, P.O. Box 5270, Denver, Colorado 80217; (iii) Bond Fund's Annual Report as of December 31, 1994, which may be obtained without charge by writing to OSS at the address indicated above; and (iv) Strategic Investment Grade Bond Fund's Annual Report as of September 30, 1994 and unaudited Semi-Annual Report as of March 31, 1995, which may be obtained without charge by writing to OSS at the address indicated above. All of the foregoing documents may be obtained by calling the toll-free number on the cover of this Proxy Statement and Prospectus. Additional information about the following matters is contained in the Statement of Additional Information, which incorporates by reference the Bond Fund Statement of Additional Information dated July 10, 1995, supplemented July 14, 1995, and Strategic Investment Grade Bond Fund's Prospectus dated February 1, 1995, supplemented July 14, 1995, and Statement of Additional Information dated February 1, 1995, supplemented July 14, 1995; the organization and operation of Bond Fund and Strategic Investment Grade Bond Fund; more information on investment policies, practices and risks; information about Strategic Investment Grade Bond Fund's and Bond Fund's Boards of Trustees and their responsibilities; a further description of the services provided by Bond Fund's and Strategic Investment Grade Bond Fund's investment adviser, distributor, and transfer and shareholder servicing agent; dividend policies; tax matters; an explanation of the method of determining the offering price of the shares and/or contingent deferred sales charges, as applicable of Class A, B and C shares of Bond Fund and Class A and Class B shares of Strategic Investment Grade Bond Fund; purchase, redemption and exchange programs; the different expenses paid by each class of shares; and distribution arrangements. Strategic Investment Grade Bond Fund and Bond Fund are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file reports and other information with the SEC. Proxy material, reports and other information about Strategic Investment Grade Bond Fund and Bond Fund which are of public record can be inspected and copied at public reference facilities maintained by the SEC in Washington, D.C. and certain of its regional offices, and copies of such materials can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549. OTHER BUSINESS Management of Strategic Investment Grade Bond Fund knows of no business other than the matters specified above which will be presented at the Meeting. Since matters not known at the time of the solicitation may come before the Meeting, the proxy as solicited confers discretionary authority with respect to such matters as properly come before the Meeting, including any adjournment or adjournments thereof, and it is the intention of the persons named as attorneys-in-fact in the proxy to vote this proxy in accordance with their judgment on such matters. By Order of the Board of Trustees George C. Bowen, Secretary August 21, 1995 285 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of ________________, 1995 by and between Oppenheimer Strategic Investment Grade Bond Fund (the "Fund"), a Massachusetts business trust, and Oppenheimer Bond Fund ("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 Strategic Investment Grade Bond Fund through the acquisition by Bond Fund of substantially all of the assets of Strategic Investment Grade Bond Fund in exchange for the voting shares of beneficial interest ("shares") of Class A and Class B shares of Bond Fund and the assumption by Bond Fund of certain liabilities of Strategic Investment Grade Bond Fund, which Class A and Class B shares of Bond Fund are thereafter to be distributed by Strategic Investment Grade Bond Fund pro rata to its shareholders in complete liquidation of Strategic Investment Grade 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 a Plan of Reorganization pursuant to Section 368(a)(1) of the Code as follows: The reorganization will be comprised of the acquisition by Bond Fund of substantially all of the properties and assets of Strategic Investment Grade Bond Fund in exchange for Class A and Class B shares of Bond Fund and the assumption by Bond Fund of certain liabilities of Strategic Investment Grade Bond Fund, followed by the distribution of such Class A and Class B shares of Bond Fund shares to the Class A and Class B shareholders of Strategic Investment Grade Bond Fund in exchange for their Class A and Class B shares of Strategic Investment Grade Bond Fund, all upon and subject to the terms of the Agreement hereinafter set forth. The share transfer books of Strategic Investment Grade 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 Strategic Investment Grade Bond Fund; redemption requests received by Strategic Investment Grade Bond Fund after that date shall be treated as requests for the redemption of the shares of Bond Fund to be distributed to the shareholder in question as provided in Section 5. 2. On the Closing Date (as hereinafter defined), all of the assets of Strategic Investment Grade Bond Fund on that date, excluding a cash reserve (the "Cash Reserve") to be retained by Strategic Investment Grade Bond Fund sufficient in its discretion for the payment of the expenses of Strategic Investment Grade 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 Bond Fund, in exchange for and against delivery to Strategic Investment Grade Bond Fund on the Closing Date of a number of Class A and Class B shares of Bond Fund, having an aggregate net asset value equal to the value of the assets of Strategic Investment Grade Bond Fund so transferred and delivered. 3. The net asset value of Class A and Class B shares of Bond Fund and the value of the assets of Strategic Investment Grade 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 and Class B shares of Bond Fund and the Class A and Class B shares of Strategic Investment Grade Bond Fund shall be done in the manner used by Bond Fund and Strategic Investment Grade Bond Fund, respectively, in the computation of such net asset value per share as set forth in their respective prospectuses. The methods used by Bond Fund in such computation shall be applied to the valuation of the assets of Strategic Investment Grade Bond Fund to be transferred to Bond Fund. Strategic Investment Grade 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 Strategic Investment Grade Bond Fund's shareholders all of Strategic Investment Grade 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 office of Oppenheimer Management Corporation (the "Agent"), Two World Trade Center, Suite 3400, New York, New York 10048, at 4:00 P.M. New York time on September 22, 1995, 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 therefor, 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. As soon as practicable after the closing, Strategic Investment Grade Bond Fund shall distribute on a pro rata basis to the shareholders of Strategic Investment Grade Bond Fund on the Valuation Date the Class A and Class B shares of Bond Fund received by Strategic Investment Grade Bond Fund on the Closing Date in exchange for the assets of Strategic Investment Grade Bond Fund in complete liquidation of Strategic Investment Grade Bond Fund; for the purpose of the distribution by Strategic Investment Grade Bond Fund of Class A and Class B shares of Bond Fund to its shareholders, Bond Fund will promptly cause its transfer agent to: (a) credit an appropriate number of Class A and Class B shares of Bond Fund on the books of Bond Fund to each Class A and Class B shareholder, respectively of Strategic Investment Grade Bond Fund in accordance with a list (the "Shareholder List") of its shareholders received from Strategic Investment Grade Bond Fund; and (b) confirm an appropriate number of Class A and Class B shares of Bond Fund to each shareholder of Strategic Investment Grade Bond Fund; certificates for Class A and Class B shares of Bond Fund will be issued upon written request of a former shareholder of Strategic Investment Grade Bond Fund but only for whole shares with fractional shares credited to the name of the shareholder on the books of Bond Fund. The Shareholder List shall indicate, as of the close of business on the Valuation Date, the name and address of each shareholder of Strategic Investment Grade Bond Fund, indicating his or her share balance. Strategic Investment Grade Bond Fund agrees to supply the Shareholder List to Bond Fund not later than the Closing Date. Shareholders of Strategic Investment Grade 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 Bond Fund which they received. 6. Within one year after the Closing Date, Strategic Investment Grade 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 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 Strategic Investment Grade 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 Strategic Investment Grade 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, Bond Fund will be in compliance with all of its investment policies and restrictions. At the Closing, Strategic Investment Grade Bond Fund shall deliver to Bond Fund two copies of a list setting forth the securities then owned by Strategic Investment Grade Bond Fund. Promptly after the Closing, Strategic Investment Grade Bond Fund shall provide Bond Fund a list setting forth the respective federal income tax bases thereof. 8. Portfolio securities or written evidence acceptable to 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 Strategic Investment Grade 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 Strategic Investment Grade Bond Fund on the Closing Date to 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 Bond Fund for the account of Bond Fund. Shares of Bond Fund representing the number of shares of Bond Fund being delivered against the assets of Strategic Investment Grade Bond Fund, registered in the name of Strategic Investment Grade Bond Fund, shall be transferred to Strategic Investment Grade Bond Fund on the Closing Date. Such shares shall thereupon be assigned by Strategic Investment Grade Bond Fund to its shareholders so that the shares of Bond Fund may be distributed as provided in Section 5. If, at the Closing Date, Strategic Investment Grade Bond Fund is unable to make delivery under this Section 8 to Bond Fund of any of its portfolio securities or cash for the reason that any of such securities purchased by Strategic Investment Grade 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 Strategic Investment Grade Bond Fund's custodian, then the delivery requirements of this Section 8 with respect to said undelivered securities or cash will be waived and Strategic Investment Grade Bond Fund will deliver to Bond Fund by or on the Closing Date and with respect to said undelivered securities or cash executed copies of an agreement or agreements of assignment in a form reasonably satisfactory to Bond Fund, together with such other documents, including a due bill or due bills and brokers' confirmation slips as may reasonably be required by Bond Fund. 9. 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 Strategic Investment Grade Bond Fund, but Strategic Investment Grade 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 Strategic Investment Grade Bond Fund. Strategic Investment Grade Bond Fund and 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 Bond Fund and Strategic Investment Grade Bond Fund associated with this reorganization, including legal, accounting and transfer agent expenses, will be borne by Strategic Investment Grade Bond Fund and Bond Fund, respectively, in the amounts so incurred by each. 10. The obligations of Bond Fund hereunder shall be subject to the following conditions: A. The Board of Trustees of the Trust shall have authorized the execution of the Agreement, and the shareholders of Strategic Investment Grade Bond Fund shall have approved the Agreement and the transactions contemplated thereby, and Strategic Investment Grade Bond Fund shall have furnished to Bond Fund copies of resolutions to that effect certified by the Secretary or an Assistant Secretary of Strategic Investment Grade Bond Fund; such shareholder approval shall have been by the affirmative vote of "a majority of the outstanding voting securities" (as defined in the Act) of Strategic Investment Grade Bond Fund at a meeting for which proxies have been solicited by the Proxy Statement and Prospectus (as hereinafter defined). B. Bond Fund shall have received an opinion dated the Closing Date of counsel to Strategic Investment Grade Bond Fund, to the effect that (i) Strategic Investment Grade 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; and (ii) that all action necessary to make the Agreement, according to its terms, valid, binding and enforceable on Strategic Investment Grade Bond Fund and to authorize effectively the transactions contemplated by the Agreement have been taken by Strategic Investment Grade Bond Fund. C. The representations and warranties of Strategic Investment Grade Bond Fund contained herein shall be true and correct at and as of the Closing Date, and 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 Strategic Investment Grade Bond Fund, dated the Closing Date, to that effect. D. On the Closing Date, Strategic Investment Grade Bond Fund shall have furnished to Bond Fund a certificate of the Treasurer or Assistant Treasurer of Strategic Investment Grade Bond Fund as to the amount of the capital loss carry-over and net unrealized appreciation or depreciation, if any, with respect to Strategic Investment Grade 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 Strategic Investment Grade Bond Fund at the close of business on the Valuation Date. F. A Registration Statement on Form N-14 filed by Strategic Funds Trust 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 not later than August 30, 1995. G. On the Closing Date, Bond Fund shall have received a letter of Andrew J. Donohue or other senior executive officer of Oppenheimer Management Corporation acceptable to 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 Strategic Investment Grade Bond Fund arising out of litigation brought against Strategic Investment Grade 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 Strategic Investment Grade Bond Fund delivered to 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. 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. Bond Fund shall have received at the closing all of the assets of Strategic Investment Grade 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 Strategic Investment Grade Bond Fund hereunder shall be subject to the following conditions: A. The Board of Trustees of Bond Fund shall have authorized the execution of the Agreement, and the transactions contemplated thereby, and Bond Fund shall have furnished to Strategic Investment Grade Bond Fund copies of resolutions to that effect certified by the Secretary or an Assistant Secretary of Bond Fund. B. Strategic Investment Grade Bond Fund's shareholders shall have approved the Agreement and the transactions contemplated hereby, by an affirmative vote of "a majority of the outstanding voting securities" (as defined in the Act) of Strategic Investment Grade Bond Fund, and Strategic Investment Grade Bond Fund shall have furnished Bond Fund copies of resolutions to that effect certified by the Secretary or an Assistant Secretary of Strategic Investment Grade Bond Fund. C. Strategic Investment Grade Bond Fund shall have received an opinion dated the Closing Date of counsel to Bond Fund, to the effect that (i) 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 Bond Fund and to authorize effectively the transactions contemplated by the Agreement have been taken by Bond Fund, and (iii) the shares of 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 in Bond Fund's then current Prospectus and Statement of Additional Information. D. The representations and warranties of Bond Fund contained herein shall be true and correct at and as of the Closing Date, and Strategic Investment Grade Bond Fund shall have been furnished with a certificate of the President, a Vice President or the Secretary or an Assistant Secretary or the Treasurer of Bond Fund to that effect dated the Closing Date. E. Strategic Investment Grade 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 this Plan of Reorganization and in accordance with (i) Strategic Investment Grade Bond Fund's representation that there is no plan or intention by any Fund shareholder who owns 5% or more of Strategic Investment Grade Bond Fund's outstanding shares, and, to Strategic Investment Grade Bond Fund's best knowledge, there is no plan or intention on the part of the remaining Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Bond Fund shares received in the transaction that would reduce Strategic Investment Grade Bond Fund shareholders' ownership of 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 Fund shares as of the same date, and (ii) the representation by each of Strategic Investment Grade Bond Fund and Bond Fund that, as of the Closing Date, Strategic Investment Grade Bond Fund and 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. Strategic Investment Grade Bond Fund and 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 Strategic Investment Grade Bond Fund upon the distribution of shares of beneficial interest in Bond Fund to the shareholders of Strategic Investment Grade 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 Strategic Investment Grade Bond Fund by reason of the transfer of substantially all its assets in exchange for shares of Bond Fund. 5. Under Section 1032 of the Code no gain or loss will be recognized by Bond Fund by reason of the transfer of substantially all Strategic Investment Grade Bond Fund's assets in exchange for Class A and Class B shares of Bond Fund and Bond Fund's assumption of certain liabilities of Strategic Investment Grade Bond Fund. 6. The shareholders of Strategic Investment Grade Bond Fund will have the same tax basis and holding period for the Class A or Class B shares of beneficial interest in Bond Fund that they receive as they had for Strategic Investment Grade Bond Fund shares that they previously held, pursuant to Section 358(a) and 1223(1), respectively, of the Code. 7. The securities transferred by Strategic Investment Grade Bond Fund to Bond Fund will have the same tax basis and holding period in the hands of Bond Fund as they had for Strategic Investment Grade 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 Strategic Investment Grade Bond Fund at the close of business on the Valuation Date. G. A Registration Statement on Form N-14 filed by Oppenheimer Bond Fund under the 1933 Act, containing a preliminary form of the Proxy Statement and Prospectus, shall have become effective under the 1933 Act not later than August ___, 1995. H. On the Closing Date, Strategic Investment Grade Bond Fund shall have received a letter of Andrew J. Donohue or other senior executive officer of Oppenheimer Management Corporation acceptable to Strategic Investment Grade 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 Bond Fund arising out of litigation brought against 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 Bond Fund delivered to Strategic Investment Grade 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. Strategic Investment Grade Bond Fund shall acknowledge receipt of the shares of Bond Fund. 12. Strategic Investment Grade Bond Fund hereby represents and warrants that: A. The financial statements of Strategic Investment Grade Bond Fund as at September 30, 1994 (audited) and March 31, 1995 (unaudited) heretofore furnished to Bond Fund, present fairly the financial position, results of operations, and changes in net assets of Strategic Investment Grade 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, 1994 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 Strategic Investment Grade Bond Fund, it being agreed that a decrease in the size of Strategic Investment Grade 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 Strategic Investment Grade Bond Fund's shareholders, Strategic Investment Grade Bond Fund has authority to transfer all of the assets of Strategic Investment Grade 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 Strategic Investment Grade 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 Strategic Investment Grade Bond Fund and no material claim and no material legal, administrative or other proceedings pending or, to the knowledge of Strategic Investment Grade Bond Fund, threatened against Strategic Investment Grade Bond Fund, not reflected in such Prospectus; E. There are no material contracts outstanding to which Strategic Investment Grade Bond Fund is a party other than those ordinary in the conduct of its business; F. Strategic Investment Grade Bond Fund is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth 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 Strategic Investment Grade Bond Fund 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 Strategic Investment Grade 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 Strategic Investment Grade 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 Strategic Investment Grade Bond Fund ended September 30, 1994 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. Strategic Investment Grade Bond Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, Strategic Investment Grade Bond Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and Strategic Investment Grade Bond Fund intends to meet such requirements with respect to its current taxable year. 13. Bond Fund hereby represents and warrants that: A. The financial statements of Bond Fund as at December 30, 1994 (audited) heretofore furnished to Strategic Investment Grade Bond Fund, present fairly the financial position, results of operations, and changes in net assets of 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 December 30, 1994 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 Bond Fund, it being understood that a decrease in the size of 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 Oppenheimer Integrity Funds 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. There is no material contingent liability of Bond Fund and no material claim and no material legal, administrative or other proceedings pending or, to the knowledge of Bond Fund, threatened against Bond Fund, not reflected in such Prospectus; D. There are no material contracts outstanding to which Bond Fund is a party other than those ordinary in the conduct of its business; E. Bond Fund is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; 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 shares of Bond Fund which it issues to Strategic Investment Grade Bond Fund pursuant to the Agreement will be duly authorized, validly issued, fully-paid and non-assessable, except as otherwise set forth in Bond Fund's Registration Statement; and will conform to the description thereof contained in Bond Fund's Registration Statement, will be duly registered under the 1933 Act and in the states where registration is required; and 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 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 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 Bond Fund ended December 31, 1994 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. Bond Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, Bond Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and Bond Fund intends to meet such requirements with respect to its current taxable year; H. Bond Fund has no plan or intention (i) to dispose of any of the assets transferred by Strategic Investment Grade Bond Fund, other than in the ordinary course of business, or (ii) to redeem or reacquire any of the 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, 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. Bond Fund hereby represents to and covenants with Strategic Investment Grade Bond Fund that, if the reorganization becomes effective, Bond Fund will treat each shareholder of Strategic Investment Grade Bond Fund who received any of Bond Fund's shares as a result of the reorganization as having made the minimum initial purchase of shares of Bond Fund received by such shareholder for the purpose of making additional investments in shares of Bond Fund, regardless of the value of the shares of Bond Fund received. 15. 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. Bond Fund covenants and agrees to deregister as an investment company under the Investment Company Act of 1940, as amended, as soon as practicable and, thereafter, to cause the cancellation of its outstanding shares. 16. The obligations of the parties under the Agreement shall be subject to the right of either party to abandon and terminate the Agreement without liability if the other party breaches any material provision of the Agreement or if any material legal, administrative or other proceeding shall be instituted or threatened between the date of the Agreement and the Closing Date (i) seeking to restrain or otherwise prohibit the transactions contemplated hereby and/or (ii) asserting a material liability of either party, which proceeding has not been terminated or the threat thereof removed prior to the Closing Date. 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 acknowledgement of such waiver. 19. Strategic Investment Grade Bond Fund understands that the obligations of Bond Fund under the Agreement are not binding upon any Trustee or shareholder of Bond Fund personally, but bind only Bond Fund and Bond Fund's property. Strategic Investment Grade Bond Fund represents that it has notice of the provisions of the Declaration of Trust of Bond Fund disclaiming shareholder and Trustee liability for acts or obligations of Bond Fund. 20. Bond Fund understands that the obligations of Strategic Investment Grade Bond Fund under the Agreement are not binding upon any Trustee or shareholder of Strategic Investment Grade Bond Fund personally, but bind only Strategic Investment Grade Bond Fund and Strategic Investment Grade Bond Fund's property. Bond Fund represents that it has notice of the provisions of the Declaration of Trust of Strategic Investment Grade Bond Fund disclaiming shareholder and Trustee liability for acts or obligations of Strategic Investment Grade 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. Attest: OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND __________________________ By:_______________________________ Robert G. Zack George C. Bowen Assistant Secretary Vice President Attest: OPPENHEIMER INTEGRITY FUNDS On behalf of OPPENHEIMER BOND FUND __________________________ By:_______________________________ Robert G. Zack Andrew J. Donohue Assistant Secretary Vice President Preliminary Copy - For the Information of the Securities and Exchange Commission Only Oppenheimer Strategic Investment Proxy for Shareholders Meeting To Grade Bond Fund - Class A Shares Be Held September 20, 1995 Your shareholder Your prompt response can save your vote is important! Fund the expense of another mailing. Please mark your proxy on the reverse side, date and sign it, and return it promptly in the accompanying envelope, which requires no postage if mailed in the United States. Please detach at perforation before mailing. OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND PROXY FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD SEPTEMBER 20, 1995 The undersigned shareholder of Oppenheimer Strategic Investment Grade Bond Fund (the "Fund"), does hereby appoint George C. Bowen, Rendle Myer, Robert Bishop and Scott Farrar, and each of them, as attorneys-in-fact and proxies of the undersigned, with full power of substitution, to attend the Special Meeting of the Fund to be held on September 20, 1995, at 3410 South Galena Street, Denver, Colorado at 10:00 A.M., Denver 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 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 the Fund and Oppenheimer Bond Fund ("Bond Fund"), and the transactions contemplated thereby, including the transfer of substantially all the assets of the Fund, in exchange for Class A and Class B shares of Bond Fund. The distribution of such shares to the Class A and Class B shareholders of the Fund in complete liquidation of the Fund, the de-registration of the Fund as an investment company under the Investment Company Act of 1940, as amended, and the cancellation of the outstanding shares of the Fund (the "Proposal"). FOR____ AGAINST____ ABSTAIN____ Dated: ___________________________, 1995 (Month) (Day) ___________________________________ Signature(s) ___________________________________ Signature(s) Please read both sides of this ballot. 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. Preliminary Copy - For the Information of the Securities and Exchange Commission Only Oppenheimer Strategic Investment Proxy for Shareholders Meeting To Grade Bond Fund - Class B Shares Be Held September 20, 1995 Your shareholder Your prompt response can save your vote is important! Fund the expense of another mailing. Please mark your proxy on the reverse side, date and sign it, and return it promptly in the accompanying envelope, which requires no postage if mailed in the United States. Please detach at perforation before mailing. OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND PROXY FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD SEPTEMBER 20, 1995 The undersigned shareholder of Oppenheimer Strategic Investment Grade Bond Fund (the "Fund"), does hereby appoint George C. Bowen, Rendle Myer, Robert Bishop and Scott Farrar, and each of them, as attorneys-in-fact and proxies of the undersigned, with full power of substitution, to attend the Special Meeting of the Fund to be held on September 20, 1995, at 3410 South Galena Street, Denver, Colorado at 10:00 A.M., Denver 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 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 the Fund and Oppenheimer Bond Fund ("Bond Fund"), and the transactions contemplated thereby, including the transfer of substantially all the assets of the Fund, in exchange for Class A and Class B shares of Bond Fund. The distribution of such shares to the Class A and Class B shareholders of the Fund in complete liquidation of the Fund, the de-registration of the Fund as an investment company under the Investment Company Act of 1940, as amended, and the cancellation of the outstanding shares of the Fund (the "Proposal"). FOR____ AGAINST____ ABSTAIN____ Dated: ___________________________, 1995 (Month) (Day) ___________________________________ Signature(s) ___________________________________ Signature(s) Please read both sides of this ballot. 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. OPPENHEIMER INTEGRITY FUNDS 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 PART B STATEMENT OF ADDITIONAL INFORMATION August 21, 1995 ___________________________________ This Statement of Additional Information of Oppenheimer Bond Fund consists of this cover page and the following documents: 1. Prospectus of Oppenheimer Bond Fund dated July 10, 1995, supplemented July 14, 1995, filed herewith and is incorporated herein by reference. 2. Statement of Additional Information of Oppenheimer Bond Fund dated July 10, 1995, filed herewith and is incorporated herein by reference. 3. Prospectus of Oppenheimer Strategic Investment Grade Bond Fund dated February 1, 1995, supplemented July 14, 1995, filed herewith and is incorporated herein by reference. 4. Statement of Additional Information of Oppenheimer Strategic Investment Grade Bond Fund dated February 1, 1995, supplemented July 14, 1995, filed herewith and is incorporated herein by reference. 5. Oppenheimer Investment Grade Bond Fund's Annual Report as of December 31, 1994, filed herewith and is incorporated herein by reference. 6. Oppenheimer Strategic Investment Grade Bond Fund's Annual Report as of September 30, 1994, filed herewith and is incorporated herein by reference. 7. Oppenheimer Strategic Investment Grade Bond Fund's Semi-Annual Report (unaudited) as of March 31, 1995, filed herewith and is incorporated herein by reference. 8. Pro Forma Financials This Statement of Additional Information is not a Prospectus. This Statement of Additional Information should be read in conjunction with the Proxy Statement and Prospectus, which may be obtained by written request to Oppenheimer Shareholder Services ("OSS"), P.O. Box 5270, Denver, Colorado 80217, or by calling OSS at the toll-free number shown above. OPPENHEIMER BOND FUND Supplement dated July 14, 1995 to the Prospectus dated July 10, 1995 The following changes are made to the Prospectus: 1. Footnote 1 under the "Shareholder Transaction Expenses" chart in "Expenses" on page 3 is changed to read as follows: 1. If you invest more than $1 million (more than $500,000 for purchases by OppenheimerFunds prototype 401(k) plans) in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the calendar month in which you purchased those shares. See "How to Buy Shares - - Class A Shares," below. 2. In "How to Buy Shares," the section entitled "Class A Shares" on page 25 under "Classes of Shares" is changed to read as follows: If you buy Class A shares, you may pay an initial sales charge on investments up to $1 million (up to $500,000 for purchases by OppenheimerFunds prototype 401(k) plans). If you purchase Class A shares as part of an investment of at least $1 million ($500,000 for OppenheimerFunds prototype 401(k) plans) in shares of one or more OppenheimerFunds, you will not pay an initial sales charge, but if you sell any of those shares within 18 months of buying them, you may pay a contingent deferred sales charge. The amount of that sales charge will vary depending on the amount you invested. Sales charge rates are described in "Class A Shares" below. 3. In "How to Buy Shares," the section entitled "Which Class of Shares Should You Choose?" on page 25 is changed by adding a new final sentence to the third paragraph of that section as follows: The discussion below of the factors to consider in purchasing a particular class of shares assumes that you will purchase only one class of shares and not a combination of shares of different classes. 4. In "How to Buy Shares," the first and second paragraphs of the section "Class A Contingent Deferred Sales Charge" on page 29 is amended in its entirety to read as follows: There is no initial sales charge on purchases of Class A shares of any one or more of the OppenheimerFunds in the following cases: - purchases aggregating $1 million or more, or - purchases by an OppenheimerFunds prototype 401(k) plan that: (1) buys shares costing $500,000 or more or (2) has, at the time of purchase, 100 or more eligible participants, or (3) certifies that it projects to have annual plan purchases of $200,000 or more. Shares of any of the OppenheimerFunds that offers only one class of shares that has no designation are considered "Class A shares" for this purpose. The Distributor pays dealers of record commissions on those purchases in an amount equal to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5 million. That commission will be paid only on the amount of those purchases in excess of $1 million ($500,000 for purchases by OppenheimerFunds 401(k) prototype plans) that were not previously subject to a front-end sales charge and dealer commission. 5. In "Reduced Sales Charges for Class A Purchases" on page 30, the first sentence of the section "Right of Accumulation" is changed to read as follows: To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you and your spouse can add together Class A and Class B shares you purchase for your individual accounts, or jointly, or for trust or custodial accounts on behalf of your children who are minors. The first two sentences of the second paragraph of that section are revised to read as follows: Additionally, you can add together current purchases of Class A and Class B shares of the Fund and other OppenheimerFunds to reduce the sales charge rate that applies to current purchases of Class A shares. You can also count Class A and Class B shares of OppenheimerFunds 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 that investment in one of the OppenheimerFunds. 6. The first sentence of the section entitled "Letter of Intent" on page 30 is revised to read as follows: Under a Letter of Intent, if you purchase Class A shares or Class A shares and Class B shares of the Fund and other OppenheimerFunds 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. 7. In the section entitled "Waivers of Class A Sales Charges" on page 31, the following changes are made: The first sentence of the first paragraph is replaced by a new introductory paragraph set forth below and the list of circumstances describing the sales charge waivers follows a new initial sentence: - Waivers of Class A Sales Charges. The Class A sales charges are not imposed in the circumstances described below. There is an explanation of this policy in "Reduced Sales Charges" in the Statement of Additional Information. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers. Class A shares purchased by the following investors are not subject to any Class A sales charges: The introductory phrase preceding the list of sales charge waivers in the second paragraph and subsection (d) of that paragraph are replaced by the following: Waivers of Initial and Contingent Deferred Sales Charges in Certain Transactions. Class A shares issued or purchased in the following transactions are not subject to Class A sales charges: ... (d) shares purchased and paid for with the proceeds of shares redeemed in the prior 12 months from a mutual fund (other than a fund managed by the Manager or any of its subsidiaries) on which an initial sales charge or contingent deferred sales charge was paid (this waiver also applies to shares purchased by exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid for in this manner); this waiver must be requested when the purchase order is placed for your shares of the Fund, and the Distributor may require evidence of your qualification for this waiver. The third paragraph of that section is revised to read as follows: Waivers of the Class A Contingent Deferred Sales Charge. The Class A contingent deferred sales charge does not apply to purchases of Class A shares at net asset value without sales charge as described in the two sections above. It is also waived if shares that would otherwise be subject to the contingent deferred sales charge are redeemed in the following cases: - for retirement distributions or loans to participants or beneficiaries from qualified retirement plans, deferred compensation plans or other employee benefit plans, including OppenheimerFunds prototype 401(k) plans (these are all referred to as "Retirement Plans"); or - to return excess contributions made to Retirement Plans; or - to make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the original account value; or - involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (see "Shareholder Account Rules and Policies," below); or - if, at the time a purchase order is placed for Class A shares that would otherwise be subject to the Class A contingent deferred sales charge, the dealer agrees to accept the dealer's portion of the commission payable on the sale in installments of 1/18th of the commission per month (and no further commission will be payable if the shares are redeemed within 18 months of purchase); or - for distributions from OppenheimerFunds prototype 401(k) plans for any of the following cases or purposes: (1) following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary (the death or disability must occur after the participant's account was established); (2) hardship withdrawals, as defined in the plan; (3) under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code; (4) to meet the minimum distribution requirements of the Internal Revenue Code; (5) to establish "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code, or (6) separation from service. 8. The first paragraph of the section entitled "Waivers of Class B Sales Charge" on page 33 is amended by replacing the introductory phrase of that paragraph with the sentences below and replacing item (5) of that paragraph as follows: - Waivers of Class B Sales Charge. The Class B contingent deferred sales charge will not be applied to shares purchased in certain types of transactions nor will it apply to Class B shares redeemed in certain circumstances as described below. The reasons for this policy are in "Reduced Sales Charges" in the Statement of Additional Information. Waivers for Redemptions of Shares in Certain Cases. The Class B contingent deferred sales charge will be waived for redemptions of shares in the following cases: ... (5) for distributions from OppenheimerFunds prototype 401(k) plans (1) for hardship withdrawals; (2) under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code; (3) to meet minimum distribution requirements as defined in the Internal Revenue Code; (4) to make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code; or (5) for separation from service. 9. The section titled "Waivers of Class C Sales Charge" on page 35 is replaced with the following: The Class C contingent deferred sales charge will be waived if the shareholder requests it for any of the redemptions or circumstances described above under "Waivers of Class B Sales Charge." 10. In the section entitled "Reinvestment Privilege" on page 37, the first two sentences are revised to read as follows: If you redeem some or all of your Class A or 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 OppenheimerFunds without paying a sales charge. This privilege applies to Class A shares that your purchased subject to an initial sales charge and to Class A or B shares on which you paid a contingent deferred sales charge when you redeemed them. It does not apply to Class C shares. 11. In the section entitled "Retirement Plans" on page 38, the final item in the list of plans offered by the Distributor is replaced with the following: - 401(k) prototype retirement plans for businesses 12. The following is added after the paragraph title "Zero Coupon Securities" on page 13: Other Debt Securities. The Fund may invest in preferred stocks. Preferred stock, unlike common stock, generally offers a stated dividend rate payable from the corporations's earnings. Such preferred stock dividends may be cumulative or non-cumulative, fixed, participating, or auction rate. If interest rates rise, a fixed divident on preferred stocks may be less attractive, causing the price of preferred stocks to decline. The rights to payment of preferred stocks are generally subordinate to rights associated with a corporation's debt securities. The Fund may also invest in municipal securities, which are debt obligations issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities or multi-state agencies or authorities, the interest from which is, in the opinion of bond counsel to the issuer, exempt from Federal income tax. Interest from certain municipal securities may be subject to Federal alternative minimum tax. July 14, 1995 PS0285.002 O P P E N H E I M E R Bond Fund Prospectus dated July 10, 1995. Oppenheimer Bond Fund (the "Fund"), formerly named "Oppenheimer Investment Grade Bond Fund," is a mutual fund with the investment objective of seeking a high level of current income by investing mainly in debt instruments. The Fund will, under normal market conditions, invest at least 65% of its total assets in a diversified portfolio of investment grade securities. You should carefully review the risks associated with an investment in the Fund. Please refer to "Investment Objectives and Polices" on page 10. This Prospectus explains concisely what you should know before investing in the Fund. Please read this Prospectus carefully and keep it for future reference. You can find more detailed information about the Fund in the July 10, 1995, Statement of Additional Information. For a free copy, call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at the address on the back cover. The Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference (which means that it is legally part of this Prospectus). (OppenheimerFunds logo) Shares of the Fund are not deposits or obligations of any bank, are not guaranteed by any bank, and are not insured by the F.D.I.C. or any other agency, and involve investment risks, including the possible loss of the principal amount invested. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Contents ABOUT THE FUND Expenses A Brief Overview of the Fund Financial Highlights Investment Objective and Policies How the Fund is Managed Performance of the Fund ABOUT YOUR ACCOUNT How to Buy Shares Class A Shares Class B Shares Class C Shares Special Investor Services AccountLink Automatic Withdrawal and Exchange Plans Reinvestment Privilege 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 A B O U T T H E F U N D Expenses The Fund pays a variety of expenses directly for management of its assets, administration, distribution of its shares and other services, and those expenses are subtracted from the Fund's assets to calculate the Fund's net asset value per share. All shareholders therefore pay those expenses indirectly. Shareholders pay other expenses directly, such as sales charges and shareholder transaction charges. The following tables are provided to help you understand your direct expenses of investing in the Fund and your share of the Fund's business operating expenses that you will bear indirectly. The numbers below are based on the Fund's expenses during its last fiscal year ended December 31, 1994. -- Shareholder Transaction Expenses are charges you pay when you buy or sell shares of the Fund. Please refer to "About Your Account," from pages 24 through 37 for an explanation of how and when these charges apply.
Class A Class B Class C Shares Shares Shares Maximum Sales 4.75% None None Charge on Purchases (as a % of offering price) - ---------------------------------------------------------------------- Sales Charge on Reinvested Dividends None None None - ---------------------------------------------------------------------- Deferred Sales Charge None(1) 5% in the 1% if (as a % of the lower of the first year, shares are original purchase price or declining to redeemed redemption proceeds) 1% in the within 12 sixth year and sixth year and months of eliminated purchase(2) thereafter(2) - ---------------------------------------------------------------------- Exchange Fee None None None 1. If you invest more than $1 million in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the calendar month during which you purchased those shares. See "How to Buy Shares - Class A Shares," below. 2. See "How to Buy Shares," below, for more information on the contingent deferred sales charges.
-- Annual Fund Operating Expenses are paid out of the Fund's assets and represent the Fund's expenses in operating its business. For example, the Fund pays management fees to its investment adviser, Oppenheimer Management Corporation (which is referred to in this Prospectus as the "Manager"). The rates of the Manager's fees are set forth in "How the Fund is Managed," below. The Fund has other regular expenses for services, such as transfer agent fees, custodial fees paid to the bank that holds its portfolio securities, audit fees and legal expenses. The numbers in the chart below are projections of the Fund's business expenses based on the Fund's expenses in its last fiscal year. These amounts are shown as a percentage of the average net assets of each class of the Fund's shares for that year. The management fees have been restated to reflect the Fund's new investment advisory agreement dated July 10, 1995 with Oppenheimer Management Corporation. The 12b-1 Distribution Plan Fees for Class A shares are Service Plan Fees (the maximum is 0.25% of average annual net assets of that class), and for Class B and Class C shares, the 12b-1 Distribution Plan Fees are the Distribution and Service Plan Fees (the service fee is 0.25% of average annual net assets of the class) and the asset-based sales charge of 0.75%. These Plans are discussed in greater detail in "How to Buy Shares." Class C shares were not publicly offered during the fiscal year ended December 31, 1994. The "Annual Fund Operating Expenses" as to Class C shares are estimates based on amounts that would have been payable in that period assuming that Class C shares were outstanding during such fiscal year. The actual expenses for each class of shares in future years may be more or less than the numbers in the chart, depending on a number of factors, including the actual value of the Fund's assets represented by each class of shares.
Class A Class B Class C Shares Shares Shares Management Fees (Restated) 0.75% 0.75% 0.75% - ---------------------------------------------------------------------- 12b-1 Distribution 0.25%(1) 1.00%(2) 1.00%(2) Plan Fees (includes Shareholder Service Plan Fees) - ---------------------------------------------------------------------- Other Expenses 0.31% 0.28% 0.30% - ---------------------------------------------------------------------- Total Fund 1.31% 2.03% 2.05% Operating Expenses 1. Service Plan fees only 2. Includes Service Plan fees and asset-based sales charge
-- Examples. To try to show the effect of these expenses on an investment over time, we have created the hypothetical examples shown below. Assume that you make a $1,000 investment in each class of shares of the Fund, the Fund's annual return is 5%, and that its operating expenses for each class are the ones shown in the Annual Fund Operating Expenses chart above. If you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years* - ---------------------------------------------------------------------- Class A Shares $60 $87 $116 $198 - ---------------------------------------------------------------------- Class B Shares $71 $94 $129 $200 - ---------------------------------------------------------------------- Class C Shares $ $ $ $ If you did not redeem your investment, it would incur the following expenses: Class A Shares $60 $87 $116 $198 - ---------------------------------------------------------------------- Class B Shares $21 $64 $109 $200 - ---------------------------------------------------------------------- Class C Shares $ $ $ $
* The Class B expenses in years 7 through 10 are based on the Class A expenses shown above, because the Fund automatically converts your Class B shares into Class A shares after 6 years. Long-term Class B and Class C shareholders could pay the economic equivalent of more than the maximum front-end sales charge allowed under applicable regulations, because of the effect of the asset-based sales charge and contingent deferred sales charge. The automatic conversion of Class B shares to Class A shares is designed to minimize the likelihood that this will occur. Please refer to "How to Buy Shares - Class B Shares" for more information. These examples show the effect of expenses on an investment, but are not meant to state or predict actual or expected costs or investment returns of the Fund, all of which will vary. A Brief Overview Of The Fund Some of the important facts about the Fund are summarized below, with references to the section of this Prospectus where more complete information can be found. You should carefully read the entire Prospectus before making a decision about investing in the Fund. Keep the Prospectus for reference after you invest, particularly for information about your account, such as how to sell or exchange shares. -- What Is The Fund's Investment Objective? The Fund seeks to achieve a high level of current income by investing mainly in debt instruments. -- What Does The Fund Invest In? Under normal market conditions, the Fund invests at least 65% of its total assets in a diversified portfolio of investment grade fixed-income securities. These include (i) investment-grade debt securities rated BBB or above by Standard and Poor's Corporation or Baa or above by Moody's Investors Service, Inc. or, if unrated, are of comparable quality as determined by the Fund's Manager; (ii) securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities or obligations secured by such securities ("U.S. Government Securities"); and (iii) high-quality, short-term money market domestic and foreign instruments. The Fund may invest up to 35% of its total assets in non-investment grade debt instruments. Although non-investment grade securities generally offer the potential for higher income than investment grade securities, they may be subject to greater market fluctuations and a greater risk of default because of the issuer's low creditworthiness. The Fund may also write covered calls and use certain types of securities called "derivative investments" and hedging instruments to try to manage investment risks. These investments are more fully explained in "Investment Objective and Policies" starting on page 10. -- Who Manages The Fund? The Fund's investment adviser (the "Manager") is Oppenheimer Management Corporation, which (including a subsidiary) manages investment company portfolios currently having over $30 billion in assets. The Fund's portfolio managers who are primarily responsible for the selection of the Fund's securities, are David P. Negri and David A. Rosenberg. The Manager is paid a management fee by the Fund, based on its net assets. The Fund's Board of Trustees, elected by shareholders, oversees the Manager. Please refer to "How the Fund is Managed," starting on page 18 for more information about the Manager and the Manager and their fees. -- How Risky Is The Fund? All investments carry risks to some degree. The Fund's investments in fixed-income securities are subject to changes in their value and their yield from a number of factors, including changes in the general bond market and changes in interest rates. Non- investment grade securities may have speculative characteristics and be subject to a greater risk of default than investment grade securities. These changes affect the value of the Fund's investments and its share prices for each class of its shares. In the OppenheimerFunds spectrum the Fund is generally considered a moderately risky income fund, more aggressive than money market funds but less aggressive than high yield funds. While the Manager tries to reduce risks by diversifying investments, by carefully researching securities before they are purchased for the portfolio, and in some cases by using hedging techniques, there is no guarantee of success in achieving the Fund's objective and your shares may be worth more or less than their original cost when you redeem them. Please refer to "Investment Objectives and Policies" starting on page 10 for a more complete discussion of the Fund's investment risks. -- How Can I Buy Shares? You can buy shares through your dealer or financial institution, or you can purchase shares directly through the Distributor by completing an Application or by using an Automatic Investment Plan under AccountLink. Please refer to "How to Buy Shares" starting on page 24 for more details. -- Will I Pay A Sales Charge To Buy Shares? The Fund has three classes of shares. All classes have the same investment portfolio but different expenses. Class A shares are offered with a front-end sales charge, starting at 4.75%, which are reduced for larger purchases. Class B and Class C shares are offered without a front-end sales charge, but may be subject to a contingent deferred sales charge if redeemed within 6 years or 12 months of purchase, respectively. There is also an annual asset-based sales charge on Class B and Class C shares. Please review "How to Buy Shares" starting on page ___ for more details, including a discussion about factors you and your financial advisor should consider in determining which class may be appropriate for you. -- How Can I Sell My Shares? Shares can be redeemed by mail or by telephone call to the Transfer Agent on any business day, or through your dealer or by using Checkwriting. Please refer to "How to Sell Shares" starting on page ___. The Fund also offers exchange privileges to other OppenheimerFunds, described in "How to Exchange Shares" on page __. -- How Has The Fund Performed? The Fund measures its performance by quoting its yield, average annual total return and cumulative total return, which measure historical performance. Those yields and total returns can be compared to the returns (over similar periods) of other funds. Prior to July 10, 1995, the Fund's investments were limited to investment grade bonds, U.S. Government Securities, and money market instruments. The Fund's shareholders approved changes in the Fund's investment policies at a meeting held July 10, 1995. These changes are reflected in this Prospectus and Statement of Additional Information. Of course, other funds may have different objectives, investments, and levels of risk. The Fund's performance can also be compared to broad market indices, which we have done on page ___. Please remember that past performance does not guarantee future results. Financial Highlights The table on the following pages presents selected financial information about the Fund, including per share data and expense ratios and other data based on the Fund's average net assets. This information has been audited by Deloitte & Touche LLP, the Fund's independent auditors, whose report on the Fund's financial statements for the fiscal year ended December 31, 1994 is included in the Statement of Additional Information. Class C shares were not offered prior to July 11, 1995. Accordingly, no information on Class C shares is reflected in the table below or in the Fund's other financial statements. The information in the table for the fiscal periods prior to 1991 was audited by the Fund's previous independent auditors. Investment Objective and Policies Objective. The Fund seeks a high level of current income by investing mainly in debt instruments. Investment Policies and Strategies. Under normal market conditions, the Fund invests at least 65% of its total assets in investment grade debt securities, U.S. Government securities, and money market instruments. Investment-grade debt securities are those rated in one of the four highest categories by Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investors Service, Inc. or other nationally-recognized rating organization. A description of these rating categories is included as an Appendix to the Fund's Statement of Additional Information. Debt securities (often referred to as "fixed-income "securities") are used by issuers to borrow money from investors. The issuer promises to pay the investor interest at a fixed or variable rate, and to pay back the amount it borrowed (the "principal") at maturity. Some debt securities, such as zero coupon bonds (discussed below) do not pay current interest. The Fund may invest up to 35% of its total assets in debt securities rated less than investment grade or, if unrated, judged by the Manager to be of comparable quality to such lower- rated securities (collectively, "lower-grade securities"). Lower-grade securities (often called "junk bonds") are considered speculative and involve greater risk. They may be less liquid than higher-rated securities. If the Fund were forced to sell a lower-grade debt security during a period of rapidly-declining prices, it might experience significant losses especially if a substantial number of other holders decide to sell at the same time. Other risks may involve the default of the issuer or price changes in the issuer's securities due to changes in the issuer's financial strength or economic conditions. The Fund is not obligated to dispose of securities when issuers are in default or if the rating of the security is reduced. These risks are discussed in more detail in the Statement of Additional Information. The Manager anticipates that the Fund would generally invest at least 75% of its total assets in: (i) U.S. corporate bonds rated "A" or better and (ii) U.S. government and agency bonds. The Manager further anticipates that the Fund would invest an additional 15% of its total assets in non-investment grade domestic corporate bonds and 10% of total assets in non-investment grade foreign bonds. These anticipated investment targets, including the allocation between domestic and foreign lower-grade debt securities, are subject to fluctuation and may be changed by the Manager without further notice to shareholders or amended prospectus disclosure. Under normal market conditions, the target duration will be approximately five. Duration is a measure of the anticipated rise or decline in value for a 1% change in interest rates. For example, a duration of 2 in a portfolio indicates that for every 1% rise in general interest rates, the portfolio's value would be expected to fall 2%, and vice versa. When investing the Fund's assets, the Manager considers many factors, including current developments and trends in both the economy and the financial markets. The Fund may try to hedge against losses in the value of its portfolio of securities by using hedging strategies described below. The Manager may employ special investment techniques, also described below. Additional information about the securities the Fund may invest in, the hedging strategies the Fund may employ and the special investment techniques may be found under the same headings in the Statement of Additional Information. -- Interest Rate Risks. In addition to credit risks, described below, debt securities are subject to changes in their value due to changes in prevailing interest rates. When prevailing interest rates fall, the values of already-issued debt securities generally rise. When interest rates rise, the values of already-issued debt securities generally decline. The magnitude of these fluctuations will often be greater for longer-term debt securities than shorter-term debt securities. Changes in the value of securities held by the Fund mean that the Fund's share prices can go up or down when interest rates change, because of the effect of the change on the value of the Fund's portfolio of debt securities. -- Credit Risks. Debt securities are also subject to credit risks. Credit risk relates to the ability of the issuer of a debt security to make interest or principal payments on the security as they become due. Generally, higher-yielding, lower-rated bonds (which the Fund may hold) are subject to greater credit risk than higher-rated bonds. Securities issued or guaranteed by the U.S. Government are subject to little, if any, credit risk. While the Manager may rely to some extent on credit ratings by nationally recognized rating agencies, such as Standard & Poor's or Moody's, in evaluating the credit risk of securities selected for the Fund's portfolio, it may also use its own research and analysis. However, many factors affect an issuer's ability to make timely payments, and there can be no assurance that the credit risks of a particular security will not change over time. -- Can the Fund's Investment Objective and Policies Change? The Fund has an investment objective, which is described above, as well as investment policies it follows to try to achieve its objective. Additionally, the Fund uses certain investment techniques and strategies in carrying out those investment policies. The Fund's investment policies and techniques are not "fundamental" unless this Prospectus or the Statement of Additional Information says that a particular policy is "fundamental." The Fund's investment objective is a fundamental policy. Fundamental policies are those that cannot be changed without the approval of a "majority" of the Fund's outstanding voting shares. The term "majority" is defined in the Investment Company Act to be a particular percentage of outstanding voting shares (and this term is explained in the Statement of Additional Information). The Fund's Board of Trustees may change non-fundamental policies without shareholder approval, although significant changes will be described in amendments to this Prospectus. -- U.S. Government Securities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and mortgage participation certificates guaranteed by Government National Mortgage Association ("Ginnie Mae") are supported by the full faith and credit of the U.S. government, which in general terms means that the U.S. Treasury stands behind the obligation to pay principal and interest. Ginnie Mae certificates are one type of mortgage-related U.S. Government Security the Fund invests in. Other mortgage-related U.S. Government Securities the Fund invests in that are issued or guaranteed by federal agencies or government-sponsored entities are not supported by the full faith and credit of the U.S. government. Those securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Mortgage Corporation ("Freddie Mac"), obligations supported only by the credit of the instrumentality, such as Federal National Mortgage Association ("Fannie Mae") and obligations supported by the discretionary authority of the U.S. Government to repurchase certain obligations of U.S. Government agencies or instrumentalities such as the Federal Land Banks and the Federal Home Loan Banks. Other U.S. Government Securities the Fund invests in are collateralized mortgage obligations ("CMOs"). The value of U.S. Government Securities will fluctuate depending on prevailing interest rates. Because the yields on U.S. Government Securities are generally lower than on corporate debt securities, when the Fund holds U.S. Government Securities it may attempt to increase the income it can earn from them by writing covered call options against them, when market conditions are appropriate. Writing covered calls is explained below, under "Other Investment Techniques and Strategies." -- Short-Term Debt Securities. The high quality, short-term money market instruments in which the Fund may invest include U.S. Treasury and agency obligations; commercial paper (short-term, unsecured, negotiable promissory notes of a domestic or foreign company), short-term obligations of corporate issuers; bank participation certificates; and certificates of deposit and bankers' acceptances (time drafts drawn on commercial banks usually in connection with international transactions) of banks and savings and loan associations. -- Mortgage-Backed Securities and CMOs. Certain mortgage-backed securities, whether issued by the U.S. government or by private issuers, "pass-through" to investors the interest and principal payments generated by a pool of mortgages assembled for sale by government agencies. Pass- through mortgage-backed securities entail the risk that principal may be repaid at any time because of prepayments on the underlying mortgages. That may result in greater price and yield volatility than traditional fixed-income securities that have a fixed maturity and interest rate. The Fund may also invest in collateralized mortgage-backed obligations (referred to as "CMOs"), which generally are obligations fully collateralized by a portfolio of mortgages or mortgage-related securities. Payment of the interest and principal generated by the pool of mortgages is passed through to the holders as the payments are received. CMOs are issued with a variety of classes or series which have different maturities. Certain CMOs may be more volatile and less liquid than other types of mortgage-related securities, because of the possibility of the prepayment of principal due to prepayments on the underlying mortgage loans. The Fund may also invest in CMOs that are "stripped." That means that the security is divided into two parts, one of which receives some or all of the principal payments (and is known as a "P/O") and the other which receives some or all of the interest (and is known as an "I/O"). P/Os and I/Os are generally referred to as "derivative investments," discussed further below. The yield to maturity on the class that receives only interest is extremely sensitive to the rate of payment of the principal on the underlying mortgages. Principal prepayments increase that sensitivity. Stripped securities that pay "interest only" are therefore subject to greater price volatility when interest rates change, and they have the additional risk that if the underlying mortgages are prepaid, the Fund will lose the anticipated cash flow from the interest on the prepaid mortgages. That risk is increased when general interest rates fall, and in times of rapidly falling interest rates, the Fund might receive back less than its investment. The value of "principal only" securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Private-issuer stripped securities are generally purchased and sold by institutional investors through investment banking firms. At present, established trading markets have not yet developed for these securities. Therefore, most private-issuer stripped securities may be deemed "illiquid." If the Fund holds illiquid stripped securities, the amount it can hold will be subject to the Fund's investment policy limiting investments in illiquid securities to 10% of the Fund's net assets. The Fund may also enter into "forward roll" transactions with mortgage-backed securities. The Fund sells mortgage-backed securities it holds to banks or other buyers and simultaneously agrees to repurchase a similar security from that party at a later date at an agreed-upon price. Forward rolls are considered to be a borrowing. The Fund is required to place liquid assets in a segregated account with its custodian bank in an amount equal to its obligation under the forward roll. The main risk of this investment strategy is risk of default by the counterparty. -- Asset-Backed Securities. The Fund may invest in "asset-backed" securities. These represent interests in pools of consumer loans and other trade receivables, similar to mortgage-backed securities. They are issued by trusts and "special purpose corporations." They are backed by a pool of assets, such as credit card or auto loan receivables, which are the obligations of a number of different parties. The income from the underlying pool is passed through to holders, such as the Fund. These securities may be supported by a credit enhancement, such as a letter of credit, a guarantee or a preference right. However, the extent of the credit enhancement may be different for different securities and generally applies to only a fraction of the security's value. These securities present special risks. For example, in the case of credit card receivables, the issuer of the security may have no security interest in the related collateral. Zero Coupon Securities. These securities, which may be issued by the U.S. government, its agencies or instrumentalities or by private issuers, are purchased at a substantial discount from their face value. They are subject to greater fluctuations in market value as interest rates change than debt securities that pay interest periodically. Interest accrues on zero coupon bonds even though cash is not actually received. -- Securities of Foreign Governments and Companies. The Fund may invest in debt securities issued or guaranteed by foreign companies, and debt securities of foreign governments or their agencies. These foreign securities may include debt obligations such as government bonds, debentures issued by companies, as well as notes. Some of these debt securities may have variable interest rates or "floating" interest rates that change in different market conditions. Those changes will affect the income the Fund receives. These securities are described in more detail in the Statement of Additional Information. The Fund is not restricted in the amount of its assets it may invest in foreign countries or in which countries. However, if the Fund's assets are held abroad, the countries in which they are held and the sub- custodians holding them must in most cases be approved by the Trust's Board of Trustees. Foreign securities have special risks. There are certain risks of holding foreign securities. The first is the risk of changes in foreign currency values. Because the Fund may purchase securities denominated in foreign currencies, a change in the value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund's securities denominated in that currency. The currency rate change will also affect its income available for distribution. Although the Fund's investment income from foreign securities may be received in foreign currencies, the Fund will be required to distribute its income in U.S. dollars. Therefore, the Fund will absorb the cost of currency fluctuations. If the Fund suffers losses on foreign currencies after it has distributed its income during the year, the Fund may find that it has distributed more income than was available from actual investment income. That could result in a return of capital to shareholders. There are other risks of foreign investing. For example, foreign issuers are not required to use generally-accepted accounting principles. If foreign securities are not registered for sale in the U.S. under U.S. securities laws, the issuer does not have to comply with the disclosure requirements of our laws, which are generally more stringent than foreign laws. The values of foreign securities investments will be affected by other factors, including exchange control regulations or currency blockage and possible expropriation or nationalization of assets. There may also be changes in governmental administration or economic or monetary policy in the U.S. or abroad that can affect foreign investing. In addition, it is generally more difficult to obtain court judgments outside the United States if the Fund has to sue a foreign broker or issuer. Additional costs may be incurred because foreign broker commissions are generally higher than U.S. rates, and there are additional custodial costs associated with holding securities abroad. -- Portfolio Turnover. A change in the securities held by the Fund is known as "portfolio turnover." While it is a policy of the Fund generally not to engage in trading for short-term gains, portfolio changes will be made without regard to the length of time a security has been held or whether a sale would result in a profit or loss, if in the Manager's judgment, such transactions are advisable in light of the circumstances of a particular company or within a particular industry or in light of market, economic or financial conditions. High portfolio turnover may affect the ability of the Fund to qualify as a "regulated investment company" under the Internal Revenue Code for tax deductions for dividends and capital gains distributions the Fund pays to shareholders. Portfolio turnover affects brokerage costs, dealer markups and other transaction costs, and results in the Fund's realization of capital gains or losses for tax purposes. See "Financial Highlights" above, "Dividends, Capital Gains and Taxes" below and "Brokerage Policies of the Fund" in the Statement of Additional Information. Other Investment Techniques and Strategies. The Fund may also use the investment techniques and strategies described below. These techniques involve certain risks. The Statement of Additional Information contains more information about these practices, including limitations on their use that are designed to reduce some of the risks. -- Hedging. The Fund may purchase and sell certain kinds of futures contracts, put and call options, forward contracts, and options on futures, broadly-based stock or bond indices and foreign currency, or enter into interest rate swap agreements. These are all referred to as "hedging instruments." The Fund does not use hedging instruments for speculative purposes, and has limits on the use of them, described below. The Fund may buy and sell options, futures and forward contracts for a number of purposes. It may do so to try to manage its exposure to the possibility that the prices of its portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities. It may do so to try to manage its exposure to changing interest rates. Some of these strategies, such as selling futures, buying puts and writing covered calls, hedge the Fund's portfolio against price fluctuations. Other hedging strategies, such as buying futures and call options and writing puts, tend to increase the Fund's exposure to the securities market. Forward contacts are used to try to manage foreign currency risks on the Fund's foreign investments. Foreign currency options are used to try to protect against declines in the dollar value of foreign securities the Fund owns, or to protect against an increase in the dollar cost of buying foreign securities. Writing covered call options may also provide income to the Fund for liquidity purposes, defensive reasons, or to raise cash to distribute to shareholders. --Futures. The Fund may buy and sell futures contracts that relate to (1) foreign currencies (these are Forward Contracts), (2) financial indices, such as U.S. or foreign government securities indices, corporate debt securities indices or equity securities indices (these are referred to as Financial Futures), and (3) interest rates (these are referred to as Interest Rate Futures). These types of Futures are described in "Hedging" in the Statement of Additional Information. --Put and Call Options. The Fund may buy and sell certain kinds of put options (puts) and call options (calls). The Fund may buy calls on securities, foreign currencies, or Futures, or to terminate its obligation on a call the Fund previously wrote. The Fund may write (that is, sell) call options on securities, foreign currencies or Futures, but only if they are "covered." That means the Fund must own the security subject to the call while the call is outstanding (or own other securities acceptable for applicable escrow requirements). Calls on Futures must be covered by securities or other liquid assets the Fund owns and segregates to enable it to satisfy its obligations if the call is exercised. When the Fund writes a call, it receives cash (called a premium). The call gives the buyer the ability to buy the investment on which the call was written from the Fund at the call price during the period in which the call may be exercised. If the value of the investment does not rise above the call price, it is likely that the call will lapse without being exercised, while the Fund keeps the cash premium (and the investment). Up to 50% of the Fund's total assets may be subject to calls. The Fund may purchase put options. Buying a put on an investment gives the Fund the right to sell the investment at a set price to a seller of a put on that investment. The Fund may buy puts that relate to securities, Futures, or foreign currencies. The Fund may buy a put on security whether or not the Fund owns the particular security in its portfolio. The Fund may sell a put on securities or Futures, but only if the puts are covered by segregated liquid assets. The Fund will not write puts if more than 50% of the Fund's net assets would have to be segregated to cover put obligations. A call or put may be purchased only if, after the purchase, the value of all call and put options held by the Fund will not exceed 5% of the Fund's total assets. The Fund may buy and sell put and call options that are traded on U.S. or foreign securities or commodity exchanges or are traded in the over-the-counter markets. In the case of foreign currency options, they may be quoted by major recognized dealers in those options. Options traded in the over-the-counter market may be "illiquid," and therefore may be subject to the Fund's restrictions on illiquid investments. --Forward Contracts. Forward Contracts are foreign currency exchange contracts. They are used to buy or sell foreign currency for future delivery at a fixed price. The Fund uses them to try to "lock in" the U.S. dollar price of a security denominated in a foreign currency that the Fund has purchased or sold, or to protect against possible losses from changes in the relative value of the U.S. dollar and a foreign currency. The Fund may also use "cross hedging," where the Fund hedges against changes in currencies other than the currency in which a security it holds is denominated. --Interest Rate Swaps. In an interest rate swap, the Fund and another party exchange their right to receive, or their obligation to pay, interest on a security. For example, they may swap a right to receive floating rate interest payments for fixed rate payments. The Fund enters into swaps only on securities it owns. The Fund may not enter into swaps with respect to more than 25% of its total assets. The Fund will segregate liquid assets (such as cash or U.S. Government securities) to cover any amounts it could owe under swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed. --Hedging instruments can be volatile investments and may involve special risks. The use of hedging instruments requires special skills and knowledge of investment techniques that are different from what is required for normal portfolio management. If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. The Fund could also experience losses if the prices of its futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums and has special tax effects on the Fund. There are also special risks in particular hedging strategies. For example, if a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required to sell the investment at the call price and will not be able to realize any profit if the investment has increased in value above the call price. In writing puts, there is a risk that the Fund may be required to buy the underlying security at a disadvantageous price. The use of Forward Contracts may reduce the gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. Interest rate swaps are subject to the risk that the other party will fail to meet its obligations (or that the underlying issuer will fail to pay on time), as well as interest rate risks. The Fund could be obligated to pay more under its swap agreements than it receives under them, as a result of interest rate changes. These risks are described in greater detail in the Statement of Additional Information. -- Short Sales "Against-the-Box". The Fund may not sell securities short except in collateralized transactions referred to as short sales "against-the-box. No more than 15% of the Fund's net assets will be held as collateral for such short sales at any one time. -- Non-Concentration. The Fund shall not invest 25% or more of its total assets in any industry; however, for the purposes of this restriction, obligations of the U.S. government, its agencies or instrumentalities are not considered to be part of any single industry. -- When-Issued and Delayed Delivery Transactions. The Fund may purchase securities on a "when-issued" basis and may purchase or sell such securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery or are to be delivered at a later date. There may be a risk of loss to the Fund if the value of the security changes prior to the settlement date. -- Repurchase Agreements. The Fund may enter into repurchase agreements. In a repurchase transaction, the Fund buys a security and simultaneously sells it to the vendor for delivery at a future date. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. The Fund will not enter into a repurchase agreement that will cause more than 10% of the Fund's net assets to be subject to repurchase agreements maturing in more than seven days. There is no limit on the amount of the Fund's net assets that may be subject to repurchase agreements of seven days or less. See the Statement of Additional Information for more details. -- Illiquid and Restricted Securities. Under the policies established by the Fund's Board of Trustees, the Manager determines the liquidity of certain of the Fund's investments. Investments may be illiquid because of the absence of an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. A restricted security is one that has a contractual restriction on its resale or which cannot be sold publicly until it is registered under the Securities Act of 1933. The Fund will not invest more than 10% of its net assets in illiquid or restricted securities (that limit may increase to 15% if certain state laws are changed or the Fund's shares are no longer sold in those states). The Fund's percentage limitation on these investments does not apply to certain restricted securities that are eligible for resale to qualified institutional purchasers. -- Loans of Portfolio Securities. The Fund may lend its portfolio securities to brokers, dealers and other financial institutions. The Fund must receive collateral for a loan. These loans are limited to not more than 25% of the value of the Fund's net assets and are subject to other conditions described in the Statement of Additional Information. The Fund presently does not intend to lend its portfolio securities, but if it does, the value of securities loaned is not expected to exceed 5% of the value of the Fund's total assets in the coming year. -- Derivative Investments. In general, a "derivative investment" is a specially designed investment whose performance is linked to the performance of another investment or security, such as an option, future, index, currency or commodity. The Fund may not purchase or sell physical commodities; however, the Fund may purchase and sell foreign currency in hedging transactions. This shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities. Derivative investments used by the Fund are used in some cases for hedging purposes and in other cases to seek income. In the broadest sense, exchange-traded options and futures contracts (discussed in "Hedging," above) may be considered "derivative investments." The Fund may invest in different types of derivatives. "Index- linked" or "commodity-linked" notes are debt securities of companies that call for interest payments and/or payment on the maturity of the note in different terms than the typical note where the borrower agrees to pay a fixed sum on the maturity of the note. Principal and/or interest payments on an index-linked note depend on the performance of one or more market indices, such as the S & P 500 Index or a weighted index of commodity futures, such as crude oil, gasoline and natural gas. The Fund may invest in "debt exchangeable for common stock" of an issuer or "equity-linked" debt securities of an issuer. At maturity, the principal amount of the debt security is exchanged for common stock of the issuer or is payable in an amount based on the issuer's common stock price at the time of maturity. In either case there is a risk that the amount payable at maturity will be less than the expected principal amount of the debt. The Fund may also invest in currency-indexed securities. Typically, these are short-term or intermediate-term debt securities having a value at maturity, and/or an interest rate, determined by reference to one or more foreign currencies. The currency-indexed securities purchased by the Fund may make payments based on a formula. The payment of principal or periodic interest may be calculated as a multiple of the movement of one currency against another currency, or against an index. These investments may entail increased risk to principal and increased price volatility. There are special risks in investing in derivative investments. The company issuing the instrument may fail to pay the amount due on the maturity of the instrument. Also, the underlying investment or security might not perform the way the Manager expected it to perform. Markets, underlying securities and indices may move in a direction not anticipated by the Manager. Performance of derivative investments may also be influenced by interest rate and stock market changes in the U.S. and abroad. All of this can mean that the Fund will realize less principal or income from the investment than expected. Certain derivative investments held by the Fund may be illiquid. Please refer to "Illiquid and Restricted Securities." Other Investment Restrictions. The Fund has other investment restrictions which are fundamental policies. Under these fundamental policies, the Fund cannot do any of the following: (1) make short sales except for sales "against the box"; (2) borrow money or enter into reverse repurchase agreements, except that the Fund may borrow money from banks and enter into reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes (but not for the purpose of making investments), provided that the aggregate amount of all such borrowings and commitments under such agreements does not, at the time of borrowing or of entering into such an agreement, exceed 10% of the Fund's total assets taken at current market value; the Fund will not purchase additional portfolio securities at any time that the aggregate amount of its borrowings and its commitments under reverse repurchase agreements exceeds 5% of the Fund's net assets (for purposes of this restriction, entering into portfolio lending agreements shall not be deemed to constitute borrowing money); (3) concentrate its investments in any particular industry except that it may invest up to 25% of the value of its total assets in the securities of issuers in any one industry (of the utility companies, gas, electric, water and telephone will each be considered as a separate industry); and (4) buy securities issued or guaranteed by any one issuer (except the U.S. Government or any of its agencies or instrumentalities) if with respect to 75% of its total assets (a) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (b) the Fund would own more than 10% of that issuer's voting securities. All of the percentage restrictions described above and elsewhere in this Prospectus and the Statement of Additional Information apply only at the time the Fund purchases a security, and the Fund need not dispose of a security merely because the size of the Fund's assets has changed or the security has increased in value relative to the size of the Fund. There are other fundamental policies discussed in the Statement of Additional Information. How the Fund is Managed Organization and History. Oppenheimer Integrity Funds (the "Trust") was organized in 1982 as a multi-series Massachusetts business trust and the Fund is a series of that Trust. That Trust is an open-end, diversified management investment company, with an unlimited number of authorized shares of beneficial interest. The Fund is one of two series of the Trust. Each of the two series of the Trust issues its own shares, has its own investment portfolio, and its own assets and liabilities. 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. "Trustees and Officers of the Fund" in the Statement of Additional Information names the Trustees and provides more information about them and the officers of the Fund. Although the Fund is not required by law to hold annual meetings, it may hold shareholder meetings from time to time on important matters, and shareholders have the right to call a meeting to remove a Trustee or to take other action described in the Fund's Declaration of Trust. The Board of Trustees has the power, without shareholder approval, to divide unissued shares of the Fund into two or more classes. The Board has done so, and the Fund currently has three classes of shares, Class A, Class B and Class C. Each class invests in the same investment portfolio. Each class has its own dividends and distributions, and pays certain expenses which may be different for the different classes. Each class may have a different net asset value. Each share has one vote at shareholder meetings, with fractional shares voting proportionally. Only shares of a particular class vote together on matters that affect that class alone. Shares are freely transferrable. The Manager and Its Affiliates. Since March 28, 1991, the Fund has been managed by the Manager, which handles its day-to-day business. The Manager carries out its duties, subject to the policies established by the Board of Trustees, under an investment advisory agreement which states the Manager's responsibilities and its fees. The Agreement sets forth the fees paid by the Fund to the Manager and describes the expenses that the Fund is responsible to pay to conduct its business. Prior to July 10, 1995, the Manager had contracted with Massachusetts Mutual Life Insurance Company ("MassMutual") to act as the Fund's Sub-Adviser. The Sub-Adviser was responsible for choosing the Fund's investments. The Manager, not the Fund, paid the Sub-Adviser. Effective July 10, 1995, the Sub-Advisory Agreement between the Manager and MassMutual terminated and the Manager is responsible for selecting the Fund's investments as well as for its day to day business, pursuant to an investment advisory agreement dated July 10, 1991. The Manager has operated as an investment adviser since 1959. The Manager (including a subsidiary) currently manages investment companies, including other OppenheimerFunds, with assets of more than $30 billion as of March 31, 1995, and with more than 2.4 million shareholder accounts. The Manager is owned by Oppenheimer Acquisition Corp., a holding company that is owned in part by senior officers of the Manager and controlled by Massachusetts Mutual Life Insurance Company (the "Manager"). -- Portfolio Manager. David P. Negri and David A. Rosenberg are Vice Presidents and Portfolio Managers of the Fund. Since July 10, 1995, they have been the individuals principally responsible for the day-to-day management of the Fund's portfolio. Messrs. Negri and Rosenberg is each a Vice President of the Manager. They each serve as officers and portfolio managers of other OppenheimerFunds. For more information about the Fund's other officers and Trustees, see "Trustees and Officers of the Fund" in the Statement of Additional Information. -- Fees and Expenses. Under the investment advisory agreement dated July 10, 1995 with the Manager, the Fund pays the Manager the following annual fees, which decline on additional assets as the Fund grows: 0.75% of the first $200 million of the Fund's average annual net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets in excess of $1 billion. The Fund's management fee for its last fiscal year, restated to reflect the new investment advisory agreement, was 0.75% of average annual net assets for both its Class A and Class B shares. Class C shares were not publicly offered prior to July 11, 1995. The Fund pays expenses related to its daily operations, such as custodian fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those expenses are paid out of the Fund's assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by shareholders through their investment. More information about the investment advisory agreement and the other expenses paid by the Fund is contained in the Statement of Additional Information. There is also information about the Fund's brokerage policies and practices in "Brokerage Policies of the Fund" in the Statement of Additional Information. That section discusses how brokers and dealers are selected for the Fund's portfolio transactions. Because the Fund purchases most of its portfolio securities directly from the sellers and not through brokers, it incurs relatively little expense for brokerage. When deciding which brokers to use, the Manager is permitted by the advisory agreement to consider whether brokers have sold shares of the Fund or any other funds for which the Manager or its affiliates serve as investment adviser. -- The Distributor. The Fund's shares are sold through dealers and brokers that have a sales agreement with Oppenheimer Funds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also distributes the shares of other mutual funds managed by the Manager (the "OppenheimerFunds") and is sub-distributor for funds managed by a subsidiary of the Manager. -- The Transfer Agent. The Fund's transfer agent is Oppenheimer Shareholder Services, a division of the Manager, which acts as the shareholder servicing agent for the Fund and the other OppenheimerFunds on an "at-cost" basis. Shareholders should direct inquiries about their accounts to the Transfer Agent at the address and toll-free numbers shown below in this Prospectus and on the back cover. Performance of the Fund Explanation of Performance Terminology. The Fund uses the terms "cumulative total return," "average annual total return" and "yield" to illustrate its performance. The performance of each class of shares is shown separately, because the performance of each class of shares will usually be different, as a result of the different kinds of expenses each class bears. This performance information may be useful to help you see how well your investment has done and to compare it to other funds or market indices, as we have done below. It is important to understand that the Fund's total return and yield represent past performance and should not be considered to be predictions of future returns or performance. This performance data is described below, but more detailed information about how total returns and yields are calculated is contained in the Statement of Additional Information, which also contains information about other ways to measure and compare the Fund's performance. The Fund's investment performance will vary over time, depending on market conditions, the composition of the portfolio, expenses and which class of shares you purchase. -- Total Returns. There are different types of total returns used to measure the Fund's performance. Total return is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains distributions are reinvested in additional shares. The cumulative total return measures the change in value over the entire period (for example, ten years). An average annual total return shows the average rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average annual total returns do not show the Fund's actual year- by-year performance. When total returns are quoted for Class A shares, they normally include the payment of the maximum initial sales charge. When total returns are shown for Class B and Class C shares, they include the applicable contingent deferred sales charge. Total returns may also be quoted "at net asset value," without including the sales charge, and those returns would be reduced if sales charges were deducted. -- Yield. Each class of shares calculates its yield by dividing the annualized net investment income per share on the portfolio during a 30- day period by the maximum offering price on the last day of the period. The yield of each class will differ because of the different expenses of each class of shares. The yield data represents a hypothetical investment return on the portfolio, and does not measure an investment return based on dividends actually paid to shareholders. To show that return, a dividend yield may be calculated. Dividend yield is calculated by dividing the dividends of a class derived from net investment income during a stated period by the maximum offering price on the last day of the period. Yields and dividend yields for Class A shares reflect the deduction of the maximum initial sales charge, but may also be shown based on the Fund's net asset value per share. Yields for Class B and Class C shares do not reflect the deduction of the contingent deferred sales charge. How Has the Fund Performed? Below is a discussion by the Manager of the Fund's performance during its last fiscal year ended December 31, 1994, followed by a graphical comparison of the Fund's performance to an appropriate broad-based market index. -- Management's Discussion of Performance. In 1994, the Federal Reserve aggressively moved to raise short term interest rates in an effort to control inflation. As interest rates rose, the bond market declined. In response to the rising interest rates in the U.S., the Manager reduced the Fund's exposure to long-term U.S. Government Treasury securities whose performance tends to lag investment-grade corporate bonds in the mid-to- late stages of economic expansion. The Manager moved to position the Fund's assets somewhat more conservatively by increasing its holdings in asset-backed issues and mortgage-backed bonds which generally are more stable and predictable in periods of rising interest rates and which the Manager viewed as offering high credit quality and attractive yields. While waiting for the bond market to stabilize, the Manager increased the Fund's holdings in short-term money market securities. -- Comparing the Fund's Performance to the Market. The chart below shows the performance of a hypothetical $10,000 investment in each class of shares of the Fund held until December 31, 1994; in the case of Class A shares, from the inception of the class on April 15, 1988, and in the case of Class B shares, from the inception of the class on May 1, 1994. Class C shares were not offered during the fiscal year ended December 31, 1994, and thus no performance information about Class C shares is given. The performance of each class of the Fund's shares is compared to the performance of the Lehman Brothers Corporate Bond Index, a broad-based, unmanaged index of publicly-issued nonconvertible investment grade corporate debt of U.S. issuers, widely recognized as a measure of the U.S. fixed-rate corporate bond market. Prior to July 10, 1995, the Fund's investments were limited to investment grade bonds, U.S. Government Securities, and money market instruments. This Prospectus and Statement of Additional Information reflect the investment policy changes approved by the Fund's shareholders at a meeting held July 10, 1995. The Fund will continue to use the Lehman Brothers Corporate Bond Index as an appropriate broad-based index against which to compare its performance. The Lehman Brothers Corporate Bond Index includes a factor for the reinvestment of interest, but does not reflect expenses or taxes. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction costs, and none of the data below shows the effect of taxes. Also, the Fund's performance reflects the effect of Fund business and operating expenses. While index comparisons may be useful to provide a benchmark for the Fund's performance, it must be noted that the Fund's investments are not limited to the securities in any one index. Moreover, the index performance data does not reflect any assessment of the risk of the investments included in the index. Comparison of Change in Value of $10,000 Hypothetical Investment in Oppenheimer Investment Grade Bond Fund Class A and Class B Shares and the Lehman Brothers Corporate Bond Index [Graphs] Past Performance is not predictive of future performance. A B O U T Y O U R A C C O U N T How to Buy Shares Classes of Shares. The Fund offers investors three different classes of shares. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. -- Class A Shares. When you buy Class A shares, you pay an initial sales charge (on investments up to $1 million). If you purchase Class A shares as part of an investment of at least $1 million in Class A shares of one or more OppenheimerFunds, you will not pay an initial sales charge but if you sell any of those shares within 18 months after your purchase, you may pay a contingent deferred sales charge, which will vary depending on the amount you invested. Sales charges are described below in "Class A Shares". -- Class B Shares. When you buy Class B shares, you pay no sales charge at the time of purchase, but if you sell your shares within six years, you will normally pay a contingent deferred sales charge that varies depending on how long you own your shares. It is described below in "Class B Shares". -- Class C Shares. When you buy Class C shares, you pay no sales charge at the time of purchase, but if you sell your shares within 12 months of buying them, you will normally pay a contingent deferred sales charge of 1%. Please refer to "Class C Shares," below. Which Class of Shares Should You Choose? Once you decide that the Fund is an appropriate investment for you, deciding which class of shares is best suited to your needs depends on a number of factors which you should discuss with your financial advisor. The Fund's operating costs that apply to a class of shares and the effect of the different types of sales charges on your investment will vary your investment results over time. The most important factors are how much you plan to invest, how long you plan to hold your investment, and whether you anticipate exchanging your shares for shares of other OppenheimerFunds (not all of which offer Class B or Class C shares). If your goals and objectives change over time and you plan to purchase additional shares, you should re-evaluate those factors to see if you should consider another class of shares. In the following discussion, to help provide you and your financial advisor with a framework in which to choose a class, we have made some assumptions using a hypothetical investment in the Fund. We used the sales charge rates that apply to each class, and considered the effect of the asset-based sales charges on Class B and Class C expenses (which will affect your investment return). For the sake of comparison, we have assumed that there is a 10% rate of appreciation in your investment each year. Of course, the actual performance of your investment cannot be predicted and will vary, based on the Fund's actual investment returns, and the operating expenses borne by each class of shares, and which class of shares you invest in. The factors discussed below are not intended to be investment advice, guidelines or recommendations, because each investor's financial considerations are different. -- 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. The effect of the sales charge over time, using our assumptions, will generally depend on the amount invested. The effect of class-based expenses will also depend on how much you invest. Investing for the Short Term. If you have a short term investment horizon (that is, you plan to hold your shares less than six years), you should probably consider purchasing Class C shares rather than Class A or Class B shares. This is 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 $250,000 for the shorter term, Class C shares might not be as advantageous as Class A shares. This is because the annual asset-based sales charge on Class C shares (and the contingent deferred sales charge that applies if you redeem Class C shares within one year of purchase) will have a greater economic impact on your account during that period than the reduced initial sales charge available for larger purchases of Class A shares. And for most Class B investors who invest $500,000 or more, and for most Class C 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 million or more of Class B shares or purchase orders of $1 million or more of Class C shares from a single investor. Investing for the Longer Term. If you are investing for the longer term, for example, for retirement, and do not expect to need access to your money for six years or more, Class A shares will likely be more advantageous than Class B or Class C shares. This is because of the effect of expected lower expenses for Class A shares and the reduced initial sales charges available for larger investments in Class A shares under the Fund's Right of Accumulation. Class B shares may be appropriate for smaller investments held for the longer term because there is no initial sales charge on Class B shares, and Class B shares held six years following their purchase convert into Class A shares. Of course all of these examples are based on approximations of the effect of current sales charges and expenses on a hypothetical investment over time, using the assumed annual performance return stated above, and you should analyze your options carefully. -- Are There Differences in Account Features That Matter to You? Because some account features may not be available to Class B and Class C shareholders, or other features (such as Automatic Withdrawal Plans) might not be advisable (because of the effect of contingent deferred sales charge) in non-retirement accounts for Class B and Class C shareholders, you should carefully review how you plan to use your investment account before deciding which class of shares to buy. Also, because not all OppenheimerFunds currently offer Class B or Class C shares, and because exchanges are permitted only to the same class of shares in other OppenheimerFunds, you should consider how important the exchange privilege is likely to be for you. Share certificates are not available for Class B or Class C shares and if you are considering using your shares as collateral for a loan, that may be a factor to consider. -- How Does It Affect Payments To My Broker? A salesperson, such as a broker, or any other person who is entitled to receive compensation for selling Fund shares may receive different compensation for selling one class than another class. It is important that investors understand that the purpose of the Class B and Class C contingent deferred sales charge and asset-based sales charge for Class B and Class C shares is the same as the purpose of the front-end sales charge on sales of Class A shares: to compensate the Distributor for commissions it pays to dealers and financial institutions for selling shares. How Much Must You Invest? You can open a Fund account with a minimum initial investment of $1,000 and make additional investments at any time with as little as $25. There are reduced minimum investments under special investment plans: -- With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial plans and military allotment plans, you can make initial and subsequent investments of as little as $25; purchases of at least $25 can be made by telephone through AccountLink. -- Under pension and profit-sharing plans and Individual Retirement Accounts (IRAs), you can make an initial investment of as little as $250 (if your IRA is established under an Asset Builder Plan, the $25 minimum applies), and subsequent investments may be as little as $25. -- There is no minimum investment requirement if you are buying shares by reinvesting dividends from the Fund or other OppenheimerFunds (a list of them appears in the Statement of Additional Information, or you can ask your dealer or call the Transfer Agent), or by reinvesting distributions from unit investment trusts that have made arrangements with the Distributor. How Are Shares Purchased? You can buy shares several ways -- through any dealer, broker or financial institution that has a sales agreement with the Distributor, or directly through the Distributor, or automatically from your bank account through an Asset Builder Plan under the OppenheimerFunds AccountLink service. When you buy shares, be sure to specify Class A, Class B or Class C shares. If you do not choose, your investment will be made in Class A shares. -- Buying Shares Through Your Dealer. Your dealer will place your order with the Distributor on your behalf. -- Buying Shares Through the Distributor. Complete an OppenheimerFunds New Account Application and return it with a check payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you don't list a dealer on the application, the Distributor will act as your agent in buying the shares. However, we recommend that you discuss your investment first with a financial advisor, to be sure it is appropriate for you. -- Buying Shares Through OppenheimerFunds AccountLink. You can use AccountLink to link your Fund account with an account at a U.S. bank or other financial institution that is an Automated Clearing House (ACH) member. You can then transmit funds electronically to purchase shares, or to have the Transfer Agent send redemption proceeds, or transmit dividends and distributions to your bank account. Shares are purchased for your account by AccountLink on the regular business day the Distributor is instructed by you to initiate the ACH transfer to buy shares. You can provide those instructions automatically, under an Asset Builder Plan, described below, or by telephone instructions using OppenheimerFunds PhoneLink, also described below. You should request AccountLink privileges on the application or dealer settlement instructions used to establish your account. Please refer to "AccountLink," below for more details. -- Asset Builder Plans. You may purchase shares of the Fund (and up to four other OppenheimerFunds) automatically each month from your account at a bank or other financial institution under an Asset Builder Plan with AccountLink. Details are on the Application and in the Statement of Additional Information. -- At What Price Are Shares Sold? Shares are sold at the price based on the net asset value (and any initial sales charge that applies) that is next determined after the Distributor receives the purchase order in Denver. In most cases, to enable you to receive that day's offering price, the Distributor must receive your order by the time of day The New York Stock Exchange closes, which is normally 4:00 P.M., New York time, but may be earlier on some days (all references to time in this Prospectus mean "New York time."). The net asset value of each class of shares is determined as of the close of The New York Stock Exchange on each day the Exchange is open (which is a "regular business day"). If you buy shares through a dealer, the dealer must receive your order by the close of The New York Stock Exchange on a regular business day and transmit it to the Distributor so that it is received before the Distributor's close of business that day, which is normally 5:00 P.M. The Distributor may reject any purchase order for the Fund's shares, in its sole discretion. -- Class A Shares. Class A shares are sold at their offering price, which is normally net asset value plus an initial sales charge. However, in some cases, described below, purchases are not subject to an initial sales charge, and the offering price will be the net asset value. In some cases, reduced sales charges may be available, as described below. Out of the amount you invest, the Fund receives the net asset value for your account. The sales charge varies depending on the amount of your purchase. A portion of the sales charge may be retained by the Distributor and a portion allocated to your dealer as commission. 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 Percentage of Percentage of Commission as Offering Amount Percentage of Amount of Purchase Price Invested Offering Price - ---------------------------------------------------------------------- Less than $50,000 4.75% 4.98% 4.00% - ---------------------------------------------------------------------- $50,000 or more but 4.50% 4.71% 3.75% less than $100,000 - ---------------------------------------------------------------------- $100,000 or more but 3.50% 3.63% 2.75% less than $250,000 - ---------------------------------------------------------------------- $250,000 or more but 2.50% 2.56% 2.00% less than $500,000 - ---------------------------------------------------------------------- $500,000 or more but 2.00% 2.04% 1.60% less than $1 million
The Distributor reserves the right to reallow the entire commission to dealers. If that occurs, the dealer may be considered an "underwriter" under Federal securities laws. -- Class A Contingent Deferred Sales Charge. There is no initial sales charge on purchases of Class A shares of any one or more OppenheimerFunds aggregating $1 million or more (shares of the Fund and other OppenheimerFunds that offer only one class of shares that has no class designation are considered "Class A shares" for this purpose). However, the Distributor pays dealers of record commissions on such purchases in an amount equal to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of share purchases over $5 million. That commission will be paid only on the amount of those purchases in excess of $1 million that were not previously subject to a front-end sales charge and dealer commission. If you redeem any of those shares within 18 months of the end of the calendar month of their purchase, a contingent deferred sales charge (called the "Class A contingent deferred sales charge") will be deducted from the redemption proceeds. That sales charge will be equal to 1.0% of the aggregate net asset value of either (1) the redeemed shares (not including shares purchased by reinvestment of dividends or capital gain distributions) or (2) the original cost of the shares, whichever is less. However, the Class A contingent deferred sales charge will not exceed the aggregate amount of the commissions the Distributor paid to your dealer on all Class A shares of all OppenheimerFunds you purchased subject to the Class A contingent deferred sales charge. In determining whether a contingent deferred sales charge is payable, the Fund will first redeem shares that are not subject to the sales charge, including shares purchased by reinvestment of dividends and capital gains, and then will redeem other shares in the order that you purchased them. The Class A contingent deferred sales charge is waived in certain cases described in "Waivers of Class A Sales Charges" below. No Class A contingent deferred sales charge is charged on exchanges of shares under the Fund's Exchange Privilege (described below). However, if the shares acquired by exchange are redeemed within 18 months of the end of the calendar month of the purchase of the exchanged shares, the contingent deferred sales charge will apply. -- Special Arrangements With Dealers. The Distributor may advance up to 13 months' commissions to dealers that have established special arrangements with the Distributor for Asset Builder Plans for their clients. Dealers whose sales of Class A shares of OppenheimerFunds (other than money market funds) under OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5 million per year (calculated per quarter), will receive monthly one-half of the Distributor's retained commissions on those sales, and if those sales exceed $10 million per year, those dealers will receive the Distributor's entire retained commission on those sales. Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy Class A shares at reduced sales charge rates in one or more of the following ways: -- Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you and your spouse can add together Class A shares you purchase for your own accounts, for your joint accounts, or on behalf of your children who are minors, under trust or custodial accounts. A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one or more employee benefit plans of the same employer) that has multiple accounts. Additionally, you can add together current purchases of Class A shares of the Fund and other OppenheimerFunds. You can also include Class A shares of OppenheimerFunds you previously purchased subject to a sales charge, provided that you still hold your investment in one of the OppenheimerFunds. The value of those shares will be based on the greater of the amount you paid for the shares or their current value (at offering price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the Statement of Additional Information, or a list can be obtained from the Transfer Agent. The reduced sales charge will apply only to current purchases and must be requested when you buy your shares. -- Letter of Intent. Under a Letter of Intent, you may purchase Class A shares of the Fund and other OppenheimerFunds during a 13-month period at the reduced sales charge rate that applies to the total amount of the intended purchases. This can include purchases made up to 90 days before the date of the Letter. More information is contained in the Application and in "Reduced Sales Charges" in the Statement of Additional Information. -- Waivers of Class A Sales Charges. No sales charge is imposed on sales of Class A shares to the following investors: (1) the Manager or its affiliates; (2) present or former officers, directors, trustees and employees (and their "immediate families" as defined in "Reduced Sales Charges" in the Statement of Additional Information) of the Fund, the Manager and its affiliates, and retirement plans established by them for their employees; (3) registered management investment companies, or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose; (4) dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own accounts or for retirement plans for their employees; (5) employees and registered representatives (and their spouses) of dealers or brokers described above or financial institutions that have entered into sales arrangements with such dealers or brokers (and are identified to the Distributor) or with the Distributor; the purchaser must certify to the Distributor at the time of purchase that the purchase is for the purchaser's own account (or for the benefit of such employee's spouse or minor children); (6) dealers, brokers or registered investment advisers that have entered into an agreement with the Distributor providing specifically for the use of shares of the Fund in particular investment products made available to their clients; (7) dealers, brokers 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. Additionally, no sales charge is imposed on shares that are (a) issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the Fund is a party or (b) purchased by the reinvestment of loan repayments by a participant in a retirement plan for which the Manager or its affiliates acts as sponsor, (c) purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment arrangements have been made with the Distributor, or (d) purchased and paid for with the proceeds of shares redeemed in the prior 12 months from a mutual fund on which an initial sales charge or contingent deferred sales charge was paid (other than a fund managed by the Manager or any of its affiliates); this waiver must be requested when the purchase order is placed for your shares of the Fund and the Distributor may require evidence of your qualification for the waiver. There is a further discussion of this policy in "Reduced Sales Charges" in the Statement of Additional Information. The Class A contingent deferred sales charge is also waived if shares are redeemed in the following cases: (1) for retirement distributions or loans to participants or beneficiaries from qualified retirement plans, deferred compensation plans or other employee benefit plans ("Retirement Plans"), (2) to return excess contributions made to Retirement Plans, (3) to make Automatic Withdrawal Plan payments that are limited to no more than 12% of the original account value annually, (4) involuntary redemptions of shares by operation of law or under the procedures set forth in the Fund's Declaration of Trust or adopted by the Board of Trustees, and (5) Class A shares that would otherwise be subject to the Class A contingent deferred sales charge are redeemed, but at the time the purchase order for your shares was placed, the dealer agreed to accept the dealer's portion of the commission payable on the sale in installments of 1/18th of the commission per month (and that no further commission would be payable if the shares were redeemed within 18 months of purchase). -- Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A shares to reimburse the Distributor for a portion of its costs incurred in connection with the personal service and maintenance of accounts that hold Class A shares. Reimbursement is made quarterly at an annual rate that may not exceed 0.25% of the average annual net asset value of Class A shares of the Fund. The Distributor uses all of those fees to compensate dealers, brokers, banks and other financial institutions quarterly for providing personal service and maintenance of accounts of their customers that hold Class A shares and to reimburse itself (if the Fund's Board of Trustees authorizes such reimbursements, which it has not yet done) for its other expenditures under the Plan. Services to be provided include, among others, answering customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans available and providing other services at the request of the Fund or the Distributor. Payments are made by the Distributor quarterly at an annual rate not to exceed 0.25% of the average annual net asset value of Class A shares held in accounts of the dealer or its customers. The payments under the Plan increase the annual expenses of Class A shares. For more details, please refer to "Distribution and Service Plans" in the Statement of Additional Information. Class B Shares. Class B shares are sold at net asset value per share without an initial sales charge. However, if Class B shares are redeemed within 6 years of their purchase, a contingent deferred sales charge will be deducted from the redemption proceeds. That sales charge will not apply to shares purchased by the reinvestment of dividends or capital gains distributions. The charge will be assessed on the lesser of the net asset value of the shares at the time of redemption or the original purchase price. The contingent deferred sales charge is not imposed on the amount of your account value represented by the increase in net asset value over the initial purchase price (including increases due to the reinvestment of dividends and capital gains distributions). The Class B contingent deferred sales charge is paid to the Distributor to reimburse its expenses of providing distribution-related services to the Fund in connection with the sale of Class B shares. To determine whether the contingent deferred sales charge applies to a redemption, the Fund redeems shares in the following order: (1) shares acquired by reinvestment of dividends and capital gains distributions, (2) shares held for over 6 years, and (3) shares held the longest during the 6-year period. The amount of the contingent deferred sales charge will depend on the number of years since you invested and the dollar amount being redeemed, according to the following schedule:
Contingent Deferred Sales Charge Beginning of Month in which On 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. All purchases are considered to have been made on the first regular business day of the month in which the purchase was made. -- Waivers of Class B Sales Charge. The Class B contingent deferred sales charge will be waived if the shareholder requests it for any of the following redemptions: (1) to make distributions to participants or beneficiaries from Retirement Plans, if the distributions are made (a) under an Automatic Withdrawal Plan after the participant reaches age 59- 1/2, as long as the payments are no more than 10% of the account value annually (measured from the date the Transfer Agent receives the request), or (b) following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary which occurred after the account was opened; (2) redemptions from accounts other than Retirement Plans following the death or disability of the shareholder (the disability must have occurred after the account was established and you must provide evidence of a determination of disability by the Social Security Administration), (3) to make returns of excess contributions to Retirement Plans, and (4) to make distributions from IRAs (including SEP-IRAs and SAR/SEP accounts) before the participant is age 59-1/2, and distributions from 403(b)(7) custodial plans or pension or profit sharing plans before the participant is age 59-1/2 but only after the participant has separated from service, if the distributions are made in substantially equal periodic payments over the life (or life expectancy) of the participant or the joint lives (or joint life and last survivor expectancy) of the participant and the participant's designated beneficiary (and the distributions must comply with other requirements for such distributions under the Internal Revenue Code and may not exceed 10% of the account value annually, measured from the date the Transfer Agent receives the request). The contingent deferred sales charge is also waived on Class B shares in the following cases: (i) shares sold to the Manager or its affiliates; (ii) shares sold to registered management investment companies or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose; (iii) shares issued in plans of reorganization to which the Fund is a party; and (iv) shares redeemed in involuntary redemptions as described below. Further details about this policy are contained in "Reduced Sales Charges" in the Statement of Additional Information. -- Automatic Conversion of Class B Shares. 72 months after you purchase Class B shares, those shares will automatically convert to Class A shares. This conversion feature relieves Class B shareholders of the asset-based sales charge that applies to Class B shares under the Class B Distribution and Service Plan, described below. The conversion is based on the relative net asset value of the two classes, and no sales load or other charge is imposed. When Class B shares convert, any other Class B shares that were acquired by the reinvestment of dividends and distributions on the converted shares will also convert to Class A shares. The conversion feature is subject to the continued availability of a tax ruling described in "Alternative Sales Arrangements - Class A and Class B Shares" in the Statement of Additional Information. -- Distribution and Service Plan for Class B Shares. The Fund has adopted a "compensation type" Distribution and Service Plan for Class B shares to compensate the Distributor for its services and costs in distributing Class B shares and servicing accounts. Under the Plan, the Fund pays the Distributor an annual "asset-based sales charge" of 0.75% per year on Class B shares that are outstanding for 6 years or less. The Distributor also receives a service fee of 0.25% per year. Both fees are computed on the average annual net asset value of Class B shares, determined as of the close of each regular business day. The asset-based sales charge allows investors to buy Class B shares without a front-end sales charge while allowing the Distributor to compensate dealers that sell Class B shares. The Distributor uses the service fee to compensate dealers for providing personal services for accounts that hold Class B shares. Those services are similar to those provided under the Class A Service Plan, described above. The asset-based sales charge and service fees increase Class B expenses by 1.00% of average net assets per year. The Distributor pays the 0.25% service fee to dealers in advance for the first year after Class B shares have been sold by the dealer. After the shares have been held for a year, the Distributor pays the fee on a quarterly basis. The Distributor pays sales commissions of 3.75% of the purchase price to dealers from its own resources at the time of sale. The Distributor retains the asset-based sales charge (and the first year's service fee). If the Plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the service fee and/or the asset- based sales charge to the Distributor. Class C Shares. Class C shares are sold at net asset value per share without an initial sales charge. However, if Class C shares are redeemed within 12 months of their purchase, a contingent deferred sales charge of 1.0% will be deducted from the redemption proceeds. That sales charge will not apply to shares purchased by the reinvestment of dividends or capital gains distributions. The charge will be assessed on the lesser of the net asset value of the shares at the time of redemption or the original purchase price. The contingent deferred sales charge is not imposed on the amount of your account value represented by the increase in net asset value over the initial purchase price (including increases due to the reinvestment of dividends and capital gains distributions). The Class C contingent deferred sales charge is paid to the Distributor to reimburse its expenses of providing distribution-related services to the Fund in connection with the sale of Class C shares. To determine whether the contingent deferred sales charge applies to a redemption, the Fund redeems shares in the following order: (1) shares acquired by reinvestment of dividends and capital gains distributions, (2) shares held for over 12 months, and (3) shares held the longest during the 12-month period. -- Waivers of Class C Sales Charge. The Class C contingent deferred sales charge will be waived if the shareholder requests it for any of the following redemptions: (1) distributions to participants or beneficiaries from Retirement Plans, if the distributions are made (a) under an Automatic Withdrawal Plan after the participant reaches age 59-1/2, as long as the payments are no more than 10% of the account value annually (measured from the date the Transfer Agent receives the request), or (b) following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary; (2) redemptions from accounts other than Retirement Plans following the death or disability of the shareholder (the disability must have occurred after the account was established and you must provide evidence of a determination of disability by the Social Security Administration), (3) returns of excess contributions to Retirement Plans and (4) distributions from IRAs (including SEP-IRAs and SAR/SEP accounts) before the participant is age 59 1/2, and distributions from 403(b)(7) custodial plans or pension or profit sharing plans before the participant is age 59 1/2 but only after the participant has separated from service, if the distributions are made in substantially equal periodic payments over the life (or life expectancy) of the participant or the joint lives (or joint life and last survivor expectancy) of the participant and the participant's designated beneficiary (and the distributions must comply with other requirements for such distributions under the Internal Revenue Code and may not exceed 10% of the account value annually, measured from the date the Transfer Agent receives the request). The contingent deferred sales charge is also waived on Class C shares in the following cases: (i) shares sold to the Manager or its affiliates; (ii) shares sold to registered management investment companies or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose; (iii) shares issued in plans of reorganization to which the Fund is a party; and (iv) shares redeemed in involuntary redemptions as described above. Further details about this policy are contained in "Reduced Sales Charges" in the Statement of Additional Information. -- Distribution and Service Plan for Class C Shares. The Fund has adopted a "compensation type" Distribution and Service Plan for Class C shares to compensate the Distributor for its services in distributing Class C shares and servicing accounts. Under the Plan, the Fund pays the Distributor an annual "asset-based sales charge" of 0.75% per year on Class C shares. The Distributor also receives a service fee of 0.25% per year. Both fees are computed on the average annual net assets of Class C shares, determined as of the close of each regular business day. The asset-based sales charge allows investors to buy Class C shares without a front-end sales charge while allowing the Distributor to compensate dealers that sell Class C shares. The Distributor uses the service fee to compensate dealers for providing personal services for accounts that hold Class C shares. Those services are similar to those provided under the Class A Service Plan, described above. The asset-based sales charge and service fees increase Class C expenses by 1.00% of average net assets per year. The Distributor pays the 0.25% service fee to dealers in advance for the first year after Class C shares have been sold by the dealer. After the shares have been held for a year, the Distributor pays the fee on a quarterly basis. The Distributor pays sales commissions of 0.75% of the purchase price to dealers from its own resources at the time of sale. The Distributor retains the asset-based sales charge during the first year shares are outstanding. The Distributor plans to pay the asset-based sales charge as an ongoing commission to the dealer on Class C shares that have been outstanding for a year or more. If the Plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the service fee and/or the asset- based sales charge to the Distributor. Special Investor Services AccountLink. OppenheimerFunds AccountLink links your Fund account to your account at your bank or other financial institution to enable you to send money electronically between those accounts to perform a number of types of account transactions. These include purchases of shares by telephone (either through a service representative or by PhoneLink, described below), automatic investments under Asset Builder Plans, and sending dividends and distributions or Automatic Withdrawal Plan payments directly to your bank account. Please refer to the Application for details or call the Transfer Agent for more information. AccountLink privileges should be requested on the Application you use to buy shares, or on your dealer's settlement instructions if you buy your shares through your dealer. After your account is established, you can request AccountLink privileges on signature-guaranteed instructions to the Transfer Agent. AccountLink privileges will apply to each shareholder listed in the registration on your account as well as to your dealer representative of record unless and until the Transfer Agent receives written instructions terminating or changing those privileges. After you establish AccountLink for your account, any change of bank account information must be made by signature-guaranteed instructions to the Transfer Agent signed by all shareholders who own the account. -- Using AccountLink to Buy Shares. Purchases may be made by telephone only after your account has been established. To purchase shares in amounts up to $250,000 through a telephone representative, call the Distributor at 1-800-852-8457. The purchase payment will be debited from your bank account. -- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that enables shareholders to perform a number of account transactions automatically using a touch-tone phone. PhoneLink may be used on already-established Fund accounts after you obtain a Personal Identification Number (PIN), by calling the special PhoneLink number: 1- 800-533-3310. -- Purchasing Shares. You may purchase shares in amounts up to $100,000 by phone, by calling 1-800-533-3310. You must have established AccountLink privileges to link your bank account with the Fund, to pay for these purchases. -- Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described below, you can exchange shares automatically by phone from your Fund account to another OppenheimerFunds account you have already established by calling the special PhoneLink number. Please refer to "How to Exchange Shares," below, for details. -- Selling Shares. You can redeem shares by telephone automatically by calling the PhoneLink number and the Fund will send the proceeds directly to your AccountLink bank account. Please refer to "How to Sell Shares," below for details. Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable you to sell shares automatically or exchange them to another OppenheimerFunds account on a regular basis: -- Automatic Withdrawal Plans. If your Fund account is worth $5,000 or more, you can establish an Automatic Withdrawal Plan to receive payments of at least $50 on a monthly, quarterly, semi-annual or annual basis. The checks may be sent to you or sent automatically to your bank account on AccountLink. You may even set up certain types of withdrawals of up to $1,500 per month by telephone. You should consult the Application and Statement of Additional Information for more details. -- Automatic Exchange Plans. You can authorize the Transfer Agent automatically to exchange an amount you establish in advance for shares of up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum purchase for each OppenheimerFunds account is $25. These exchanges are subject to the terms of the Exchange Privilege, described below. Reinvestment Privilege. If you redeem some or all of your Fund shares, you have up to 6 months to reinvest all or part of the redemption proceeds in Class A shares of the Fund or other OppenheimerFunds without paying sales charge. This privilege applies only to redemptions of Class A shares or to redemptions of Class B shares of the Fund that you purchased by reinvesting dividends or distributions or on which you paid a contingent deferred sales charge when you redeemed them. You must be sure to ask the Distributor for this privilege when you send your payment. Please consult the Statement of Additional Information for more details. Retirement Plans. Fund shares are available as an investment for your retirement plans. If you participate in a plan sponsored by your employer, the plan trustee or administrator must make the purchase of shares for your retirement plan account. The Distributor offers a number of different retirement plans that can be used by individuals and employers: -- Individual Retirement Accounts including rollover IRAs, for individuals and their spouses -- 403(b)(7) Custodial Plans for employees of eligible tax-exempt organizations, such as schools, hospitals and charitable organizations -- SEP-IRAs (Simplified Employee Pension Plans) for small business owners or people with income from self-employment, including SARSEP-IRAs -- Pension and Profit-Sharing Plans for self-employed persons and other employers Please call the Distributor for the OppenheimerFunds plan documents, which contain important information and applications. How to Sell Shares You can arrange to take money out of your account on any regular business day by selling (redeeming) some or all of your shares. Your shares will be sold at the next net asset value calculated after your order is received and accepted by the Transfer Agent. The Fund offers you a number of ways to sell your shares: in writing, 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, as described above. If you have questions about any of these procedures, and especially if you are redeeming shares in a special situation, such as due to the death of the owner, or from a retirement plan, please call the Transfer Agent first, at 1-800-525-7048, for assistance. -- Retirement Accounts. To sell shares in an OppenheimerFunds retirement account in your name, call the Transfer Agent for a distribution request form. There are special income tax withholding requirements for distributions from retirement plans and you must submit a withholding form with your request to avoid delay. If your retirement plan account is held for you by your employer, you must arrange for the distribution request to be sent by the plan administrator or trustee. There are additional details in the Statement of Additional Information. -- Certain Requests Require a Signature Guarantee. To protect you and the Fund from fraud, certain redemption requests must be in writing and must include a signature guarantee in the following situations (there may be other situations also requiring a signature guarantee): -- You wish to redeem more than $50,000 worth of shares and receive a check -- A redemption check is not payable to all shareholders listed on the account statement -- A redemption check is not sent to the address of record on your statement -- Shares are being transferred to a Fund account with a different owner or name -- Shares are redeemed by someone other than the owners (such as an Executor) -- Where Can I Have My Signature Guaranteed? The Transfer Agent will accept a guarantee of your signature by a number of financial institutions, including: a U.S. bank, trust company, credit union or savings association, or by a foreign bank that has a U.S. correspondent bank, or by a U.S. registered dealer or broker in securities, municipal securities or government securities, or by a U.S. national securities exchange, a registered securities association or a clearing agency. If you are signing on behalf of a corporation, partnership or other business, or as a fiduciary, you must also include your title in the signature. Selling Shares by Mail. Write a "letter of instructions" that includes: -- Your name -- The Fund's name -- Your Fund account number (from your account statement) -- The dollar amount or number of shares to be redeemed -- Any special payment instructions -- Any share certificates for the shares you are selling -- The signatures of all registered owners exactly as the account is registered, and -- Any special requirements or documents requested by the Transfer Agent to assure proper authorization of the person asking to sell shares. Use the following address for requests by mail: Oppenheimer Shareholder Services P.O. Box 5270, Denver, Colorado 80217 Send Courier or Express Mail requests to: Oppenheimer Shareholder Services 10200 E. Girard Avenue, Building D Denver, Colorado 80231 Selling Shares by Telephone. You and your dealer representative of record may also sell your shares by telephone. To receive the redemption price on a regular business day, your call must be received by the Transfer Agent by the close of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be earlier on some days. Shares held in an OppenheimerFunds retirement plan or under a share certificate may not be redeemed by telephone. -- To redeem shares through a service representative, call 1-800-852- 8457 -- To redeem shares automatically on PhoneLink, call 1-800-533-3310 Whichever method you use, you may have a check sent to the address on the account statement, or, if you have linked your Fund account to your bank account on AccountLink, you may have the proceeds wired to that bank account. -- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by telephone, once in any 7-day period. The check must be payable to all owners of record of the shares and must be sent to the address on the account. This service is not available within 30 days of changing the address on an account. -- Telephone Redemptions Through AccountLink. There are no dollar limits on telephone redemption proceeds sent to a bank account designated when you establish AccountLink. Normally the ACH wire to your bank is initiated on the business day after the redemption. You do not receive dividends on the proceeds of the shares you redeemed while they are waiting to be wired. Checkwriting. To be able to write checks against your Fund account, you may request that privilege on your account Application or you can contact the Transfer Agent for signature cards, which must be signed (with a signature guarantee) by all owners of the account and returned to the Transfer Agent so that checks can be sent to you to use. Shareholders with joint accounts can elect in writing to have checks paid over the signature of one owner. -- Checks can be written to the order of whomever you wish, but may not be cashed at the Fund's bank or custodian. -- Checkwriting privileges are not available for accounts holding Class B shares or Class A shares that are subject to a contingent deferred sales charge. -- Checks must be written for at least $100. -- Checks cannot be paid if they are written for more than your account value. Remember: your shares fluctuate in value and you should not write a check close to the total account value. -- You may not write a check that would require the Fund to redeem shares that were purchased by check or Asset Builder Plan payments within the prior 10 days. -- Don't use your checks if you changed your Fund account number. Selling Shares Through Your Dealer. The Distributor has made arrangements to repurchase Fund shares from dealers and brokers on behalf of their customers. Brokers or dealers may charge for that service. Please refer to "Special Arrangements For Repurchase of Shares From Dealers And Brokers" in the Statement of Additional Information for more details. How to Exchange Shares Shares of the Fund may be exchanged for shares of certain OppenheimerFunds at net asset value per share at the time of exchange, without sales charge. To exchange shares, you must meet several conditions: -- Shares of the fund selected for exchange must be available for sale in your state of residence -- The prospectuses of this Fund and the fund whose shares you want to buy must offer the exchange privilege -- You must hold the shares you buy when you establish your account for at least 7 days before you can exchange them; after the account is open 7 days, you can exchange shares every regular business day -- You must meet the minimum purchase requirements for the fund you purchase by exchange -- Before exchanging into a fund, you should obtain and read its prospectus Shares of a particular class may be exchanged only for shares of the same class in the other OppenheimerFunds. For example, you can exchange Class A shares of this Fund only for Class A shares of another fund. At present, not all of the OppenheimerFunds offer the same classes of shares. If a fund has only one class of shares that does not have a class designation, they are "Class A" shares for exchange purposes. Certain OppenheimerFunds offer Class A, Class B and/or Class C shares, and a list can be obtained by calling the Distributor at 1-800-525-7048. In some cases, sales charges may be imposed on exchange transactions. Please refer to "How to Exchange Shares" in the Statement of Additional Information for more details. Exchanges may be requested in writing or by telephone: -- Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form, signed by all owners of the account. Send it to the Transfer Agent at the addresses listed in "How to Sell Shares." -- Telephone Exchange Requests. Telephone exchange requests may be made either by calling a service representative at 1-800-852-8457 or by using PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone exchanges may be made only between accounts that are registered with the same names and address. Shares held under certificates may not be exchanged by telephone. You can find a list of eligible OppenheimerFunds currently available for exchanges in the Statement of Additional Information or obtain their names by calling a service representative at 1-800-525-7048. Exchanges of shares involve a redemption of the shares of the fund you own and a purchase of shares of the other fund. There are certain exchange policies you should be aware of: -- Shares are normally redeemed from one fund and purchased from the other fund in the exchange transaction on the same regular business day on which the Transfer Agent receives an exchange request that is in proper form by the close of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be earlier on some days. However, either fund may delay the purchase of shares of the fund you are exchanging into if it determines it would be disadvantaged by a same-day transfer of the proceeds to buy shares. For example, the receipt of multiple exchange requests from a dealer in a "market-timing" strategy might require the disposition of securities at a time or price disadvantageous to the Fund. -- Because excessive trading can hurt fund performance and harm shareholders, the Fund reserves the right to refuse any exchange request that will disadvantage it, or to refuse multiple exchange requests submitted by a shareholder or dealer. -- The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund will attempt to provide you notice whenever it is reasonably able to do so, it may impose these changes at any time. -- If the Transfer Agent cannot exchange all the shares you request because of a restriction cited above, only the shares eligible for exchange will be exchanged. Shareholder Account Rules and Policies -- Net Asset Value Per Share is determined for each class of shares as of the close of The New York Stock Exchange on each regular business day by dividing the value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Fund's Board of Trustees has established procedures to value the Fund's securities to determine net asset value. In general, securities values are based on market value. There are special procedures for valuing illiquid and restricted securities, obligations for which market values cannot be readily obtained, and call options and hedging instruments. These procedures are described more completely in the Statement of Additional Information. -- The offering of shares may be suspended during any period in which the determination of net asset value is suspended, and the offering may be suspended by the Board of Trustees at any time the Board believes it is in the Fund's best interest to do so. -- Telephone Transaction Privileges for purchases, redemptions or exchanges may be modified, suspended or terminated by the Fund at any time. If an account has more than one owner, the Fund and the Transfer Agent may rely on the instructions of any one owner. Telephone privileges apply to each owner of the account and the dealer representative of record for the account unless and until the Transfer Agent receives cancellation instructions from an owner of the account. -- The Transfer Agent will record any telephone calls to verify data concerning transactions and has adopted other procedures to confirm that telephone instructions are genuine, by requiring callers to provide tax identification numbers and other account data or by using PINs, and by confirming such transactions in writing. If the Transfer Agent does not use reasonable procedures it may be liable for losses due to unauthorized transactions, but otherwise neither it nor the Fund will be liable for losses or expenses arising out of telephone instructions reasonably believed to be genuine. If you are unable to reach the Transfer Agent during periods of unusual market activity, you may not be able to complete a telephone transaction and should consider placing your order by mail. -- Redemption or transfer requests will not be honored until the Transfer Agent receives all required documents in proper form. From time to time, the Transfer Agent in its discretion may waive certain of the requirements for redemptions stated in this Prospectus. -- Dealers that can perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients' permission to perform those transactions and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly. -- The redemption price for shares will vary from day to day because the value of the securities in the Fund's portfolio fluctuates, and the redemption price, which is the net asset value per share, will normally be different for Class A and Class B shares. Therefore, the redemption value of your shares may be more or less than their original cost. -- Payment for redeemed shares is made ordinarily in cash and forwarded by check or through AccountLink (as elected by the shareholder under the redemption procedures described above) within 7 days after the Transfer Agent receives redemption instructions in proper form, except under unusual circumstances determined by the Securities and Exchange Commission delaying or suspending such payments. Effective June 7, 1995, for accounts registered in the name of a broker-dealer, payment will be forwarded within 3 business days. The Transfer Agent may delay forwarding a check or processing a payment via AccountLink for recently purchased shares, but only until the purchase payment has cleared. That delay may be as much as 10 days from the date the shares were purchased. That delay may be avoided if you purchase shares by certified check or arrange to have your bank provide telephone or written assurance to the Transfer Agent that your purchase payment has cleared. -- Involuntary redemptions of small accounts may be made by the Fund if the account value has fallen below $1,000 for reasons other than the fact that the market value of shares has dropped, and in some cases involuntary redemptions may be made to repay the Distributor for losses from the cancellation of share purchase orders. -- Under unusual circumstances shares of the Fund may be redeemed "in kind," which means that the redemption proceeds will be paid with securities from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement of Additional Information for more details. -- "Backup Withholding" of Federal income tax may be applied at the rate of 31% from dividends, distributions and redemption proceeds (including exchanges) if you fail to furnish the Fund a certified Social Security or Employer Identification Number when you sign your application, or if you violate Internal Revenue Service regulations on tax reporting of income. -- The Fund does not charge a redemption fee, but if your dealer or broker handles your redemption, they may charge a fee. That fee can be avoided by redeeming your Fund shares directly through the Transfer Agent. Under the circumstances described in "How To Buy Shares," you may be subject to a contingent deferred sales charges when redeeming certain Class A and Class B shares. -- To avoid sending duplicate copies of materials to households, the Fund will mail only one copy of each annual and semi-annual report to shareholders having the same last name address on the Fund's records. However, each shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of those materials be sent personally to that shareholder. Dividends, Capital Gains and Taxes Dividends. The Fund declares dividends separately for Class A, Class B and Class C shares from net investment income on each regular business day and pays those dividends to shareholders monthly. Normally, dividends are paid on the last business day of every month, but the Board of Trustees can change that date. Distributions may be made monthly from any net short- term capital gains the Fund realizes in selling securities. It is expected that distributions paid with respect to Class A shares will generally be higher than for Class B or Class C shares because expenses allocable to Class B and Class C shares will generally be higher. From time to time, Fund may adopt the practice, to the extent consistent with the amount of the Fund's net investment income and other distributable income, of attempting to pay dividends on Class A shares at a constant level, although the amount of such dividends may be subject to change 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 that Class. A practice of attempting to pay dividends on Class A shares at a constant level would require the Manager, consistent with the Fund's investment objective and investment restrictions, to monitor the Fund's portfolio and select higher yielding securities when deemed appropriate to maintain necessary net investment income levels. If the Fund, from time to time, seeks to pay dividends on Class A shares at a target level, the Fund anticipates it would pay dividends at the targeted dividend level from net investment income and other distributable income without any impact on the Fund's net asset value per share. The Board of Trustees would change the Fund's targeted dividend level at any time, without prior notice to shareholders. The Fund would not otherwise have a fixed dividend rate. With or without a target dividend level, there can be no assurance as to the payment of any dividends or the realization of any capital gains. Capital Gains. The Fund may make distributions annually in December out of any net short-term or long-term capital gains, and the Fund may make supplemental distributions of dividends and capital gains following the end of its fiscal year. Long-term capital gains will be separately identified in the tax information the Fund sends you after the end of the year. Short-term capital gains are treated as dividends for tax purposes. There can be no assurance that the Fund will pay any capital gains distributions in a particular year. Distribution Options. When you open your account, specify on your application how you want to receive your distributions. For OppenheimerFunds retirement accounts, all distributions are reinvested. For other accounts, you have four options: -- Reinvest All Distributions in the Fund. You can elect to reinvest all dividends and long-term capital gains distributions in additional shares of the Fund. -- Reinvest Long-Term Capital Gains Only. You can elect to reinvest long-term capital gains in the Fund while receiving dividends by check or sent to your bank account on AccountLink. -- Receive All Distributions in Cash. You can elect to receive a check for all dividends and long-term capital gains distributions or have them sent to your bank on AccountLink. -- Reinvest Your Distributions in Another OppenheimerFunds Account. You can reinvest all distributions in another OppenheimerFunds account you have established. Taxes. If your account is not a tax-deferred retirement account, you should be aware of the following tax implications of investing in the Fund. Long-term capital gains are taxable as long-term capital gains when distributed to shareholders. It does not matter how long you hold your shares. Dividends paid from short-term capital gains and net investment income are taxable as ordinary income. Distributions are subject to federal income tax and may be subject to state or local taxes. Your distributions are taxable when paid, whether you reinvest them in additional shares or take them in cash. Every year the Fund will send you and the IRS a statement showing the amount of each taxable distribution you received in the previous year. -- "Buying a Dividend": When a fund goes ex-dividend, its share price is reduced by the amount of the distribution. If you buy shares on or just before the ex-dividend date, or just before the Fund declares a capital gains distribution, you will pay the full price for the shares and then receive a portion of the price back as a taxable dividend or capital gain. -- Taxes on Transactions: Share redemptions, including redemptions for exchanges, are subject to capital gains tax. A capital gain or loss is the difference between the price you paid for the shares and the price you received when you sold them. -- Returns of Capital: In certain cases distributions made by the Fund may be considered a non-taxable return of capital to shareholders. If that occurs, it will be identified in notices to shareholders. A non- taxable return of capital may reduce your tax basis in your Fund shares. This information is only a summary of certain federal tax information about your investment. More information is contained in the Statement of Additional Information, and in addition you should consult with your tax adviser about the effect of an investment in the Fund on your particular tax situation. APPENDIX TO PROSPECTUS OF OPPENHEIMER INVESTMENT GRADE BOND FUND Graphic material included in Prospectus of Oppenheimer Bond Fund: "Comparison of Total Return of Oppenheimer Bond Fund and The Lehman Brothers Corporate Bond Index - Change in Value of a $10,000 Hypothetical Investment" Linear graphs will be included in the Prospectus of Oppenheimer Bond Fund (the "Fund") depicting the initial account value and subsequent account value of a hypothetical $10,000 in the Fund. In the case of the Fund's Class A shares, that graph will cover each of the Fund's fiscal years since the inception of the class on April 15, 1988 through December 31, 1995 and in the case of Class B shares the graph will cover the period from the inception of the class on May 1, 1993 through December 31, 1994. The graphs will compare such values with the same investments over the same time periods with The Lehman Brothers Corporate Bond Index. Set forth below are the relevant data points that will appear on the linear graphs. Additional information with respect to the foregoing, including a description of The Lehman Brothers Corporate Bond Index, is set forth in the Prospectus under "Performance of the Fund -- Comparing the Fund's Performance to the Market"
Lehman Brothers Fiscal Year Oppenheimer Corporate (Period) Ended Bond Fund A Bond Index 04/15/88 $9,525 $10,000 12/31/88 $9,952 $10,368 12/31/89 $11,077 $11,885 12/31/90 $11,602 $12,759 12/31/91 $13,723 $15,170 12/31/92 $14,653 $16,392 12/31/93 $16,163 $18,310 12/31/94 $15,538 $17,530 Lehman Brothers Fiscal Year Oppenheimer Corporate (Period) Ended Bond Fund B(1) Bond Index 05/01/93 $10,000 $10,000 12/31/93 $10,391 $10,503 12/31/94 $9,559 $10,056 - ---------------------- (1) Class B shares of the Fund were first publicly offered on May 1, 1993.
Oppenheimer Investment Grade Bond Fund 3410 South Galena Street, Denver, Colorado 80231 Telephone: 1-800-525-7048 Investment Adviser Oppenheimer Management Corporation Two World Trade Center New York, New York 10048-0203 Distributor Oppenheimer Funds Distributor, Inc. Two World Trade Center New York, New York 10048-0203 Transfer and Shareholder Servicing Agent Oppenheimer Shareholder Services P.O. Box 5270 Denver, Colorado 80217 1-800-525-7048 Custodian of Portfolio Securities The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche LLP 1560 Broadway Denver, Colorado 80202 Legal Counsel Myer, Swanson Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202 No dealer, broker, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus or the Statement of Additional Information, and if given or made, such information and representations must not be relied upon as having been authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer Funds Distributor, Inc., Massachusetts Mutual Life Insurance Company, or any affiliate thereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any state to any person to whom it is unlawful to make such offer in such state. PR0285.001.0595 *Printed on recycled paper OPPENHEIMER BOND FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 Statement of Additional Information dated July 10, 1995. This Statement of Additional Information of Oppenheimer Bond Fund is not a Prospectus. This document contains additional information about the Fund and supplements information in the Prospectus dated July 10, 1995. It should be read together with the Prospectus which may be obtained by writing to the Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free number shown above. Contents Page About the Fund Investment Objective and Policies Investment Policies and Strategies Other Investment Techniques and Strategies Other Investment Restrictions How the Fund is Managed Organization and History Trustees and Officers of the Fund The Manager and Its Affiliates Brokerage Policies of the Fund Performance of the Fund Distribution and Service Plans About Your Account How to Buy Shares How to Sell Shares How to Exchange Shares Dividends, Capital Gains and Taxes Additional Information About the Fund Financial Information About the Fund Independent Auditors' Report Financial Statements Appendix A: Description of Securities Ratings A-1 Appendix B: Industry Classification B-1 ABOUT THE FUND Investment Objective And Policies Investment Policies and Strategies. The investment objectives and policies of the Fund are discussed in the Prospectus. Set forth below is supplemental information about those policies. Certain capitalized terms used in this Statement of Additional Information are defined in the Prospectus. -- Debt Securities. All debt securities are subject to two types of risk: credit risk and interest rate risk (these are in addition to other investment risks that may affect a particular security). -- Credit Risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. Generally, higher yielding bonds are subject to credit risk to a greater extent than higher quality bonds. -- Interest Rate Risk. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting solely from the inverse relationship between price and yield of outstanding fixed-income securities. An increase in interest rates will generally reduce the market value of fixed-income investments, and a decline in interest rates will tend to increase their value. In addition, debt securities with longer maturities, which tend to produce higher yields, are subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities. Fluctuations in the market value of fixed-income securities subsequent to their acquisition will not affect the interest payable on those securities, and thus the cash income from such securities, but will be reflected in the valuations of those securities used to compute the Fund's net asset values. -- Commercial Paper. The Fund's commercial paper investments, in addition to those described in the Prospectus, include the following: Variable Amount Master Demand Notes. Master demand notes are corporate obligations which permit the investment of fluctuating amounts by the Fund at varying rates of interest pursuant to direct arrangements between the Fund, as lender, and the borrower. They permit daily changes in the amounts borrowed. The Fund has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may prepay up to the full amount of the note without penalty. These notes may or may not be backed by bank letters of credit. Because these notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that they will be traded. There is no secondary market for these notes, although they are redeemable (and thus immediately repayable by the borrower) at principal amount, plus accrued interest, at any time. Accordingly, the Fund's right to redeem such notes is dependent upon the ability of the borrower to pay principal and interest on demand. The Fund has no limitations on the type of issuer from whom these notes will be purchased; however, in connection with such purchases and on an ongoing basis, the Manager will consider the earning power, cash flow and other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes made demand simultaneously. Investments in master demand notes are subject to the limitation on investments by the Fund in illiquid securities, described in the Prospectus. Floating Rate/Variable Rate Notes. Some of the notes the Fund may purchase may have variable or floating interest rates. Variable rates are adjustable at stated periodic intervals; floating rates are automatically adjusted according to a specified market rate for such investments, such as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury Bill rate. Such obligations may be secured by bank letters of credit or other credit support arrangements. -- Participation Interests. The Fund may invest in participation interests, subject to the limitation, described in "Illiquid and Restricted Securities" in the Prospectus on investments by the Fund in illiquid investments. Participation interests provide the Fund an undivided interest in a loan made by the issuing financial institution in the proportion that the Fund's participation interest bears to the total principal amount of the loan. No more than 5% of the Fund's net assets can be invested in participation interests of the same issuing bank. The issuing financial institution may have no obligation to the Fund other than to pay the Fund the proportionate amount of the principal and interest payments it receives. Participation interests are primarily dependent upon the creditworthiness of the borrowing corporation, which is obligated to make payments of principal and interest on the loan, and there is a risk that such borrowers may have difficulty making payments. In the event the borrower fails to pay scheduled interest or principal payments, the Fund could experience a reduction in its income and might experience a decline in the value of that participation interest and in the net asset value of its shares. In the event of a failure by the financial institution to perform its obligation in connection with the participation agreement, the Fund might incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest. -- Bank Obligations and Instruments Secured Thereby. The bank obligations the Fund may invest in include time deposits, certificates of deposit, and bankers' acceptances if they are: (i) obligations of a domestic bank with total assets of at least $1 billion or (ii) obligations of a foreign bank with total assets of at least U.S. $1 billion. The Fund may also invest in instruments secured by such obligations (e.g., debt which is guaranteed by the bank). For purposes of this section, the term "bank" includes commercial banks, savings banks, and savings and loan associations which may or may not be members of the Federal Deposit Insurance Corporation. Time deposits are non-negotiable deposits in a bank for a specified period of time at a stated interest rate, whether or not subject to withdrawal penalties. However, time deposits that are subject to withdrawal penalties, other than those maturing in seven days or less, are subject to the limitation on investments by the Fund in illiquid investments, set forth in the Prospectus under "Illiquid and Restricted Securities." Banker's acceptances are marketable short-term credit instruments used to finance the import, export, transfer or storage of goods. They are deemed "accepted" when a bank guarantees their payment at maturity. -- Securities of Foreign Governments and Companies. As stated in the Prospectus, the Fund may invest in debt obligations (which may be dominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by foreign corporations, certain supranational entities (described below) and foreign governments or their agencies or instrumentalities. The percentage of the Fund's assets that will be allocated to foreign securities will vary from time to time depending on, among other things, the relative yields of foreign and U.S. securities, the economies of foreign countries, the condition of such countries' financial markets, the interest rate climate of such countries and the relationship of such countries' currency to the U.S. dollar. The Manager will consider an issuer's affiliation, if any, with a foreign government as one of the factors in determining whether to purchase any particular foreign security. These factors are judged on the basis of fundamental economic criteria (e.g., relative inflation levels and trends, growth rate forecasts, balance of payments status, and economic policies) as well as technical and political data. The Fund's portfolio of foreign securities may include those of a number of foreign countries or, depending upon market conditions, those of a single country. Investments in foreign securities offer potential benefits not available from investments solely in securities of domestic issuers, by offering the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking advantage of foreign bond or other markets that do not move in a manner parallel to U.S. markets. From time to time, U.S. government policies have discouraged certain investments abroad by U.S. investors, through taxation or other restrictions, and it is possible that such restrictions could be reimposed. Securities of foreign issuers that are represented by American depository receipts, or that are listed on a U.S. securities exchange, or are traded in the U.S. over-the-counter market are not considered "foreign securities," because they are not subject to many of the special considerations and risks (discussed below) that apply to foreign securities traded and held abroad. If the Fund's securities are held abroad, the countries in which such securities may be held and the sub- custodians holding must be, in most cases, approved by the Fund's Board of Trustees under applicable SEC rules. The obligations of foreign governmental entities may or may not be supported by the full faith and credit of a foreign government. Obligations of "supranational entities" include those of international organizations designated or supported by governmental entities to promote economic reconstruction or development and of international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the "World Bank"), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. The governmental members, or "stockholders," of these entities usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowings. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income. There is no assurance that foreign governments will be able or willing to honor their commitments. Investing in foreign securities involves considerations and possible risks not typically associated with investing in securities in the U.S. The values of foreign securities will be affected by changes in currency rates or exchange control regulations or currency blockage, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the U.S. or abroad) or changed circumstances in dealings between nations. There may be a lack of public information about foreign issuers. Foreign countries may not have financial reporting, accounting and auditing standards comparable to those that apply to U.S. issuers. Costs will be incurred in connection with conversions between various currencies. Foreign brokerage commissions are generally higher than commissions in the U.S., and foreign securities markets may be less liquid, more volatile and less subject to governmental regulation than in the U.S. They may have increased delays in settling portfolio transactions. Investments in foreign countries could be affected by other factors not generally thought to be present in the U.S., including expropriation or nationalization, confiscatory taxation and potential difficulties in enforcing contractual obligations, and could be subject to extended settlement periods. Because the Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund's assets and its income available for distribution. In addition, although a portion of the Fund's investment income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars, and absorb the cost of currency fluctuations. The Fund may engage in foreign currency exchange transactions for hedging purposes to protect against changes in future exchange rates. See "Other Investment Techniques and Strategies - Hedging," below. The values of foreign investments and the investment income derived from them may also be affected unfavorably by changes in currency exchange control regulations. Although the Fund will invest only in securities denominated in foreign currencies that at the time of investment do not have significant government-imposed restrictions on conversion into U.S. dollars, there can be no assurance against subsequent imposition of currency controls. In addition, the values of foreign securities will fluctuate in response to a variety of factors, including changes in U.S. and foreign interest rates. -- U.S. Government Securities. U.S. Government Securities are debt obligations issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities, and include "zero coupon" Treasury securities and mortgage-backed securities and CMOs. -- Mortgage-Backed Securities. These securities represent participation interests in pools of residential mortgage loans which are guaranteed by agencies or instrumentalities of the U.S. Government. Such securities differ from conventional debt securities which generally provide for periodic payment of interest in fixed or determinable amounts (usually semi-annually) with principal payments at maturity or specified call dates. Some mortgage-backed securities in which the Fund may invest may be backed by the full faith and credit of the U.S. Treasury (e.g., direct pass-through certificates of Government National Mortgage Association); some are supported by the right of the issuer to borrow from the U.S. Government (e.g., obligations of Federal Home Loan Mortgage Corporation); and some are backed by only the credit of the issuer itself. Those guarantees do not extend to the value of or yield of the mortgage- backed securities themselves or to the net asset value of the Fund's shares. Any of these government agencies may also issue collateralized mortgage-backed obligations ("CMOs"), discussed below. The yield on mortgage-backed securities is based on the average expected life of the underlying pool of mortgage loans. The actual life of any particular pool will be shortened by any unscheduled or early payments of principal and interest. Principal prepayments generally result from the sale of the underlying property or the refinancing or foreclosure of underlying mortgages. The occurrence of prepayments is affected by a wide range of economic, demographic and social factors and, accordingly, it is not possible to predict accurately the average life of a particular pool. Yield on such pools is usually computed by using the historical record of prepayments for that pool, or, in the case of newly- issued mortgages, the prepayment history of similar pools. The actual prepayment experience of a pool of mortgage loans may cause the yield realized by the Fund to differ from the yield calculated on the basis of the expected average life of the pool. Prepayments tend to increase during periods of falling interest rates, while during periods of rising interest rates prepayments will most likely decline. When prevailing interest rates rise, the value of a pass- through security may decrease as do the values of other debt securities, but, when prevailing interest rates decline, the value of a pass-through security is not likely to rise to the extent that the value of other debt securities rise, because of the prepayment feature of pass-through securities. The Fund's reinvestment of scheduled principal payments and unscheduled prepayments it receives may occur at times when available investments offer higher or lower rates than the original investment, thus affecting the yield of the Fund. Monthly interest payments received by the Fund have a compounding effect which may increase the yield to the Fund more than debt obligations that pay interest semi-annually. Because of those factors, mortgage-backed securities may be less effective than Treasury bonds of similar maturity at maintaining yields during periods of declining interest rates. The Fund may purchase mortgage-backed securities at par, at a premium or at a discount. Accelerated prepayments adversely affect yields for pass-through securities purchased at a premium (i.e., at a price in excess of their principal amount) and may involve additional risk of loss of principal because the premium may not have been fully amortized at the time the obligation is repaid. The opposite is true for pass-through securities purchased at a discount. The Fund may invest in "stripped" mortgage backed securities, in which the principal and interest portions of the security are separated and sold. Stripped mortgage-backed securities usually have at least two classes each of which receives different proportions of interest and principal distributions on the underlying pool of mortgage assets. One common variety of stripped mortgage-backed security has one class that receives some of the interest and most of the principal, while the other class receives most of the interest and remainder of the principal. In some cases, one class will receive all of the interest (the "interest-only" or "IO" class), while the other class will receive all of the principal (the "principal-only" or "PO" class). Interest only securities are extremely sensitive to interest rate changes, and prepayments of principal on the underlying mortgage assets. An increase in principal payments or prepayments will reduce the income available to the IO security. In other types of CMOs, the underlying principal payments may apply to various classes in a particular order, and therefore the value of certain classes or "tranches" of such securities may be more volatile than the value of the pool as a whole, and losses may be more severe than on other classes. Mortgage-backed securities may be less effective than debt obligations of similar maturity at maintaining yields during periods of declining interest rates. As new types of mortgage-related securities are developed and offered to investors, the Manager will, subject to the direction of the Board of Trustees and consistent with the Fund's investment objective and policies, consider making investments in such new types of mortgage-related securities. -- GNMA Certificates. Certificates of Government National Mortgage Association ("GNMA") are mortgage-backed securities of GNMA that evidence an undivided interest in a pool or pools of mortgages ("GNMA Certificates"). The GNMA Certificates that the Fund may purchase are of the "modified pass-through" type, which entitle the holder to receive timely payment of all interest and principal payments due on the mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether the mortgagor actually makes the payments when due. The National Housing Act authorizes GNMA to guarantee the timely payment of principal and interest on securities backed by a pool of mortgages insured by the Federal Housing Administration ("FHA") or guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S. Government. GNMA is also empowered to borrow without limitation from the U.S. Treasury if necessary to make any payments required under its guarantee. The average life of a GNMA Certificate is likely to be substantially shorter than the original maturity of the mortgages underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal investment long before the maturity of the mortgages in the pool. Foreclosures impose no risk to principal investment because of the GNMA guarantee, except to the extent that the Fund has purchased the certificates at a premium in the secondary market. -- FNMA Securities. The Federal National Mortgage Association ("FNMA") was established to create a secondary market in mortgages insured by the FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate represents a pro rata share of all interest and principal payments made and owed on the underlying pool. FNMA guarantees timely payment of interest and principal on FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit of the U.S. Government. -- FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC") was created to promote development of a nationwide secondary market for conventional residential mortgages. FHLMC issues two types of mortgage pass-through certificates ("FHLMC Certificates"): mortgage participation certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata share of all interest and principal payments made and owed on the underlying pool. FHLMC guarantees timely monthly payment of interest on PCs and the ultimate payment of principal. The FHLMC guarantee is not backed by the full faith and credit of the U.S. Government. GMCs also represent a pro rata interest in a pool of mortgages. However, these instruments pay interest semi-annually and return principal once a year in guaranteed minimum payments. The expected average life of these securities is approximately ten years. The FHLMC guarantee is not backed by the full faith and credit of the U.S. Government. -- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-collateralized bonds that are the general obligations of the issuer thereof, either the U.S. Government, a U.S. government instrumentality, or a private issuer, which may be a domestic or foreign corporation. Such bonds generally are secured by an assignment to a trustee (under the indenture pursuant to which the bonds are issued) of collateral consisting of a pool of mortgages. Payments with respect to the underlying mortgages generally are made to the trustee under the indenture. Payments of principal and interest on the underlying mortgages are not passed through to the holders of the CMOs as such (i.e., the character of payments of principal and interest is not passed through, and therefore payments to holders of CMOs attributable to interest paid and principal repaid on the underlying mortgages do not necessarily constitute income and return of capital, respectively, to such holders), but such payments are dedicated to payment of interest on and repayment of principal of the CMOs. CMOs often are issued in two or more classes with different characteristics such as varying maturities and stated rates of interest. Because interest and principal payments on the underlying mortgages are not passed through to holders of CMOs, CMOs of varying maturities may be secured by the same pool of mortgages, the payments on which are used to pay interest on each class and to retire successive maturities in sequence. Unlike other mortgage-backed securities (discussed above), CMOs are designed to be retired as the underlying mortgages are repaid. In the event of prepayment on such mortgages, the class of CMO first to mature generally will be paid down. Therefore, although in most cases the issuer of CMOs will not supply additional collateral in the event of such prepayment, there will be sufficient collateral to secure CMOs that remain outstanding. -- Asset-Backed Securities. The value of an asset-backed security is affected by changes in the market's perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans, or the financial institution providing any credit enhancement, and is also affected if any credit enhancement has been exhausted. The risks of investing in asset-backed securities are ultimately dependent upon payment of consumer loans by the individual borrowers. As a purchaser of an asset-backed security, the Fund would generally have no recourse to the entity that originated the loans in the event of default by a borrower. The underlying loans are subject to prepayments, which shorten the weighted average life of asset-backed securities and may lower their return, in the same manner as described above for the prepayments of a pool of mortgage loans underlying mortgage- backed securities. Other Investment Techniques And Strategies -- Hedging with Options and Futures Contracts. The Fund may employ one or more types of Hedging Instruments for the purposes described in the Prospectus. When hedging to attempt to protect against declines in the market value of the Fund's portfolio, to permit the Fund to retain unrealized gains in the value of portfolio securities which have appreciated, or to facilitate selling securities for investment reasons, the Fund may: (i) sell Futures, (ii) purchase puts on such Futures or securities, or (iii) write calls on securities held by it or on Futures. When hedging to attempt to protect against the possibility that portfolio securities are not fully included in a rise in value of the debt securities market, the Fund may: (i) purchase Futures, or (ii) purchase calls on such Futures or on securities. Covered calls and puts may also be written on debt securities to attempt to increase the Fund's income. When hedging to protect against declines in the dollar value of a foreign currency-denominated security, the Fund may: (a) purchase puts on that foreign currency and on foreign currency Futures, (b) write calls on that currency or on such Futures, or (c) enter into Forward Contracts at a lower rate than the spot ("cash") rate. The Fund's strategy of hedging with Futures and options on Futures will be incidental to the Fund's activities in the underlying cash market. Additional Information about the Hedging Instruments the Fund may use is provided below. At present, the Fund does not intend to enter into Futures, Forward Contracts and options on Futures if, after any such purchase, the sum of margin deposits on Futures and premiums paid on Futures options exceeds 5% of the value of the Fund's total assets. In the future, the Fund may employ Hedging Instruments and strategies that are not presently contemplated but which may be developed, to the extent such investment methods are consistent with the Fund's investment objective, legally permissible and adequately disclosed. -- Writing Call Options. The Fund may write (i.e. sell) call options ("calls") on debt securities that are traded on U.S. and foreign securities exchanges and over-the-counter markets, to enhance income through the receipt of premiums from expired calls and any net profits from closing purchase transactions. After any such sale up to 100% of the Fund's total assets may be subject to calls. All such calls written by the Fund must be "covered" while the call is outstanding (i.e. the Fund must own the securities subject to the call or other securities acceptable for applicable escrow requirements). Calls on Futures (discussed below) must be covered by deliverable securities or by liquid assets segregated to satisfy the Futures contract. When the Fund writes a call on a security it receives a premium and agrees to sell the callable investment to a purchaser of a corresponding call on the same security during the call period (usually not more than 9 months) at a fixed exercise price (which may differ from the market price of the underlying security), regardless of market price changes during the call period. The Fund has retained the risk of loss should the price of the underlying security decline during the call period, which may be offset to some extent by the premium. To terminate its obligation on a call it has written, the Fund may purchase a corresponding call in a "closing purchase transaction." A profit or loss will be realized, depending upon whether the net of the amount of the option transaction costs and the premium received on the call written was more or less than the price of the call subsequently purchased. A profit may also be realized if the call lapses unexercised, because the Fund retains the underlying investment and the premium received. Any such profits are considered short-term capital gains for Federal income tax purposes, and when distributed by the Fund are taxable as ordinary income. If the Fund could not effect a closing purchase transaction due to lack of a market, it would have to hold the callable investments until the call lapsed or was exercised. The Fund may also write calls on Futures without owning a futures contract or a deliverable bond, provided that at the time the call is written, the Fund covers the call by segregating in escrow an equivalent dollar amount of liquid assets. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below 100% of the current value of the Future. In no circumstances would an exercise notice require the Fund to deliver a futures contract; it would simply put the Fund in a short futures position, which is permitted by the Fund's hedging policies. -- Writing Put Options. The Fund may write put options on debt securities or Futures but only if such puts are covered by segregated liquid assets. The Fund will not write puts if, as a result, more than 50% of the Fund's net assets would be required to be segregated to cover such put obligations. In writing puts, there is the risk that the Fund may be required to buy the underlying security at a disadvantageous price. A put option on securities gives the purchaser the right to sell, and the writer the obligation to buy, the underlying investment at the exercise price during the option period. Writing a put covered by segregated liquid assets equal to the exercise price of the put has the same economic effect to the Fund as writing a covered call. The premium the Fund receives from writing a put option represents a profit, as long as the price of the underlying investment remains above the exercise price. However, the Fund has also assumed the obligation during the option period to buy the underlying investment from the buyer of the put at the exercise price, even though the value of the investment may fall below the exercise price. If the put lapses unexercised, the Fund (as the writer of the put) realizes a gain in the amount of the premium. If the put is exercised, the Fund must fulfill its obligation to purchase the underlying investment at the exercise price, which will usually exceed the market value of the investment at that time. In that case, the Fund may incur a loss, equal to the sum of the current market value of the underlying investment and the premium received minus the sum of the exercise price and any transaction costs incurred. When writing put options on securities, to secure its obligation to pay for the underlying security, the Fund will deposit in escrow liquid assets with a value equal to or greater than the exercise price of the put option. The Fund therefore forgoes the opportunity of investing the segregated assets or writing calls against those assets. As long as the obligation of the Fund as the put writer continues, it may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring the Fund to take delivery of the underlying security against payment of the exercise price. The Fund has no control over when it may be required to purchase the underlying security, since it may be assigned an exercise notice at any time prior to the termination of its obligation as the writer of the put. This obligation terminates upon expiration of the put, or such earlier time at which the Fund effects a closing purchase transaction by purchasing a put of the same series as that previously sold. Once the Fund has been assigned an exercise notice, it is thereafter not allowed to effect a closing purchase transaction. The Fund may effect a closing purchase transaction to realize a profit on an outstanding put option it has written or to prevent an underlying security from being put. Furthermore, effecting such a closing purchase transaction will permit the Fund to write another put option to the extent that the exercise price thereof is secured by the deposited assets, or to utilize the proceeds from the sale of such assets for other investments by the Fund. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from writing the option. As above for writing covered calls, any and all such profits described herein from writing puts are considered short-term gains for Federal tax purposes, and when distributed by the Fund, are taxable as ordinary income. The Trustees have adopted a non-fundamental policy that the Fund may write covered call options or write covered put options with respect to not more than 5% of the value of its net assets. Similarly, the Fund may only purchase call options and put options with a value of up to 5% of its net assets. -- Purchasing Puts and Calls. The Fund may purchase calls in order to protect against the possibility that the Fund's portfolio will not fully participate in an anticipated rise in value of the long-term debt securities market. When the Fund purchases a call, it pays a premium (other than in a closing purchase transaction) and, except as to calls on bond indices, has the right to buy the underlying investment from a seller of a corresponding call on the same investment during the call period at a fixed exercise price. In purchasing a call, the Fund benefits only if the call is sold at a profit or if, during the call period, the market price of the underlying investment is above the sum of the call price, transaction costs, and the premium paid, and the call is exercised. If the call is not exercised or sold (whether or not at a profit), it will become worthless at its expiration date and the Fund will lose its premium payment and the right to purchase the underlying investment. When the Fund purchases a put, it pays a premium and has the right to sell the underlying investment to a seller of a corresponding put on the same investment during the put period at a fixed exercise price. Buying a put on an investment the Fund owns (a "protective put") enables the Fund to attempt to protect itself during the put period against a decline in the value of the underlying investment below the exercise price by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market price of the underlying investment is equal to or above the exercise price and as a result the put is not exercised or resold, the put will become worthless at its expiration and the Fund will lose the premium payment and the right to sell the underlying investment. However, the put may be sold prior to expiration (whether or not at a profit). Purchasing either a put on Interest Rate Futures or on debt securities it does not own permits the Fund either to resell the put or to buy the underlying investment and sell it at the exercise price. The resale price of the put will vary inversely with the price of the underlying investment. If the market price of the underlying investment is above the exercise price, and as a result the put is not exercised, the put will become worthless on the expiration date. In the event of a decline in price of the underlying investment, the Fund could exercise or sell the put at a profit to attempt to offset some or all of its loss on its portfolio securities. When the Fund purchases a put on an Interest rate Future or debt security not held by it, the put protects the Fund to the extent that the prices of the underlying Future or debt securities move in a similar pattern of the debt securities in the Fund's portfolio. The Fund's option activities may affect its portfolio turnover rate and brokerage commissions. The exercise of calls written by the Fund may cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in the absence of the put. The Fund will pay a brokerage commission each time it buys or sells a call, put or an underlying investment in connection with the exercise of a put or call. Those commissions may be higher than the commissions for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the market value of the underlying investments and, consequently, put and call options offer large amounts of leverage. The leverage offered by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investments. -- Options on Foreign Currencies. The Fund intends to write and purchase calls on foreign currencies. The Fund may purchase and write puts and calls on foreign currencies that are traded on a securities or commodities exchange or quoted by major recognized dealers in such options, for the purpose of protecting against declines in the dollar value of foreign securities and against increases in the dollar cost of foreign securities to be acquired. If a rise is anticipated in the dollar value of a foreign currency in which securities to be acquired are denominated, the increased cost of such securities may be partially offset by purchasing calls or writing puts on that foreign currency. If a decline in the dollar value of a foreign currency is anticipated, the decline in value of portfolio securities denominated in that currency may be partially offset by writing calls or purchasing puts on that foreign currency. However, in the event of currency rate fluctuations adverse to the Fund's position, it would lose the premium it paid and transactions costs. A call written on a foreign currency by the Fund is covered if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call may be written by the Fund on a foreign currency to provide a hedge against a decline due to an expected adverse change in the exchange rate in the U.S. dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option. This is a cross-hedging strategy. In such circumstances, the Fund collateralizes the option by maintaining in a segregated account with the Fund's custodian, cash or U.S. Government Securities in an amount not less than the value of the underlying foreign currency in U.S. dollars marked-to- market daily. -- Futures. The Fund may buy and sell Futures. No price is paid or received upon the purchase or sale of an Interest Rate Future or a foreign currency exchange contract ("Forward Contract"), discussed below. An Interest Rate Future obligates the seller to deliver and the purchaser to take a specific type of debt security at a specific future date for a fixed price. That obligation may be satisfied by actual delivery of the debt security or by entering into an offsetting contract. A securities index assigns relative values to the securities included in that index and is used as a basis for trading long-term Financial Futures contracts. Financial Futures reflect the price movements of securities included in the index. They differ from Interest Rate Futures in that settlement is made in cash rather than by delivery of the underlying investment. Upon entering into a Futures transaction, the Fund will be required to deposit an initial margin payment in cash or U.S. Treasury bills with the futures commission merchant (the "futures broker"). The initial margin will be deposited with the Fund's Custodian in an account registered in the futures broker's name; however the futures broker can gain access to that account only under specified conditions. As the Future is marked to market to reflect changes in its market value, subsequent margin payments, called variation margin, will be made to or by the futures broker on a daily basis. At any time prior to the expiration of the Future, if the Fund elects to close out its position by taking an opposite position, a final determination of variation margin is made, additional cash is required to be paid by or released to the Fund, and any loss or gain is realized for tax purposes. Although Interest Rate Futures by their terms call for settlement by delivery or acquisition of debt securities, in most cases the obligation is fulfilled by entering into an offsetting position. All futures transactions are effected through a clearinghouse associated with the exchange on which the contracts are traded. -- Forward Contracts. The Fund may enter into foreign currency exchange contracts ("Forward Contracts"), which obligate the seller to deliver and the purchaser to take a specific amount of foreign currency at a specific future date for a fixed price. A Forward Contract involves bilateral obligations of one party to purchase, and another party to sell, a specific currency at a future date (which may be any fixed number of days from the date of the contract agreed upon by the parties), at a price set at the time the contract is entered into. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The Fund may enter into a Forward Contract in order to "lock in" the U.S. dollar price of a security denominated in a foreign currency which it has purchased or sold but which has not yet settled, or to protect against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and a foreign currency. There is a risk that use of Forward Contracts may reduce the gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. Forward contracts include standardized foreign currency futures contracts which are traded on exchanges and are subject to procedures and regulations applicable to other Futures. The Fund may also enter into a forward contract to sell a foreign currency denominated in a currency other than that in which the underlying security is denominated. This is done in the expectation that there is a greater correlation between the foreign currency of the forward contract and the foreign currency of the underlying investment than between the U.S. dollar and the foreign currency of the underlying investment. This technique is referred to as "cross hedging." The success of cross hedging is dependent on many factors, including the ability of the Manager to correctly identify and monitor the correlation between foreign currencies and the U.S. dollar. To the extent that the correlation is not identical, the Fund may experience losses or gains on both the underlying security and the cross currency hedge. The Fund may use Forward Contracts to protect against uncertainty in the level of future exchange rates. The use of Forward Contracts does not eliminate fluctuations in the prices of the underlying securities the Fund owns or intends to acquire, but it does fix a rate of exchange in advance. In addition, although Forward Contracts limit the risk of loss due to a decline in the value of the hedged currencies, at the same time they limit any potential gain that might result should the value of the currencies increase. There is no limitation as to the percentage of the Fund's assets that may be committed to foreign currency exchange contracts. The Fund does not enter into such forward contracts or maintain a net exposure in such contracts to the extent that the Fund would be obligated to deliver an amount of foreign currency in excess of the value of the Fund's assets denominated in that currency, or enter into a "cross hedge," unless it is denominated in a currency or currencies that the Manager believes will have price movements that tend to correlate closely with the currency in which the investment being hedged is denominated. See "Tax Aspects of Covered Calls and Hedging Instruments" below for a discussion of the tax treatment of foreign currency exchange contracts. The Fund may enter into Forward Contracts with respect to specific transactions. For example, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates receipt of dividend payments in a foreign currency, the Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of such payment by entering into a Forward Contract, for a fixed amount of U.S. dollars per unit of foreign currency, for the purchase or sale of the amount of foreign currency involved in the underlying transaction ("transaction hedge"). The Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received. The Fund may also use Forward Contracts to lock in the U.S. dollar value of portfolio positions ("position hedge"). In a position hedge, for example, when the Fund believes that foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency, or when the Fund believes that the U.S. dollar may suffer a substantial decline against a foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount. In this situation the Fund may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount where the Fund believes that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated ("cross hedge"). The Fund's Custodian will place cash or U.S. Government securities or other liquid high-quality debt securities in a separate account of the Fund with the Custodian having a value equal to the aggregate amount of the Fund's commitments under forward contracts entered into with respect to position hedges and cross hedges. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's obligations with respect to such contracts. As an alternative to maintaining all or part of the separate account, the Fund may purchase a call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price, or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The precise matching of the Forward Contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of these securities between the date the Forward Contract is entered into and the date it is sold. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot (i.e., cash) market (and bear the expense of such purchase), if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short- term hedging strategy is highly uncertain. Forward Contracts involve the risk that anticipated currency movements will not be accurately predicted, causing the Fund to sustain losses on these contracts and transactions costs. At or before the maturity of a Forward Contract requiring the Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund may close out a Forward Contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an offsetting Forward Contract under either circumstance to the extent the exchange rate or rates between the currencies involved moved between the execution dates of the first contract and offsetting contract. The cost to the Fund of engaging in Forward Contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because Forward Contracts are usually entered into on a principal basis, no fees or commissions are involved. Because such contracts are not traded on an exchange, the Fund must evaluate the credit and performance risk of each particular counterparty under a Forward Contract. Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from time to time, and investors should be aware of the costs of currency conversion. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference between the prices at which they buy and sell various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. -- Interest Rate Swap Transactions. Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates in the future, the payments made by the Fund under a swap agreement will have been greater than those received by it. Credit risk arises from the possibility that the counterparty will default. If the counterparty to an interest rate swap defaults, the Fund's loss will consist of the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis. The Fund will enter into swap transactions with appropriate counterparties pursuant to master netting agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty under that master agreement shall be regarded as parts of an integral agreement. If on any date amounts are payable in the same currency in respect of one or more swap transactions, the net amount payable on that date in that currency shall be paid. In addition, the master netting agreement may provide that if one party defaults generally or on one swap, the counterparty may terminate the swaps with that party. Under such agreements, if there is a default resulting in a loss to one party, the measure of that party's damages is calculated by reference to the average cost of a replacement swap with respect to each swap (i.e., the mark-to-market value at the time of the termination of each swap). The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps and the netting of gains and losses on termination is generally referred to as "aggregation". -- Additional Information About Hedging Instruments and Their Use. The Fund's Custodian, or a securities depository acting for the Custodian, will act as the Fund's escrow agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund has written options traded on exchanges or as to other acceptable escrow securities, so that no margin will be required for such transactions. OCC will release the securities on the expiration of the option or upon the Fund's entering into a closing transaction. An option position may be closed out only on a market which provides secondary trading for options of the same series, and there is no assurance that a liquid secondary market will exist for any particular option. The Fund's option activities may affect its turnover rate and brokerage commissions. The exercise by the Fund of puts on securities will cause the sale of related investments, increasing portfolio turnover. Although such exercise is within the Fund's control, holding a put might cause the Fund to sell the related investments for reasons which would not exist in the absence of the put. The Fund will pay a brokerage commission each time it buys a put or call, sells a call, or buys or sells an underlying investment in connection with the exercise of a put or call. Such commissions may be higher than those which would apply to direct purchases or sales of such underlying investments. Premiums paid for options are small in relation to the market value of the related investments, and consequently, put and call options offer large amounts of leverage. The leverage offered by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investments. When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. Government securities dealer, which would establish a formula price at which the Fund would have the absolute right to repurchase that OTC option. That formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option is exercisable below the market price of the underlying security (that is, the extent to which the option is "in-the-money"). When the Fund writes an OTC option, it will treat as illiquid (for purposes of the limit on its assets that may be invested in illiquid securities, stated in the Prospectus) the mark-to- market value of any OTC option held by it. The Securities and Exchange Commission ("SEC") is evaluating whether OTC options should be considered liquid securities, and the procedure described above could be affected by the outcome of that evaluation. -- Regulatory Aspects of Hedging Instruments. The Fund is required to operate within certain guidelines and restrictions with respect to its use of Futures and options on Futures established by the Commodity Futures Trading Commission ("CFTC"). In particular the Fund is exempted from registration with the CFTC as a "commodity pool operator" if the Fund complies with the requirements of 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 option premiums to no more than 5% of the Fund's net assets for hedging strategies that are not considered bona fide hedging strategies under the Rule. Under the Rule, the Fund also must use short Futures and Futures options positions 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 each of the exchanges governing the maximum number of options which may be written or held by a single investor or group of investors acting in concert, regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more accounts or through one or more exchanges or brokers. Thus, the number of options which the Fund may write or hold may be affected by options written or held by other entities, including other investment companies having the same or an affiliated investment adviser. Position limits also apply to Futures. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain other sanctions. Due to requirements under the Investment Company Act, when the Fund purchases a Future, the Fund will maintain, in a segregated account or accounts with its custodian bank, cash or readily-marketable, short-term (maturing in one year or less) debt instruments in an amount equal to the market value of the securities underlying such Future, less the margin deposit applicable to it. -- Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code (although it reserves the right not to qualify). That qualification enables the Fund to "pass through" its income and realized capital gains to shareholders without having to pay tax on them. This avoids a "double tax" on that income and capital gains, since shareholders normally will be taxed on the dividends and capital gains they receive from the Fund (unless the Fund's shares are held in a retirement account or the shareholder is otherwise exempt from tax). One of the tests for the Fund's qualification as a regulated investment company is that less than 30% of its gross income must be derived from gains realized on the sale of securities held for less than three months. To comply with this 30% cap, the Fund will limit the extent to which it engages in the following activities, but will not be precluded from them: (i) selling investments, including Bond Index Futures, held for less than three months, whether or not they were purchased on the exercise of a call held by the Fund; (ii) purchasing options which expire in less than three months; (iii) effecting closing transactions with respect to calls or puts written or purchased less than three months previously; (iv) exercising puts or calls held by the Fund for less than three months; or (v) writing calls on investments held less than three months. Certain foreign currency exchange contracts ("Forward Contracts") in which the Fund may invest are treated as "section 1256 contracts." Gains or losses relating to section 1256 contracts generally are characterized under the Internal Revenue Code as 60% long-term and 40% short-term capital gains or losses. However, foreign currency gains or losses arising from certain section 1256 contracts (including Forward Contracts) generally are treated as ordinary income or loss. In addition, section 1256 contracts held by the Fund at the end of each taxable year are "marked-to market" with the result that unrealized gains or losses are treated as though they were realized. These contracts also may be marked- to-market for purposes of the excise tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue Code. An election can be made by the Fund to exempt these transactions from this mark-to-market treatment. Certain Forward Contracts entered into by the Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund on straddle positions. Generally, a loss sustained on the disposition of a position making up a straddle is allowed only to the extent such loss exceeds any unrecognized gain in the offsetting positions making up the straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in the offsetting positions making up the straddle, or the offsetting position is disposed of. Under the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of foreign currency forward contracts, gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. Currency gains and losses are offset against market gains and losses before determining a net "Section 988" gain or loss under the Internal Revenue Code, which may increase or decrease the amount of the Fund's investment company income available for distribution to its shareholders. -- Possible Risk Factors in Hedging. In addition to the risks with respect to options discussed in the Prospectus and above, there is a risk in using short hedging by selling Futures to attempt to protect against decline in value of the Fund's portfolio securities (due to an increase in interest rates) that the prices of such Futures will correlate imperfectly with the behavior of the cash (i.e., market value) prices of the Fund's securities. The ordinary spreads between prices in the cash and futures markets are subject to distortions due to differences in the natures of those markets. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close out futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures markets depend on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures markets could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures markets are less onerous than margin requirements in the securities markets. Therefore, increased participation by speculators in the futures markets may cause temporary price distortions. -- Repurchase Agreements. In a repurchase transaction, the Fund acquires a security from, and simultaneously resells it to, an approved vendor (a U.S. commercial bank, the U.S. branch of a foreign bank or a broker-dealer which has been designated a primary dealer in government securities, which must meet the credit requirements set by the Trust's Board of Trustees from time to time), for delivery on an agreed upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement is in effect. The majority of these transactions run from day to day, and delivery pursuant to resale typically will occur within one to five days of the purchase. Repurchase agreements are considered "loans" under the Investment Company Act, collateralized by the underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement is in effect, the collateral's value must equal or exceed the repurchase price to fully collateralize the repayment obligation. Additionally, the Manager will impose creditworthiness requirements to confirm that the vendor is financially sound. Additionally, the Manager will continuously monitor the collateral's value. -- Illiquid and Restricted Securities. To enable the Fund to sell restricted securities not registered under the Securities Act of 1933, the Fund may have to cause those securities to be registered. The expenses of registration of restricted securities may be negotiated by the Fund with the issuer at the time such securities are purchased by the Fund, if such registration is required before such securities may be sold publicly. When registration must be arranged because the Fund wishes to sell the security, a considerable period may elapse between the time the decision is made to sell the securities and the time the Fund would be permitted to sell them. The Fund would bear the risks of any downward price fluctuation during that period. The Fund may also acquire, through private placements, securities having contractual restrictions on their resale, which might limit the Fund's ability to dispose of such securities and might lower the amount realizable upon the sale of such securities. The Fund has percentage limitations that apply to purchases of restricted securities, as stated in the Prospectus. Those percentage restrictions do not limit purchases of restricted securities that are eligible for sale to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933, provided that those securities have been determined to be liquid by the Board of Trustees of the Fund or by the Manager under Board-approved guidelines. Those guidelines take into account the trading activity for such securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, the Fund's holding of that security may be deemed to be illiquid. -- Loans of Portfolio Securities. The Fund may lend its portfolio securities subject to the restrictions stated in the Prospectus. Under applicable regulatory requirements (which are subject to change), the loan collateral on each business day must at least equal the value of the loaned securities and must consist of cash, bank letters of credit or securities of the U.S. Government (or its agencies or instrumentalities). To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Fund. When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned securities and also receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on short-term debt securities purchased with such loan collateral. Either type of interest may be shared with the borrower. The Fund may also pay reasonable finder's, custodian and administrative fees. In connection with securities lending, the Fund might experience risks of delay in receiving additional collateral, or risks of delay in recovery of securities, or loss of rights in the collateral should the borrower fail financially. 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. -- When-Issued and Delayed Delivery Transactions. The Fund may purchase securities on a "when-issued" basis, and may purchase or sell such securities on a "delayed delivery" basis. Although the Fund will enter into such transactions for the purpose of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement. "When- issued" or "delayed delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. The Fund does not intend to make such purchases for speculative purposes. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security and involve a risk of loss if the value of the security declines prior to the settlement date. During the period between commitment by the Fund and settlement (generally within two months but not to exceed 120 days), no payment is made for the securities purchased by the purchaser, and no interest accrues to the purchaser from the transaction. Such securities are subject to market fluctuation; the value at delivery may be less than the purchase price. The Fund will maintain a segregated account with its Custodian, consisting of cash, U.S. Government securities or other high grade debt obligations at least equal to the value of purchase commitments until payment is made. The Fund will engage in when-issued transactions in order to secure what is considered to be an advantageous price and yield at the time of entering into the obligation. When the Fund engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to consummate the transaction. Failure of the buyer or seller to do so may result in the Fund losing the opportunity to obtain a price and yield considered to be advantageous. At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased, or if a sale, the proceeds to be received, in determining its net asset value. If the Fund chooses to (i) dispose of the right to acquire a when-issued security prior to its acquisition or (ii) dispose of its right to deliver or receive against a forward commitment, it may incur a gain or loss. To the extent the Fund engages in when-issued and delayed delivery transactions, it will do so for the purpose of acquiring or selling securities consistent with its investment objective and policies and not for the purposes of investment leverage. The Fund enters into such transactions only with the intention of actually receiving or delivering the securities, although (as noted above), when-issued securities and forward commitments may be sold prior to settlement date. In addition, changes in interest rates before settlement in a direction other than that expected by the Manager will affect the value of such securities and may cause a loss to the Fund. When-issued transactions and forward commitments allow the Fund a technique to use against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods of falling interest rates and rising prices, the Fund might sell portfolio securities and purchase the same or similar securities on a when-issued or forward commitment basis, thereby obtaining the benefit of currently higher cash yields. Other Investment Restrictions The Fund's most significant investment restrictions are set forth in the Prospectus. There are additional investment restrictions that the Fund must follow that are also fundamental policies. Fundamental policies and the Fund's investment objective, cannot be changed without the vote of a "majority" of the Fund's outstanding voting securities. Under the Investment Company Act, such a "majority" vote is defined as the vote of the holders of the lesser of (i) 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of more than 50% of the outstanding shares are present, or (ii) more than 50% of the outstanding shares. Under these additional restrictions, the Trust may not, on behalf of the Fund: (1) act as an underwriter, except to the extent that, in connection with the disposition of portfolio securities, the Fund may be deemed an underwriter under applicable laws; (2) invest in oil, gas or other mineral leases, rights, royalty contracts or exploration or development programs, real estate or real estate mortgage loans (this restriction does not prevent the Fund from purchasing securities secured or issued by companies investing or dealing in real estate and by companies that are not principally engaged in the business of buying and selling such leases, rights, contracts or programs); (3) make loans other than by investing in obligations in which the Fund may invest consistent with its investment objective and policies and other than repurchase agreements and loans of portfolio securities; (4) pledge, mortgage or hypothecate its assets, except that, to secure permitted borrowings, it may pledge securities having a market value at the time of the pledge not exceeding 15% of the cost of the Fund's total assets and except in connection with permitted transactions in options, futures contracts and options on futures contracts, and except for reverse repurchase agreements and securities lending; (5) purchase or retain securities of any issuer if, to the knowledge of the Trust, more than 5% of such issuer's securities are beneficially owned by officers and trustees of the Trust or officers and directors of Massachusetts Mutual Life Insurance Company ("MassMutual") who individually beneficially own more than 1/2 of 1% of the securities of such issuer; and (6) make loans to an officer, trustee or employee of the Trust or to any officer, director or employee of MassMutual, or to MassMutual. In addition to the investment restrictions described above and those contained in the Prospectus, the Trustees of the Trust have voluntarily adopted certain policies and restrictions which are observed in the conduct of the affairs of the Fund. These represent intentions of the Trustees based upon current circumstances. They differ from fundamental investment policies in that the following additional investment restrictions may be changed or amended by action of the Trustees without requiring prior notice to or approval of shareholders. In accordance with such nonfundamental policies and guidelines, the Fund may not: (1) invest for the purpose of exercising control over, or management of, any company; (2) purchase any security of a company which (including any predecessor, controlling person, general partner and guarantor) has a record of less than three years of continuous operations or relevant business experience , if such purchase would cause more than 5% of the current value of the Fund's assets to be invested in such companies; and (3) invest in securities of other investment companies, except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition. For purposes of the Fund's policy not to concentrate investments as described in the investment restrictions in the Prospectus, the Fund has adopted the industry classifications set forth in Appendix B to this Statement of Additional Information. This policy is not a fundamental policy. How the Fund is Managed Organization and History. The Fund is one of two series of Oppenheimer Integrity Funds (the "Trust"). This Statement of Additional Information may be used with the Fund's Prospectus only to offer shares of the Fund. The Trust was established in 1982 as MassMutual Liquid Assets Trust and changed its name to MassMutual Integrity Funds on April 15, 1988. The Fund was reorganized from a closed-end investment company known as MassMutual Income Investors, Inc. into a series of the Trust on April 15, 1988. On March 29, 1991, the Trust changed its name from MassMutual Integrity Funds to Oppenheimer Integrity Funds and the Fund changed its name from MassMutual Investment Grade Bond Fund to Oppenheimer Investment Grade Bond Fund. Shares of the Fund represent an interest in the Fund proportionately equal to the interest of each other share of the same class and entitle the holder to one vote per share (and a fractional vote for a fractional share) on matters submitted to their vote at shareholders' meetings. Shareholders of the Fund and of the Trust's other series vote together in the aggregate on certain matters at shareholders' meetings, such as the election of Trustees and ratification of appointment of auditors for the Trust. Shareholders of a particular series or class vote separately on proposals which affect that series or class, and shareholders of a series or class which is not affected by that matter are not entitled to vote on the proposal. For example, only shareholders of a series, such as the Fund, vote exclusively on any material amendment to the investment advisory agreement with respect to the series. Only shareholders of a class of a series vote on certain amendments to the Distribution and/or Service Plans if the amendments affect that class. The Trustees are authorized to create new series and classes of series. The Trustees may reclassify unissued shares of the Trust or its series or classes into additional series or classes of shares. The Trustees may also divide or combine the shares of a class into a greater or lesser number of shares without thereby 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. As a Massachusetts business trust, the Trust is not required to hold, and does not plan to hold, regular annual meetings of shareholders. The Trust will hold meetings when required to do so by the Investment Company Act or other applicable law, or when a shareholder meeting is called by the Trustees or upon proper request of the shareholders. Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Trust, 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 at least 10% of its outstanding shares. In addition, if the Trustees receive a request from at least 10 shareholders (who have been shareholders for at least six months) holding shares of the Trust valued at $25,000 or more or holding at least 1% of the Trust's outstanding shares, whichever is less, stating that they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the Trust's shareholder list available to the applicants or mail their communication to all other shareholders at the applicant's expense, or the Trustees may take such other action as set forth under Section 16(c) of the Investment Company Act. The Trust's Declaration of Trust contains an express disclaimer of shareholder or Trustee liability for the Trust's obligations, and provides for indemnification and reimbursement of expenses out of its property for any shareholder held personally liable for its obligations. The Declaration of Trust also provides that the Fund shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Fund and satisfy any judgment thereon. Thus, while Massachusetts law permits a shareholder of a business trust (such as the Trust) to be held personally liable as a "partner" under certain circumstances, the risk of a Trust shareholder incurring financial loss on account of shareholder liability is limited to the relatively remote circumstances in which the Fund would be unable to meet its obligations described above. Any person doing business with the Trust, and any shareholder of the Trust, agrees under the Trust's Declaration of Trust to look solely to the assets of the Trust for satisfaction of any claim or demand which may arise out of any dealings with the Trust, and the Trustees shall have no personal liability to any such person, to the extent permitted by law. Trustees And Officers of the Fund. The Trust's Trustees and officers and their principal occupations and business affiliations during the past five years are listed below. Each Trustee is also a trustee, director or managing general partner of Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Bond Fund, Oppenheimer Limited-Term Government Fund, The New York Tax-Exempt Income Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Funds Trust, Oppenheimer Strategic Income & Growth Fund, Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic Short-Term Income Fund, Oppenheimer Variable Account Funds, Daily Cash Accumulation Fund, Inc., Centennial America Fund, L.P., Centennial Money Market Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial Tax Exempt Trust and Centennial California Tax Exempt Trust, (collectively, the "Denver-based OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is Chairman of each of the Denver-based OppenheimerFunds. As of July 10, 1995, the Trustees and officers of the Fund as a group owned of record or beneficially less the 1% of each class of the Funds outstanding shares. The foregoing does not include shares held of record by an employee benefit plan for employees of the Manager (for which one of the officers, Mr. Donohue, is a trustee) other than the shares beneficially owned under that plan by the officers of the Fund listed below. Robert G. Avis, Trustee; Age: 63 One North Jefferson Ave., St. Louis, Missouri 63103 Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G. Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset Management and A.G. Edwards Trust Company (its affiliated investment adviser and trust company, respectively). William A. Baker, Trustee; Age: 80 197 Desert Lakes Drive, Palm Springs, California 92264 Management Consultant. Charles Conrad, Jr., Trustee; Age: 64 19411 Merion Circle, Huntington Beach, California 92648 Vice President of McDonnell Douglas Space Systems, Co.; formerly associated with the National Aeronautics and Space Administration. Jon S. Fossel, President and Trustee*; Age: 53 Two World Trade Center, New York, New York 10048-0203 Chairman, Chief Executive Officer and a director of the Manager; President and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company; President and a director of HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of the Manager; a director of Shareholder Services, Inc. ("SSI") and Shareholder Financial Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly President of the Manager. Raymond J. Kalinowski, Trustee; Age: 65 44 Portland Drive, St. Louis, Missouri 63131 Director of Wave Technologies International, Inc.: formerly Vice Chairman and a director of A.G. Edwards, Inc., parent holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice President. C. Howard Kast, Trustee; Age: 73 2552 East Alameda, Denver, Colorado 80209 Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting firm). Robert M. Kirchner, Trustee; Age: 73 7500 E. Arapahoe Road, Englewood, Colorado 80112 President of The Kirchner Company (management consultants). Ned M. Steel, Trustee; Age: 79 3416 South Race Street, Englewood, Colorado 80110 Chartered Property and Casualty Underwriter; director of Visiting Nurse Corporation of Colorado; formerly Senior Vice President and a director of Van Gilder Insurance Corp. (insurance brokers). James C. Swain, Chairman and Trustee*; Age: 61 3410 South Galena Street, Denver, Colorado 80231 Vice Chairman of the Manager; President and director of Centennial Asset Management Corporation, an investment adviser subsidiary of the Manager ("Centennial"); formerly Chairman of the Board of SSI. Andrew J. Donohue, Vice President; Age: 44 Two World Trade Center, New York, New York 10048-0203 Executive Vice President and General Counsel of the Manager and Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly Senior Vice President and Associate General Counsel of the Manager and the Distributor; formerly a Partner in, Kraft & McManimon (a law firm) prior to which he was an officer of First Investors Corporation (a broker-dealer) and First Investors Management Company, Inc. (broker-dealer and investment adviser); and a director and an officer of First Investors Family of Funds and First Investors Life Insurance Company. George C. Bowen, Vice President, Secretary and Treasurer; Age: 58 3410 South Galena Street Denver, Colorado 80231 Senior Vice President and Treasurer of the Manager; Vice President and Treasurer of the Distributor and HarbourView; Senior Vice President, Treasurer, Assistant Secretary and a director of Centennial; Vice President, Treasurer and Secretary of SSI and SFSI; an officer of other OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary of OAMC. David P. Negri, Vice President and Portfolio Manager; Age: 40 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; an officer of other OppenheimerFunds. David Rosenberg, Vice President and Portfolio Manager; Age 36 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; an officer of other OppenheimerFunds; formerly an officer and portfolio manager for Delaware Investment Advisors and for one of its mutual funds. Robert G. Zack, Assistant Secretary; Age: 46 Two World Trade Center, New York, New York 10048-0203 Senior Vice President and Associate General Counsel of the Manager, Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds. Robert J. Bishop, Assistant Treasurer; Age: 36 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting; an officer of other OppenheimerFunds; formerly a Fund Controller of the Manager, prior to which he was an Accountant for Yale & Seffinger, P.C., an accounting firm, and previously an Accountant and Commissions Supervisor for Stuart James Company Inc., a broker-dealer. Scott Farrar, Assistant Treasurer; Age: 29 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting; an officer of other OppenheimerFunds; previously a Fund Controller for the Manager, prior to which he was an International Mutual Fund Supervisor for Brown Brothers Harriman & Co., a bank, and previously a Senior Fund Accountant for State Street Bank & Trust Company. [FN] - ---------------------- *A Trustee who is an "interested person" of the Fund as defined in the Investment Company Act. -- Remuneration of Trustees. The officers of the Fund are affiliated with the Manager. They and the Trustees of the Fund who are affiliated with the Manager (Messrs. Fossel and Swain, who are both officers and Trustees) receive no salary or fee from the Fund. The Trustees of the Fund (excluding Messrs. Fossel and Swain) received the total amounts shown below from the Fund, during its fiscal year ended December 31, 1994, and from all 22 of the Denver-based OppenheimerFunds (including the Fund) listed in the first paragraph of this section, for services in the positions shown:
Total Compensation Aggregate From All Compensation Denver-based Name and Position from Fund OppenheimerFunds1 Robert G. Avis $600.00 $53,000.00 Trustee William A. Baker $829.00 $73,257.01 Audit and Review Committee Chairman and Trustee Charles Conrad, Jr. $774.00 $68,293.67 Audit and Review Committee Member and Trustee Raymond J. Kalinowski $600.00 $53,000.00 Trustee C. Howard Kast $600.00 $53,000.00 Trustee Robert M. Kirchner $774.00 $68,293.67 Audit and Review Committee Member and Trustee Ned M. Steel $600.00 $53,000.00 Trustee _____________ 1For the 1994 calendar year.
-- Major Shareholders. As of July 10, 1995, the only entity that owned of record or was known by the Fund to own beneficially 5% or more of any class of the Fund's outstanding shares was MML Reinsurance (Bermuda) Ltd., c/o Investment Services 1295 State Street, Springfield, MA 01111-0001, which owned 789,794.139 Class A shares (approximately 7.20% of the Fund's Class A shares and 6.76% of the Fund's outstanding shares), and which represented less than 5% of the outstanding shares of the Trust, and Smith Barney, Inc., 388 Greenwich Street, New York, NY 10013, which owned 102,753.693 Class B shares (approximately 14.47%) of the Fund's Class B shares, and which represented less than 5% of the outstanding shares of the Fund and of the Trust. The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual Life Insurance Company. OAC is also owned in part by certain of the Manager's directors and officers, some of whom also serve as officers of the Trust, and two of whom (Mr. Jon S. Fossel and Mr. James C. Swain) serve as Trustees of the Trust. The Manager, and the Fund have a Code of Ethics. It is designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete with or take advantage of the Fund's portfolio transactions. Compliance with the Code of Ethics is carefully monitored and strictly enforced. -- The Investment Advisory Agreement. The investment advisory agreement, dated June 28, 1995, between the Trust on behalf of the Fund and the Manager requires the Manager, at its expense, to provide the Fund with adequate office space, facilities and equipment, and to provide and supervise the activities of all administrative and clerical personnel required to provide effective corporate administration for the Fund, including the compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of the Fund. Expenses not expressly assumed by the Manager under the advisory agreement or by the Distributor under the General Distributors Agreement are paid by the Fund. The advisory agreement lists examples of expenses paid by the Fund, the major categories of which relate to interest, taxes, brokerage commissions, fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs. The advisory agreement provides that in the absence of willful misfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard for its obligations and duties under the advisory agreement, the Manager is not liable for any loss resulting from a good faith error or omission on its part with respect to any of its duties thereunder. The advisory agreement permits the Manager to act as investment adviser for any other person, firm or corporation and to use the name "Oppenheimer" in connection with other investment companies for which it may act as investment adviser or general distributor. If the Manager shall no longer act as investment adviser to the Fund, the right of the Fund to use the name "Oppenheimer" as part of its name may be withdrawn. The advisory agreements contain no expense limitation. However, independently of the advisory agreements, the Manager has undertaken that the total expenses of the Fund in any fiscal year (including the management fee, but excluding taxes, interest, brokerage fees, distribution plan payments, and extraordinary expenses, such as litigation costs) shall not exceed (and the Manager undertakes to reduce the Fund's management fee in the amount by which such expenses shall exceed) the most stringent applicable state "blue sky" expense limitation requirement for qualification of sale of the Fund's shares. At present, that limitation is imposed by California and limits expenses (with specified exclusions) to 2.5% of the first $30 million of the Fund's average annual net assets, 2.0% of the next $70 million of average net assets and 1.5% of average net assets in excess of $100 million. The Manager reserves the right to change or eliminate this expense limitation at any time. The payment of the management fee at the end of any month will be reduced so that at no time will there be any accrued but unpaid liability under the above expense limitation. For the fiscal years ended December 31, 1992, 1993 and 1994, the advisory fees paid to the Manager were $491,642, $555,430 and $522,205, respectively, of which $342,743, $380,790 and $362,287, respectively, was paid by the Manager to the Sub-Adviser. -- The Distributor. Under the General Distributor's Agreement between the Trust and the Distributor, the Distributor acts as the Fund's principal underwriter in the continuous public offering of the Fund's Class A, Class B and Class C shares, but is not obligated to sell a specific number of shares. Expenses normally attributable to sales (other than those paid under the Class A, Class B and Class C Distribution and Service Plans), including advertising and the cost of printing and mailing prospectuses (other than those furnished to existing shareholders), are borne by the Distributor. During the Fund's fiscal years ended December 31, 1992, 1993 and 1994, the aggregate amount of sales charges on sales of the Fund's Class A shares was $337,554, $269,639 and $143,088, respectively, of which the Distributor and MMLISI retained in the aggregate $213,717, $163,271 and $67,090 in those respective years. For the fiscal year ended December 31, 1994, the Distributor advanced $91,551 to broker-dealers on the sales of the Funds' Class B shares, $8,449 of which went to MMLISI. In addition, the Distributor collected $8,916 from contingent deferred sales charges assessed on Class B shares. Class C shares were not publicly offered prior to July 10, 1995. - -- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's transfer agent, is responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for shareholder servicing and administrative functions. Brokerage Policies Of The Fund Brokerage Provisions of the Investment Advisory Agreements. One of the duties of the Manager under the advisory agreement is to arrange the portfolio transactions of the Fund. In doing so, the Manager is authorized by the advisory agreement to employ broker-dealers ("brokers"), including "affiliated" brokers, as that term is defined in the Investment Company Act, as may, in its best judgment based on all relevant factors, implement the policy of the Fund to obtain, at reasonable expense, the "best execution" (prompt and reliable execution at the most favorable price obtainable) of such transactions. The Manager need not seek competitive commission bidding or base its selection on "posted" rates, but is expected to be aware of the current rates of eligible brokers and to minimize the commissions paid to the extent consistent with the provisions of the advisory agreement and the interests and policies of the Fund as established by the Trust's Board of Trustees. Purchases of securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price. Under the advisory agreement, the Manager is authorized to select brokers which provide brokerage and/or research services for the Fund and/or the other accounts over which it or its affiliates have investment discretion. The commissions paid to such brokers may be higher than another qualified broker would have charged, if a good faith determination is made by the Manager that the commission is fair and reasonable in relation to the services provided. Most purchases made by the Fund are principal transactions at net prices, and the Fund incurs little or no brokerage costs. During the fiscal year ended December 31, 1992, 1993 and 1994, no brokerage commissions were paid by the Fund. Description of Brokerage Practices Followed by the Manager. Subject to the provisions of the advisory agreement and the procedures and rules described above, allocations of brokerage are generally made by the Manager's portfolio traders upon recommendations from the Manager's portfolio managers. In certain instances portfolio managers may directly place trades and allocate brokerage, also subject to the provisions of the advisory agreement and the procedures and rules described above. In either case, brokerage is allocated under the supervision of the Manager's executive officers and the Manager. Transactions in securities other than those for which an exchange is the primary market are generally done with principals or market makers. Brokerage commissions are paid primarily for effecting transactions in listed securities and are otherwise paid only if it appears likely that a better price or execution can be obtained. When the Fund engages in an option transaction, ordinarily the same broker will be used for the purchase or sale of the option and any transaction in the securities to which the option relates. When possible, concurrent orders to purchase or sell the same security by more than one of the accounts managed by the Manager or its affiliates are combined. The transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each account. Most purchases of money market instruments and debt obligations are principal transactions at net prices. Instead of using a broker for those transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless it determines that a better price or execution can be obtained by using a broker. Purchases of these securities from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread between the bid and asked prices. The Fund seeks to obtain prompt execution of these orders at the most favorable net price. The research services provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates, and investment research received for the commissions of those other accounts may be useful both to the Fund and one or more of such other accounts. Such research, which may be supplied by a third party at the instance of a broker, includes information and analyses on particular companies and industries as well as market or economic trends and portfolio strategy, receipt of market quotations for portfolio evaluations, information systems, computer hardware and similar products and services. If a research service also assists the Manager in a non- research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment decision-making process may be paid in commission dollars. The Board of Trustees has permitted the Manager to use concessions on fixed-price offerings to obtain research, in the same manner as is permitted for agency transactions. The research services provided by brokers broadens the scope and supplement the research activities of the Manager, by making available additional views for consideration and comparisons, and by enabling the Manager to obtain market information for the valuation of securities held in the Fund's portfolio or being considered for purchase. The Board of Trustees, including the "independent" Trustees of the Fund (those Trustees of the Fund who are not "interested persons" as defined in the Investment Company Act, and who have no direct or indirect financial interest in the operation of the advisory agreement or the Distribution Plans described below) annually reviews information furnished by the Manager as to the commissions paid to brokers furnishing such services so that the Board may ascertain whether the amount of such commissions was reasonably related to the value or benefit of such services. Performance of the Fund Yield and Total Return Information. As described in the Prospectus, from time to time the "standardized yield," "dividend yield," "average annual total return", "total return," "cumulative total return," "total return at net asset value" and "cumulative total return at net asset value" of an investment in a class of shares of the Fund may be advertised. An explanation of how yields and total returns are calculated for each class and the components of those calculations is set forth below. The Fund's advertisement of its performance data must, under applicable rules of the Securities and Exchange Commission, include the average annual total returns for each class of shares of the Fund for the 1, 5 and 10-year periods (or the life of the class, if less) ending as of the most recently ended calendar quarter prior to the publication of the advertisement. This enables an investor to compare the Fund's performance to the performance of other funds for the same periods. However, a number of factors should be considered before using such information as a basis for comparison with other investments. An investment in the Fund is not insured; its returns and share prices are not guaranteed and normally will fluctuate on a daily basis. When redeemed, an investor's shares may be worth more or less than their original cost. Returns for any given past period are not a prediction or representation by the Fund of future returns on its shares. The returns of Class A and Class B shares of the Fund are affected by portfolio quality, the type of investments the Fund holds and its operating expenses allocated to a particular class. -- Standardized Yields. -- Yield. The Fund's "yield" (referred to as "standardized yield") for a given 30-day period for a class of shares is calculated using the following formula set forth in rules adopted by the Securities and Exchange Commission that apply to all funds (other than money market funds) that quote yields: (a-b) 6 Standardized Yield = 2 ((--- + 1) - 1) ( cd) The symbols above represent the following factors: a = dividends and interest earned during the 30-day period. b = expenses accrued for the period (net of any expense reimbursements). c = the average daily number of shares of that class outstanding during the 30-day period that were entitled to receive dividends. d = the maximum offering price per share of that class on the last day of the period, adjusted for undistributed net investment income. The standardized yield of a class of shares for a 30-day period may differ from its yield for any other period. The SEC formula assumes that the standardized yield for a 30-day period occurs at a constant rate for a six-month period and is annualized at the end of the six-month period. This standardized yield is not based on actual distributions paid by the Fund to shareholders in the 30-day period, but is a hypothetical yield based upon the net investment income from the Fund's portfolio investments calculated for that period. The standardized yield may differ from the "dividend yield" of that class, described below. Additionally, because each class of shares is subject to different expenses, it is likely that the standardized yields of the Fund's classes of shares will differ. For the 30-day period ended December 31, 1994, the standardized yields for the Fund's Class A and Class B shares were 6.76% and 6.34%, respectively. Class C shares were not publicly offered prior to July 10, 1995. -- Dividend Yield and Distribution Return. From time to time the Fund may quote a "dividend yield" or a "distribution return" for each class. Dividend yield is based on the dividends paid on shares of a class from net investment income during a stated period. Distribution return includes dividends derived from net investment income and from realized capital gains declared during a stated period. Under those calculations, the dividends and/or distributions for that class declared during a stated period of one year or less (for example, 30 days) are added together, and the sum is divided by the maximum offering price per share of that class) on the last day of the period. When the result is annualized for a period of less than one year, the "dividend yield" is calculated as follows: Dividend Yield of the Class = Dividends of the Class ----------------------------------------------------- Max. Offering Price of the Class (last day of period) divided by Number of days (accrual period) x 365 The maximum offering price for Class A shares includes the maximum front-end sales charge. For Class B shares, the maximum offering price is the net asset value per share, without considering the effect of contingent deferred sales charges. From time to time similar yield or distribution return calculations may also be made using the Class A net asset value (instead of its respective maximum offering price) at the end of the period. The dividend yields on Class A shares for distribution made on December 30, 1994 covering the 31-day period ended December 31, 1994, were 10.85 and 11.40% when calculated at maximum offering price and at net asset value, respectively. The dividend yield on Class B shares for the 30-day period ended December 31, 1994, was 10.63% when calculated at net asset value. That distribution included amounts distributed by the Fund for both Class A and Class B shares to avoid paying excise tax on undistributed income at year-end as described in Dividends, Capital Gains, and Taxes, below. Therefore, these dividend yields are significantly higher than the divided yields for prior months. -- Total Return Information. -- Average Annual Total Returns. The "average annual total return" of each class is an average annual compounded rate of return for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of that investment, according to the following formula: 1/n (ERV) (---) -1 = Average Annual Total Return ( P ) -- Cumulative Total Returns. The cumulative "total return" calculation measures the change in value of a hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the same factors as average annual total return, but it does not average the rate of return on an annual basis. Cumulative total return is determined as follows: ERV - P ------- = Total Return P In calculating total returns for Class A shares, the current maximum sales charge of 4.75% (as a percentage of the offering price) is deducted from the initial investment ("P") (unless the return is shown at net asset value, as described below). For Class B shares, the payment of the applicable contingent deferred sales charge (of 5.0% for the first year, 4.0% for the second year, 3.0% for the third and fourth years, 2.0% for the fifth year, 1.0% in the sixth year and none thereafter, is applied, as described in the Prospectus. Total returns also assume that all dividends and capital gains distributions during the period are reinvested to buy additional shares at net asset value per share, and that the investment is redeemed at the end of the period. The "average annual total returns" on an investment in Class A shares for the one year period ended December 31, 1994 and for the period from April 15, 1988 (the date the Fund became an open-end Fund) to December 31, 1994, were -8.43% and 6.79%, respectively. The cumulative "total return" on Class A shares for the latter period was 55.38%. For the fiscal period from May 1, 1993 (inception of the class), through December 31, 1994, the average annual total return and the cumulative total return on an investment in Class B shares of the Fund were -2.67% and -4.41%, respectively. -- Total Returns at Net Asset Value. From time to time the Fund may also quote an "average annual total return at net asset value" or a cumulative "total return at net asset value" for Class A or Class B shares. Each is based on the difference in net asset value per share at the beginning and the end of the period for a hypothetical investment in that class of shares (without considering front-end or contingent sales charges) and takes into consideration the reinvestment of dividends and capital gains distributions. The cumulative total returns at net asset value on the Fund's Class A shares for the fiscal year ended December 31, 1993, and for the period from April 15, 1988 to December 31, 1994 were - 3.87 and 63.13%, respectively. The cumulative total return at net asset value on the Fund's Class B shares for the fiscal year-ended December 31, 1994 and for the period from May 1, 1993 through December 31, 1994 well - 4.53% and -0.80%, respectively. Total return information may be useful to investors in reviewing the performance of the Fund's Class A or Class B shares. However, when comparing total return of an investment in Class A or Class B shares of the Fund, a number of factors should be considered before using such information as a basis for comparison with other investments. Other Performance Comparisons. From time to time the Fund may publish the ranking of its Class A, Class B or Class C shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized independent mutual fund monitoring service. Lipper monitors the performance of regulated investment companies, including the Fund, and ranks their performance for various periods based on categories relating to investment objectives. The performance of the Fund's classes is ranked against (i) all other funds, excluding money market funds, and (ii) all other general bond funds. The Lipper performance rankings are based on total return that includes the reinvestment of capital gains distributions and income dividends but does not take sales charges or taxes into consideration. The Fund's performance may also be compared to the performance of the Lipper General Bond Fund Index, which is a net asset value weighted index of general bond funds compiled by Lipper. It is calculated with adjustments for income dividends and capital gains distributions as of the ex-dividend date. From time to time, the Fund may include in its advertisements and sales literature performance information about the Fund cited in other newspapers and periodicals, such as The New York Times, which may include performance quotations from other sources, including Lipper. From time to time the Fund may publish the ranking of the performance of its Class A, Class B or Class C shares by Morningstar, Inc., an independent mutual fund monitoring service that ranks mutual funds, including the Fund, monthly, in broad investment categories (equity, taxable bond, municipal bond and hybrid), based on risk-adjusted investment return. Investment return measures a fund's or Class's three, five and ten-year average annual total returns (when available). Risk and return are combined to produce star rankings reflecting performance relative to the average fund in a fund's category. Five stars is the "highest" ranking (top 10%), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars is "below average" (next 22.5%) and one star is "lowest" (bottom 10%). The current ranking is a weighted average of the 3, 5 and 10 year rankings (if available). Morningstar ranks the Class A and Class B shares of the Fund in relation to other taxable bond funds. Rankings are subject to change. The total return on an investment in the Fund's Class A, Class B or Class C shares may be compared with the performance for the same period of one or more of the following indices: the Consumer Price Index, the Salomon Brothers World Government Bond Fund Index, the Salomon Brothers High Grade Corporate Bond Index, the Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers Aggregate Bond Index, and the J.P. Morgan Government Bond Index. The Consumer Price Index is generally considered to be a measure of inflation. The Salomon Brothers World Government Bond Index generally represents the performance of government debt securities of various markets throughout the world, including the United States. The Salomon Brothers High Grade Corporate Bond Index generally represents the performance of high grade long-term corporate bonds, and the Lehman Brothers Government/Corporate Bond Index generally represents the performance of intermediate and long-term government and investment grade corporate debt securities. The Lehman Brothers Aggregate Bond Index generally represents the performance of the general fixed-rate investment grade debt market. The J.P. Morgan Government Bond Index generally represents the performance of government bonds issued by various countries including the United States. Each index includes a factor for the reinvestment of interest but does not reflect expenses or taxes. Investors may also wish to compare the Fund's Class A, Class B or Class C shares return to the returns on fixed income investments available from banks and thrift institutions, such as certificates of deposit, ordinary interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and various other instruments such as Treasury bills. However, the Fund's returns and share price are not guaranteed by the FDIC or any other agency and will fluctuate daily, while bank depository obligations may be insured by the FDIC and may provide fixed rates of return, and Treasury bills are guaranteed as to principal and interest by the U.S. government. From time to time, the Fund's Manager may publish rankings or ratings of the Manager (or Transfer Agent) or the investor services provided by them to shareholders of the OppenheimerFunds, other than performance rankings of the OppenheimerFunds themselves. Those ratings or rankings of shareholder/investor services by third parties may compare the OppenheimerFunds' services to those of other mutual fund families selected by the rating or ranking services and may be based upon the opinions of the rating or ranking service itself, based on its research or judgment, or based upon surveys of investors, brokers, shareholders or others. Distribution and Service Plans The Fund has adopted a Service Plan for Class A shares, and Distribution and Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment Company Act, pursuant to which the Fund will reimburse the Distributor quarterly for all or a portion of its costs incurred in connection with the distribution and/or servicing of the shares of that class, as described in the Prospectus. Each Plan has been approved by a vote of (i) the Board of Trustees of the Fund, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on that Plan, and (ii) the holders of a "majority" (as defined in the Investment Company Act) of the shares of each class. (For the Distribution and Service Plan for the Class B shares, that vote was cast by the Manager as the sole initial holder of Class B shares of the Fund). In addition, under the Plans, the Manager and the Distributor, in their sole discretion, from time to time may use their own resources (which, in the case of the Manager, may include profits from the advisory fee it receives from the Fund) to make payments to brokers, dealers or other financial institutions (each is referred to as a "Recipient" under the Plans) for distribution and administrative services they perform. The Distributor and the Manager may, in their sole discretion, increase or decrease the amount of payments they make from their own resources to Recipients. Unless terminated as described below, each Plan continues in effect from year to year but only as long as its continuance is specifically approved at least annually by the Fund's Board of Trustees and its Independent Trustees by a vote cast in person at a meeting called for the purpose of voting on such continuance. Either Plan may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding shares of that class. Neither Plan may be amended to increase materially the amount of payments to be made unless such amendment is approved by shareholders of the class affected by the amendment. In addition, because Class B shares of the Fund automatically convert into Class A shares after six years, the Fund is required by an exemptive order issued by the Securities and Exchange Commission to obtain the approval of Class B as well as Class A shareholders for a proposed amendment to the Class A Plan that would materially increase the amount to be paid by Class A shareholders under the Class A Plan. Such approval must be by a "majority" of the Class A and Class B shares (as defined in the Investment Company Act), voting separately by class. All material amendments must be approved by the Independent Trustees. While the Plans are in effect, the Treasurer of the Trust shall provide separate written reports to the Trust's Board of Trustees at least quarterly on the amount of all payments made pursuant to each Plan, the purpose for which each payment was made and the identity of each Recipient that received any payment. Each report shall also include the distribution costs for that quarter. Those reports, including the allocations on which they are based, will be subject to the review and approval of the Independent Trustees in the exercise of their fiduciary duty. Each Plan further provides that while it is in effect, the selection and nomination of those Trustees of the Trust who are not "interested persons" of the Trust is committed to the discretion of the Independent Trustees. This does not prevent the involvement of others in such selection and nomination if the final decision on selection or nomination is approved by a majority of the Independent Trustees. Under the Plans, no payment will be made to any Recipient in any quarter if the aggregate net asset value of all Fund shares held by the Recipient for itself and its customers did not exceed a minimum amount, if any, that may be determined from time to time by a majority of the Fund's Independent Trustees. Initially, the Board of Trustees has set the fees at the maximum rate and set no minimum amount. For the fiscal year ended December 31, 1994, payments under the Class A Plan totaled $247,136, all of which was paid by the Distributor to Recipients, including $154,100 paid to MMLISI. Any unreimbursed expenses incurred by the Distributor with respect to Class A shares for any fiscal year may not be recovered in subsequent fiscal years. Payments received by the Distributor under the Plan for Class A shares will not be used to pay any interest expense, carrying charges, or other financial costs, or allocation of overhead by the Distributor. The Class B and Class C Plans allows the service fee payments to be paid by the Distributor to Recipients in advance for the first year Class B and Class C shares are outstanding, and thereafter on a quarterly basis, as described in the Prospectus. The services rendered by Recipients in connection with personal services and the maintenance of Class B shareholder accounts may include but shall not be limited to, the following: answering routine inquiries from the Recipient's customers concerning the Fund, assisting in the establishment and maintenance of accounts or sub-accounts in the Fund and processing share redemption transactions, making the Fund's investment plans and dividend payment options available, and providing such other information and services in connection with the rendering of personal services and/or the maintenance of accounts, as the Distributor or the Fund may reasonably request. The advance payment is based on the net asset value of the Class B and Class C shares sold. An exchange of shares does not entitle the Recipient to an advance service fee payment. In the event Class B or Class C shares are redeemed during the first year that the shares are outstanding, the Recipient will be obligated to repay a pro rata portion of the advance payment for those shares to the Distributor. Service fee payments made under the Class B Plan during the fiscal year ended December 31, 1994 totalled $26,383, all of which was paid by the Distributor to Recipients, including MMLISI. Although the Class B and Class C Plans permit the Distributor to retain both the asset-based sales charge and the service fee on Class B shares, or to pay Recipients the service fee on a quarterly basis without payment in advance, the Distributor intends to pay the service fee to Recipients in the manner described above. A minimum holding period may be established from time to time under the Class B or Class C Plan by the Board. Initially, the Board has set no minimum holding period. All payments under the Class B and Class C Plans are subject to the limitations imposed by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. on payments of asset-based sales charges and service fees. The Distributor anticipates that it will take a number of years for it to recoup (from the Fund's payments to the Distributor under the Class B or Class C Plan and recoveries of the contingent deferred sales charge collected on redeemed Class B or Class C shares) the sales commissions paid to authorized brokers or dealers. Asset-based sales charge payments are designed to permit an investor to purchase shares of the Fund without paying a front-end sales load and at the same time permit the Distributor to compensate Recipients in connection with the sale of Class B and Class C shares of the Fund. The Distributor retains the asset-based sales charge on Class B shares. As to Class C shares, the Distributor retains the asset-based sales charge during the first year shares are outstanding, and pays the asset-based sales charge as an ongoing commission to the dealer on Class C shares outstanding for a year or more. Under the Class B and Class C Plans, the asset-based sales charge is paid to compensate the Distributor for its services, described below, to the Fund. The Distributor's actual distribution expenses for any given year may exceed the aggregate of payments received pursuant to the Class B or Class C Plan and from contingent deferred sales charges. Under the Class B and Class C Plans, the distribution assistance and administrative support services rendered by the Distributor in connection with the distribution of Class B and Class C shares may include: (i) paying service fees and sales commissions to any broker, dealer, bank or other person or entity that sells and services the Fund's Class B or Class C shares, (ii) paying compensation to and expenses of personnel of the Distributor who support distribution of Class B or Class C shares by Recipients, (iii) obtaining financing or providing such financing from its own resources, or from an affiliate, for interest and other borrowing costs of the Distributor's unreimbursed expenses incurred in rendering distribution assistance for Class B or Class C shares, and (iv) paying certain other distribution expenses. Other distribution assistance rendered by the Distributor and Recipients under the Class B and Class C Plans may include, but shall not be limited to, the following: distributing sales literature and prospectuses other than those furnished to current Class B or Class C shareholders, and providing such other information and services in connection with the distribution of Class B or Class C shares as the Distributor or the Fund may reasonably request. The Class B and Class C Plans further provide that such other distribution assistance may include distribution assistance and administrative support services rendered in connection with Class B or Class C shares acquired (i) by purchase, (ii) in exchange for shares of another investment company for which the Distributor serves as distributor or sub-distributor, or (iii) pursuant to a plan of reorganization to which the Fund is a party. About Your Account How To Buy Shares Alternative Sales Arrangements - Class A, Class B and Class C Shares. The availability of three classes of shares permits an investor to choose the method of purchasing shares that is more beneficial to the investor depending on the amount of the purchase, the length of time the investor expects to hold shares and other relevant circumstances. Investors should understand that the purpose and function of the deferred sales charge and asset-based sales charge with respect to Class B and Class C shares are the same as those of the initial sales charge with respect to Class A shares. Any salesperson or other person entitled to receive compensation for selling Fund shares may receive different compensation with respect to one class of shares than the other. The Distributor normally will not accept (i) any order for $500,000 or more of Class B shares or (ii) any order for $1 million or more of Class C shares, on behalf of a single investor (not including dealer "street name" or omnibus accounts) because generally it will be more advantageous for that investor to purchase Class A shares of the Fund instead. The three classes of shares each represent an interest in the same portfolio investments of the Fund. However, each class has different shareholder privileges and features. The net income attributable to Class B and Class C shares and the dividends payable on Class B and Class C shares will be reduced by incremental expenses borne solely by that class, including the asset-based sales charge to which Class B and Class C shares are subject. The conversion of Class B shares to Class A shares after six years is subject to the continuing availability of a private letter ruling from the Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect that the conversion of Class B shares does not constitute a taxable event for the holder under Federal income tax law. If such a revenue ruling or opinion is no longer available, the automatic conversion feature may be suspended, in which event no further conversions of Class B shares would occur while such suspension remained in effect. Although Class B shares could then be exchanged for Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales charge or fee, such exchange could constitute a taxable event for the holder, and absent such exchange, Class B shares might continue to be subject to the asset-based sales charge for longer than six years. The methodology for calculating the net asset value, dividends and distributions of the Fund's Class A, Class B and Class C shares recognizes two types of expenses. General expenses that do not pertain specifically to any class are allocated pro rata to the shares of each class, based on the percentage of the net assets of such class to the Fund's total assets, and then equally to each outstanding share within a given class. Such general expenses include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials for current shareholders, (iv) fees to unaffiliated Trustees, (v) custodian expenses, (vi) share issuance costs, (vii) organization and start-up costs, (viii) interest, taxes and brokerage commissions, and (ix) non- recurring expenses, such as litigation costs. Other expenses that are directly attributable to a class are allocated equally to each outstanding share within that class. Such expenses include (i) Distribution and Service Plan fees, (ii) incremental transfer and shareholder servicing agent fees and expenses, (iii) registration fees and (iv) shareholder meeting expenses, to the extent that such expenses pertain to a specific class rather than to the Fund as a whole. Determination of Net Asset Value Per Share. The net asset values per share of Class A and Class B and Class C 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, by dividing the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may close earlier on some days (for example, in case of weather emergencies or on days falling before a holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will close on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days. Trading in debt securities and foreign securities at times when the New York Stock Exchange is closed, including weekends and holidays, or after the close of the Exchange on a regular business day. The Fund may invest a substantial portion of its assets in foreign securities primarily listed on foreign exchanges or in foreign over-the-counter markets that may trade on Saturdays or customary U.S. business holidays on which the Exchange is closed. Because the Fund's net asset value will not be calculated on those days, the Fund's net asset value per share may be significantly affected on such days when shareholders may not purchase or redeem shares. The Fund's Board of Trustees has established procedures for the valuation of the Fund's securities, generally as follows: (i) equity securities traded on a U.S. securities exchange or on NASDAQ for which last sale information is regularly reported are valued at the last reported sale price on their primary exchange or NASDAQ that day (or, in the absence of sales that day, at values based on the last sales prices of the preceding trading day, or closing bid and asked prices); (ii) securities actively traded on a foreign securities exchange are valued at the last sales price available to the pricing service approved by the Fund's Board of Trustees or to the Manager as reported by the principal exchange on which the security is traded; (iii) unlisted foreign securities or listed foreign securities not actively traded are valued at the mean between "bid" and "asked" prices determined by a pricing service approved by the Board of Trustees or by the Manager; (iv) long-term debt securities having a remaining maturity in excess of 60 days are valued at the mean between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of Trustees or obtained from active market makers in the security on the basis of reasonable inquiry; (v) debt instruments having a maturity of more than one year when issued, and non-money market type instruments having a maturity of one year or less when issued, which have a remaining maturity of 60 days or less are valued at the mean between the "bid" and "asked" prices determined by a pricing service approved by the Fund's Board of Trustees or obtained from active market makers in the security on the basis of reasonable inquiry; (vi) money market-type debt securities having a maturity of less than one year when issued that having a remaining maturity of 60 days or less are valued at cost, adjusted for amortization of premiums and accretion of discounts; and (vii) securities (including restricted securities) not having readily-available market quotations are valued at fair value under the Board's procedures. Trading in securities on European and Asian exchanges and over-the- counter markets is normally completed before the close of The New York Stock Exchange. Events affecting the values of foreign securities traded in stock markets that occur between the time their prices are determined and the close of the Exchange will not be reflected in the Fund's calculation of net asset value unless the Board of Trustees or the Manager, under procedures established by the Board of Trustees, determines that the particular event would materially affect the Fund's net asset value, in which case an adjustment would be made, if necessary. Foreign securities priced in a foreign currency as well as foreign currency have their value converted to U.S. dollars at the closing price in the London foreign exchange market as provided by a reliable bank, dealer or pricing service. In the case of U.S. Government Securities, mortgage-backed securities, foreign government securities and corporate bonds, when last sale information is not generally available, such pricing procedures may include "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield, maturity, and other special factors involved. The Trust's Board of Trustees has authorized the Manager to employ a pricing service to price U.S. Government Securities, mortgage-backed securities, foreign government securities and corporate bonds. The Trustees will monitor the accuracy of such pricing services by comparing prices used for portfolio evaluation to actual sales prices of selected securities. Puts, calls and Futures held by the Fund are valued at the last sales price on the principal exchange on which they are traded, or on NASDAQ as applicable, as determined by a pricing service approved by the Board of Trustees or by the Manager, or, if there are no sales that day, in accordance with (i), above. Forward currency contracts are valued at the closing price in the London foreign exchange market as provided by a reliable bank, dealer or pricing service. When the Fund writes an option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is adjusted ("marked-to-market") to reflect the current market value of the option. In determining the Fund's gain on investments, if a call written by the Fund is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain in the amount of the premium; if the Fund enters into a closing purchase transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund. AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25.00. Shares will be purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House transfer to buy shares. Dividends will begin to accrue on shares purchased by the proceeds of ACH transfers on the business day the Fund receives Federal Funds for the purchase through the ACH system before the close of The New York Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the Exchange, the shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any delays in purchasing shares resulting from delays in ACH transmissions. Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of Accumulation and Letters of Intent because of the economies of sales efforts and expenses realized by the Distributor, dealers and brokers making such sales. No sales charge is imposed in certain circumstances described in the Prospectus because the Distributor or dealer or broker incurs little or no selling expenses. The term "immediate family" refers to one's spouse, children, grandchildren, grandparents, parents, parents-in-law, sons- and daughters-in-law, siblings, a sibling's spouse and a spouse's siblings. -- The OppenheimerFunds. The OppenheimerFunds are those mutual funds for which the Distributor acts as the distributor or the sub-distributor and include the following: Oppenheimer Tax-Free Bond Fund Oppenheimer New York Tax-Exempt Fund Oppenheimer California Tax-Exempt Fund Oppenheimer Intermediate Tax-Exempt Bond Fund Oppenheimer Insured Tax-Exempt Bond Fund Oppenheimer Main Street California Tax-Exempt Fund Oppenheimer Florida Tax-Exempt Fund Oppenheimer Pennsylvania Tax-Exempt Fund Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Fund Oppenheimer Discovery Fund Oppenheimer Time Fund Oppenheimer Target Fund Oppenheimer Growth Fund Oppenheimer Equity Income Fund Oppenheimer Value Stock Fund Oppenheimer Asset Allocation Fund Oppenheimer Total Return Fund, Inc. Oppenheimer Main Street Income & Growth Fund Oppenheimer High Yield Fund Oppenheimer Champion High Yield Fund Oppenheimer Investment Grade Bond Fund Oppenheimer U.S. Government Trust Oppenheimer Limited-Term Government Fund Oppenheimer Mortgage Income Fund Oppenheimer Global Fund Oppenheimer Global Emerging Growth Fund Oppenheimer Global Growth & Income Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer Strategic Income Fund Oppenheimer Strategic Investment Grade Bond Fund Oppenheimer Strategic Short-Term Income Fund Oppenheimer Strategic Income & Growth Fund Oppenheimer Strategic Diversified Income Fund the following "Money Market Funds": Oppenheimer Money Market Fund, Inc. Oppenheimer Cash Reserves Centennial Money Market Trust Centennial Tax Exempt Trust Centennial Government Trust Centennial New York Tax Exempt Trust Centennial California Tax Exempt Trust Centennial America Fund, L.P. Daily Cash Accumulation Fund, Inc. There is an initial sales charge on the purchase of Class A shares of each of the OppenheimerFunds except Money Market Funds (under certain circumstances described herein, redemption proceeds of Money Market Fund shares may be subject to a contingent deferred sales charge). -- Letters of Intent. A Letter of Intent ("Letter") is the investor's statement of intention to purchase Class A shares of the Fund (and other eligible OppenheimerFunds) sold with a front-end sales charge during the 13-month period from the investor's first purchase pursuant to the Letter (the "Letter of Intent period"), which may, at the investor's request, include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's intention to make the aggregate amount of purchases (excluding any purchases made by reinvestment of dividends or distributions or purchases made at net asset value without sales charge), which together with the investor's holdings of such funds (calculated at their respective public offering prices calculated on the date of the Letter) will equal or exceed the amount specified in the Letter. This enables the investor to obtain the reduced sales charge rate (as set forth in the Prospectus) applicable to purchases of shares in that amount (the "intended purchase amount"). Each purchase under the Letter will be made at the public offering price applicable to a single lump-sum purchase of shares in the intended purchase amount, as described in the Prospectus. In submitting a Letter, the investor makes no commitment to purchase shares, but if the investor's purchases of shares within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge applicable to such purchases, as set forth in "Terms of Escrow," below (as those terms may be amended from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this Statement of Additional Information and the Application used for such Letter of Intent, and if such terms are amended, as they may be from time to time by the Fund, that those amendments will apply automatically to existing Letters of Intent. If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount, the commissions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor will be adjusted to the rates applicable to actual purchases. If total eligible purchases during the Letter of Intent period exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the applicable prospectus, the sales charges paid will be adjusted to the lower rate, but only if and when the dealer returns to the Distributor the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions that apply to the actual amount of purchases. The excess commissions returned to the Distributor will be used to purchase additional shares for the investor's account at the net asset value per share in effect on the date of such purchase, promptly after the Distributor's receipt thereof. In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such purchases must be made through the Distributor. -- Terms of Escrow that Apply to Letters of Intent. 1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal in value to 5% of the intended purchase amount be held in escrow by the Transfer Agent. For example, if the intended purchase amount specified under the Letter is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the public offering price adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the investor's account. 2. If the intended purchase amount specified under the Letter is completed within the thirteen-month Letter of Intent period, the escrowed shares will be promptly released to the investor. 3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter are less than the intended purchase amount specified in the Letter, the investor must remit to the Distributor an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. Such sales charge adjustment will apply to any shares redeemed prior to the completion of the Letter. If such difference in sales charges is not paid within twenty days after a request from the Distributor or the dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Full and fractional shares remaining after such redemption will be released from escrow. If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the sales charge will be withheld from the redemption proceeds. 4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to surrender for redemption any or all escrowed shares. 5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of the Letter) do not include any shares sold without a front-end sales charge or shares subject to a Class A contingent deferred sales charge unless (for the purpose of determining completion of the obligation to purchase shares under the Letter) the shares were acquired in exchange for shares of one of the OppenheimerFunds whose shares were acquired by payment of a sales charge. 6. Shares held in escrow hereunder will automatically be exchanged for shares of another fund to which an exchange is requested, as described in the section of the Prospectus entitled "How to Exchange Shares," and the escrow will be transferred to that other fund. Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a check (minimum $25) for the initial purchase must accompany the application. Shares purchased by Asset Builder Plan payments from bank accounts are subject to the redemption restrictions for recent purchases described in "How To Sell Shares," in the Prospectus. Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases of shares of up to four other OppenheimerFunds. There is a front-end sales charge on the purchase of certain OppenheimerFunds or a contingent deferred sales charge may apply to shares purchased by Asset Builder payments. An application should be obtained from the Distributor, completed and returned, and a prospectus of the selected fund(s) should be obtained from the Distributor or your financial advisor before initiating Asset Builder payments. The amount of the Asset Builder investment may be changed or the automatic investments may be terminated at any time by writing to the Transfer Agent. A reasonable period (approximately 15 days) is required after the Transfer Agent's receipt of such instructions to implement them. The Fund reserves the right to amend, suspend, or discontinue offering such plans at any time without prior notice. Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account registered in that investor's name, or the Fund or the Distributor may seek other redress. 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. How to Sell Shares Information on how to sell shares of the Fund is stated in the Prospectus. The information below supplements the terms and conditions for redemptions set forth in the Prospectus. -- 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 Trust may determine that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole or in part by a distribution "in kind" of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the Securities and Exchange Commission. The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. The method of valuing securities used to make redemptions in kind will be the same as the method the Fund uses to value its portfolio securities described above under "Determination of Net Asset Value Per Share" and that valuation will be made as of the time the redemption price is determined. -- Involuntary Redemptions. The Trust'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 $1,000 or such lesser amount as the Board may fix. The Board of Trustees will not cause the involuntary redemption of shares in an account if the aggregate net asset value of the shares has fallen below the stated minimum solely as a result of market fluctuations. Should the Board elect to exercise this right, it may also fix, in accordance with the Investment Company Act, the requirements for any notice to be given to the shareholders in question (not less than 30 days), or the Board may set requirements for granting permission to the shareholder to increase the investment, and set other terms and conditions so that the shares would not be involuntarily redeemed. Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of Class A shares or Class B shares of the Fund that you purchased by reinvesting dividends or distributions or on which you paid a contingent deferred sales charge when you redeemed them. The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other OppenheimerFunds into which shares of the Fund are exchangeable as described below, at the net asset value next computed after the Transfer Agent receives the reinvestment order. The shareholder must ask the Distributor for such privilege at the time of reinvestment. Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the OppenheimerFunds within 90 days of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds. The Fund may amend, suspend or cease offering this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation. Transfers of Shares. Shares are not subject to the payment of a contingent deferred sales charge of either class at the time of transfer to the name of another person or entity (whether the transfer occurs by absolute assignment, gift or bequest, not involving, directly or indirectly, a public sale). The transferred shares will remain subject to the contingent deferred sales charge, calculated as if the transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder. If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy Shares" for the imposition of the Class B 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, or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed in "How to Sell Shares" in the Prospectus or on the back cover of this Statement of Additional Information. The request must: (i) state the reason for the distribution; (ii) state the owner's awareness of tax penalties if the distribution is premature; and (iii) conform to the requirements of the plan and the Fund's other redemption requirements. Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing plans may not directly request redemptions or exchanges of their accounts. The employer or plan administrator must sign the request. Distributions from pension and profit sharing plans are subject to special requirements under the Internal Revenue Code and certain documents (available from the Transfer Agent) must be completed before the distribution may be made. Distributions from retirement plans are subject to withholding requirements under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be submitted to the Transfer Agent with the distribution request, or the distribution may be delayed. Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the Internal Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld. The Fund, the Manager, the Distributor, the Trustee and the Transfer Agent assume no responsibility to determine whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any tax penalties assessed in connection with a distribution. Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares from authorized dealers or brokers. The repurchase price per share will be the net asset value next computed after the Distributor receives the order placed by the dealer or broker, except that if the Distributor receives a repurchase order from a dealer or broker after the close of The New York Stock Exchange on a regular business day, it will be processed at that day's net asset value if the order was received by the dealer or broker from its customers prior to the time the Exchange closes (normally, that is 4:00 P.M., but may be earlier on some days) and the order was transmitted to and received by the Distributor prior to its close of business that day (normally 5:00 P.M.). Payment ordinarily will be made within seven days after the Distributor's receipt of the required redemption documents, with signature(s) guaranteed as described in the Prospectus. Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer Agent to redeem shares (minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check payable to all shareholders of record and sent to the address of record for the account (and if the address has not been changed within the prior 30 days). Required minimum distributions from OppenheimerFunds- sponsored retirement plans may not be arranged on this basis. Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan payments transferred to the bank account designated on the OppenheimerFunds New Account Application or signature-guaranteed instructions. The Fund cannot guarantee receipt of a payment on the date requested and reserves the right to amend, suspend or discontinue offering such plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases, shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B and Class C shareholders should not establish withdrawal plans that would require the redemption of shares purchased subject to a contingent deferred sales charge and held less than 6 years or 12 months, respectively, because of the imposition of the Class B or Class C contingent deferred sales charge on such withdrawals (except where the Class B or Class C contingent deferred sales charge is waived as described in the Prospectus under "Waivers of Class B Sales Charges" and "Waivers of Class C Sales Charges"). By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions applicable to such plans, as stated below and in the provisions of the OppenheimerFunds Application relating to such Plans, as well as the Prospectus. These provisions may be amended from time to time by the Fund and/or the Distributor. When adopted, such amendments will automatically apply to existing Plans. -- Automatic Exchange Plans. Shareholders can authorize the Transfer Agent (on the OppenheimerFunds Application or signature- guaranteed instructions) to exchange a pre-determined amount of shares of the Fund for shares (of the same class) of other OppenheimerFunds automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $25. Exchanges made under these plans are subject to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this Statement of Additional Information. -- Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired without a sales charge will be redeemed first and thereafter shares acquired with reinvested dividends and capital gains distributions will be redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon the amount withdrawn, the investor's principal may be depleted. Payments made under withdrawal plans should not be considered as a yield or income on your investment. The Transfer Agent will administer the investor's Automatic Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. The Transfer Agent and the Fund shall incur no liability to the Planholder for any action taken or omitted by the Transfer Agent in good faith to administer the Plan. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Transfer Agent will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder may be surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the certificate may be held under the Plan. For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or reinvested. Redemptions of shares needed to make withdrawal payments will be made at the net asset value per share determined on the redemption date. Checks or AccountLink payments of the proceeds of Plan withdrawals will normally be transmitted three business days prior to the date selected for receipt of the payment (the receipt of payment on the date selected cannot be guaranteed), according to the choice specified in writing by the Planholder. The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow at least two weeks' time in mailing such notification for the requested change to be put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice (in proper form in accordance with the requirements of the then-current Prospectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In that case, the Transfer Agent will redeem the number of shares requested at the net asset value per share in effect in accordance with the Fund's usual redemption procedures and will mail a check for the proceeds to the Planholder. The Plan may be terminated at any time by the Planholder by writing to the Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent upon receiving directions to that effect from the Fund. The Transfer Agent will also terminate a Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of a Plan by the Transfer Agent or the Fund, shares that have not been redeemed from the account will be held in uncertificated form in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder or his or her executor or guardian, or other authorized person. To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a portion of the shares in certificated form. Upon written request from the Planholder, the Transfer Agent will determine the number of shares for which a certificate may be issued without causing the withdrawal checks to stop because of exhaustion of uncertificated shares needed to continue payments. However, should such uncertificated shares become exhausted, Plan withdrawals will terminate. If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as agent in administering the Plan. How to Exchange Shares As stated in the Prospectus, shares of a particular class of OppenheimerFunds having more than one class of shares may be exchanged only for shares of the same class of other OppenheimerFunds. Shares of the OppenheimerFunds that have a single class without a class designation are deemed "Class A" shares for this purpose. All OppenheimerFunds offer Class A shares (except for Oppenheimer Strategic Diversified Income Fund, which offers only Class C shares), but only the following other OppenheimerFunds currently offer Class B shares: Oppenheimer Strategic Income Fund Oppenheimer Strategic Income & Growth Fund Oppenheimer Strategic Investment Grade Bond Fund Oppenheimer Strategic Short-Term Income Fund Oppenheimer New York Tax-Exempt Fund Oppenheimer Tax-Free Bond Fund Oppenheimer California Tax-Exempt Fund Oppenheimer Pennsylvania Tax-Exempt Fund Oppenheimer Florida Tax-Exempt Fund Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Insured Tax-Exempt Bond Fund Oppenheimer Main Street California Tax-Exempt Fund Oppenheimer Main Street Income & Growth Fund Oppenheimer Total Return Fund, Inc. Oppenheimer Value Stock Fund Oppenheimer Limited-Term Government Fund Oppenheimer High Yield Fund Oppenheimer Mortgage Income Fund Oppenheimer Cash Reserves (Class B shares are available only by exchange) Oppenheimer Growth Fund Oppenheimer Equity Income Fund Oppenheimer Global Fund Oppenheimer Discovery Fund The following Oppenheimer Funds offer Class C shares: Oppenheimer Fund Oppenheimer Global Growth & Income Fund Oppenheimer Asset Allocation Fund Oppenheimer Champion High Yield Fund Oppenheimer U.S. Government Trust Oppenheimer Intermediate Tax-Exempt Bond Fund Oppenheimer Main Street Income & Growth Fund Oppenheimer Cash Reserves (Class C and B shares are available only by exchange) Oppenheimer Strategic Diversified Income Fund Oppenheimer Limited-Term Government Fund Class A shares of OppenheimerFunds may be exchanged at net asset value for shares of any Money Market Fund. Shares of any Money Market Fund purchased without a sales charge may be exchanged for shares of OppenheimerFunds offered with a sales charge upon payment of the sales charge (or, if applicable, may be used to purchase shares of OppenheimerFunds subject to a contingent deferred sales charge). Shares of this Fund acquired by reinvestment of dividends or distributions from any other of the OppenheimerFunds or from any unit investment trust for which reinvestment arrangements have been made with the Distributor may be exchanged at net asset value for shares of any of the OppenheimerFunds. No contingent deferred sales charge is imposed on exchanges of shares of either class purchased subject to a contingent deferred sales charge. However, when Class A shares acquired by exchange of Class A shares of other OppenheimerFunds purchased subject to a Class A contingent deferred sales charge are redeemed within 18 months of the end of the calendar month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred sales charge is imposed on the redeemed shares (see "Class A Contingent Deferred Sales Charge" in the Prospectus). The Class B contingent deferred sales charge is imposed on Class B shares acquired by exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. 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 Class C contingent deferred sales charge will be followed in determining the order in which the shares are exchanged. Shareholders should take into account the effect of any exchange on the applicability and rate of any contingent deferred sales charge that might be imposed in the subsequent redemption of remaining shares. Shareholders owning shares of multiple classes must specify whether they intend to exchange Class A, Class B or Class C shares. The Fund reserves the right to reject telephone or written exchange requests submitted in bulk by anyone on behalf of 10 or more accounts. The Fund may accept requests for exchanges of up to 50 accounts per day from representatives of authorized dealers that qualify for this privilege. In connection with any exchange request, the number of shares exchanged may be less than the number requested if the exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this Statement of Additional Information or would include shares covered by a share certificate that is not tendered with the request. In those cases, only the shares available for exchange without restriction will be exchanged. When exchanging shares by telephone, a shareholder must either have an existing account in, or obtain, open an account in, and acknowledge receipt of a prospectus for, the fund to which the exchange is to be made. For full or partial exchanges of an account made by telephone, any special account features such as Asset Builder Plans, Automatic Withdrawal Plans and retirement plan contributions will be switched to the new account unless the Transfer Agent is instructed otherwise. If all telephone lines are busy (which might occur, for example, during periods of substantial market fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage it (for example, if the receipt of multiple exchange request from a dealer might require the disposition of portfolio securities at a time or at a price that might be disadvantageous to the Fund). The different OppenheimerFunds available for exchange have different investment objectives, policies and risks, and a shareholder should assure that the Fund selected is appropriate for his or her investment and should be aware of the tax consequences of an exchange. For federal 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 on newly purchased shares will not be declared or paid until such time as Federal Funds (funds credited to a member bank's account at the Federal Reserve Bank) are available from the purchase payment for such shares. Normally, purchase checks received from investors are converted to Federal Funds on the next business day. Dividends will be declared on shares repurchased by a dealer or broker for four business days following the trade date (i.e., to and including the day prior to settlement of the repurchase). If all shares in an account are redeemed, all dividends accrued on shares of the same class in the account will be paid together with the redemption proceeds. Dividends, distributions and the proceeds of the redemption of Fund shares represented by checks returned to the Transfer Agent by the Postal Service as undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc., as promptly as possible after the return of such checks to the Transfer Agent, in order to enable the investor to earn a return on otherwise idle funds. Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment of the Fund's dividends and capital gains distributions is explained in the Prospectus under the caption "Dividends, Capital Gains and Taxes." Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the dividends-received deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. In addition, the amount of dividends paid by the Fund which may qualify for the deduction is limited to the aggregate amount of qualifying dividends which the Fund derives from its portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will not be eligible for the deduction on dividends paid on shares held for 45 days or less. To the extent the Fund's dividends are derived from its gross income from option premiums, interest income or short-term gains from the sale of securities, or dividends from foreign corporations, its dividends will not qualify for the deduction. It is expected that for the most part the Fund's dividends will not qualify, because of the nature of the investments held by the Fund in its portfolio. The amount of a class's distributions may vary from time to time depending on market conditions, the composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class, as described in "Alternative Sales Arrangements -- Class A, Class B and Class C," above. Dividends are calculated in the same manner, at the same time and on the same day for shares of each class. However, dividends on Class B and Class C shares are expected to be lower as a result of the asset- based sales charge on Class B and Class C shares, and Class B and Class C dividends will also differ in amount as a consequence of any difference in net asset value between Class A, Class B and Class C shares. Under the Internal Revenue Code, by December 31 each year the Fund must distribute 98% of its taxable investment income earned from January 1 through December 31 of that year and 98% of its capital gains realized in the period from November 1 of the prior year through October 31 of the current year, or else the Fund must pay an excise tax on the amounts not distributed. While it is presently anticipated that the Fund will meet those requirements, the Fund's Board and the Manager might determine in a particular year that it would be in the best interest of shareholders for the Fund not to make such distributions at the required levels and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains available for distribution to shareholders. Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains distributions in shares of the same class of any of the other OppenheimerFunds listed in "Reduced Sales Charges" above at net asset value without sales charge. As of the date of this Statement of Additional Information, not all of the OppenheimerFunds offer Class B or Class C shares. To elect this option, a shareholder must notify the Transfer Agent in writing and either have an existing account in the fund selected for reinvestment or must obtain a prospectus for that fund and an application from the Distributor to establish an account. The investment will be made at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. Dividends and/or distributions from shares of other OppenheimerFunds may be invested in shares of this Fund on the same basis. Additional Information About The Fund The Custodian. The Bank of New York is the Custodian of the Fund's assets. The Custodian's responsibilities include safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and from the Fund. The Manager has represented to the Fund that the banking relationships between the Manager and the Custodian have been and will continue to be unrelated to and unaffected by the relationship between the Fund and the Custodian. It will be the practice of the Fund to deal with the Custodian in a manner uninfluenced by any banking relationship the Custodian may have with the Manager and its affiliates. The Fund's cash balances with the Custodian in excess of $100,000 are not protected by Federal deposit insurance. Those uninsured balances at times may be substantial. Independent Auditors. The independent auditors of the Fund audit the Fund's financial statements and perform other related audit services. They also act as auditors for the Manager and certain other funds advised by the Manager and its affiliates. Appendix A: Description of Securities Ratings Description of Standard & Poor's Corporation ("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") commercial paper, note and bond ratings: Commercial Paper Ratings Standard & Poor's commercial paper ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest. The "A-l" and "A-2" categories are described as follows: "A" - Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree of safety. "A-l" - This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics will be noted with a plus (+) sign designation. "A-2" - Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-l." Moody's employs three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers. The two highest designations are as follows: Issuers (or supporting institutions) rated Prime-1 (or P-1) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will normally be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers (or supporting institutions) rated Prime-2 (or P-2) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Standard & Poor's ratings for Municipal Notes due in three years or less are: SP-1: Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2: Satisfactory capacity to pay principal and interest. Bond Ratings Standard & Poor's describes its four highest ratings for corporate bonds as follows: AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated "AA" has a very strong capacity to pay interest and repay principal and differ from the higher rated issues only in a small degree. A: Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds rated "A." BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "CC" the highest degree. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C, D: Bonds on which no interest is being paid are rated "C." Bonds rated "D" are in default and payment of interest and/or repayment of principal is in arrears. 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. Moody's describes its corporate bond ratings as follows: Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." 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, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in 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 in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and may be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds rated "B" generally lack characteristics of desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds rated "Caa" are of poor standing and may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree and are often in default or have other marked shortcomings. C: Bonds rated "C" can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid- range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Appendix B: Industry Classifications Aerospace/Defense Air Transportation Auto Parts Distribution Automotive Bank Holding Companies Banks Beverages Broadcasting Broker-Dealers Building Materials Cable Television Chemicals Commercial Finance Computer Hardware Computer Software Conglomerates Consumer Finance Containers Convenience Stores Department Stores Diversified Financial Diversified Media Drug Stores Drug Wholesalers Durable Household Goods Education Electric Utilities Electrical Equipment Electronics Energy Services & Producers Entertainment/Film Environmental Food Gas Transmission Gas Utilities Gold Health Care/Drugs Health Care/Supplies & Services Homebuilders/Real Estate Hotel/Gaming Industrial Services Insurance Leasing & Factoring Leisure Manufacturing Metals/Mining Nondurable Household Goods Oil - Integrated Paper Publishing/Printing Railroads Restaurants Savings & Loans Shipping Special Purpose Financial Specialty Retailing Steel Supermarkets Telecommunications - Technology Telephone - Utility Textile/Apparel Tobacco Toys Trucking Investment Adviser Oppenheimer Management Corporation Two World Trade Center New York, New York 10048-0203 Distributor Oppenheimer Funds Distributor, Inc. Two World Trade Center New York, New York 10048-0203 Transfer and Shareholder Servicing Agent Oppenheimer Shareholder Services P.O. Box 5270 Denver, Colorado 80217 1-800-525-7048 Custodian of Portfolio Securities The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche LLP 1560 Broadway Denver, Colorado 80202 Legal Counsel Myer, Swanson, Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202-4918 OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND Supplement dated July 14, 1995 to the Prospectus dated February 1, 1995 The following changes are made to the Prospectus: 1. The last line of the "Shareholder Transaction Expenses" chart in "Expenses" on page 3 is amended by deleting the references to the $5.00 Exchange Fee and inserting "None" under the headings Class A Shares and Class B Shares. 2. Footnote 1 under the "Shareholder Transaction Expenses" chart in "Expenses" on page 3 is changed to read as follows: 1. If you invest more than $1 million (more than $500,000 for purchases by OppenheimerFunds prototype 401(k) plans) in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the calendar month in which you purchased those shares. See "How to Buy Shares -- Class A Shares," below. 3. Footnote 2 under the "Shareholder Transaction Expenses" chart in "Expenses" on page 3 is deleted. 4. The following paragraphs are added at the end of "How the Fund is Managed" on page 17: The Board of Trustees of Oppenheimer Strategic Investment Grade Bond Fund (referred to as "Strategic Investment Grade Bond Fund" or the "Fund") has determined that it is in the best interest of the Fund's shareholders that the Fund reorganize with and into Oppenheimer Bond Fund ("Bond Fund"). The Board unanimously approved the terms of an agreement and plan of reorganization to be entered into between these funds (the "reorganization plan") and the transactions contemplated (the transactions are referred to as the "reorganization"). The Board further determined that the reorganization should be submitted to the Fund's shareholders for approval, and recommended that shareholders approve the reorganization. Pursuant to the reorganization plan, (i) substantially all of the assets of the Fund would be exchanged for Class A and Class B shares of Bond Fund, (ii) these shares of Bond Fund would be distributed to the shareholders of the Fund, (iii) Strategic Investment Grade Bond Fund would be liquidated, and (iv) the outstanding shares of Strategic Investment Grade Bond Fund would be cancelled. It is expected that the reorganization will be tax-free, pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and the Fund will request an opinion of tax counsel to that effect. A meeting of the shareholders of Strategic Investment Grade Bond Fund is expected to be held on or about September 20, 1995 to vote on the reorganization. Approval of the reorganization requires the affirmative vote of a majority of the outstanding shares of the Fund (the term "majority" is defined in the Investment Company Act as a special majority. It is also explained in the Statement of Additional Information). There is no assurance that Strategic Investment Grade Bond Fund's shareholders will approve the reorganization. Details about the proposed reorganization will be contained in a proxy statement and other soliciting materials sent to Strategic Investment Grade Bond Fund's shareholders of record on July 14, 1995. Persons who become shareholders of the Fund after the record date for the shareholder meeting will not be entitled to vote on the reorganization. 5. In "How to Buy Shares," the section entitled "Class A Shares" under "Classes of Shares" on page 19 is changed to read as follows: If you buy Class A shares, you may pay an initial sales charge on investments up to $1 million (up to $500,000 for purchases by OppenheimerFunds prototype 401(k) plans). If you purchase Class A shares as part of an investment of at least $1 million ($500,000 for OppenheimerFunds prototype 401(k) plans) in shares of one or more OppenheimerFunds, you will not pay an initial sales charge, but if you sell any of those shares within 18 months of buying them, you may pay a contingent deferred sales charge. The amount of that sales charge will vary depending on the amount you invested. Sales charge rates are described in "Class A Shares" below. 6. In "How to Buy Shares," the section entitled "Which Class of Shares Should You Choose?" on page 19 is changed by adding a new final sentence to the second paragraph of that section as follows: The discussion below of the factors to consider in purchasing a particular class of shares assumes that you will purchase only one class of shares and not a combination of shares of different classes. 7. In "How to Buy Shares," the first paragraph of the section "Class A Contingent Deferred Sales Charge" on page 21 is amended in its entirety to read as follows: There is no initial sales charge on purchases of Class A shares of any one or more of the OppenheimerFunds in the following cases: - purchases aggregating $1 million or more, or - purchases by an OppenheimerFunds prototype 401(k) plan that: (1) buys shares costing $500,000 or more or (2) has, at the time of purchase, 100 or more eligible participants, or (3) certifies that it projects to have annual plan purchases of $200,000 or more. Shares of any of the OppenheimerFunds that offers only one class of shares that has no designation are considered "Class A shares" for this purpose. The Distributor pays dealers of record commissions on those purchases in an amount equal to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5 million. That commission will be paid only on the amount of those purchases in excess of $1 million ($500,000 for purchases by OppenheimerFunds 401(k) prototype plans) that were not previously subject to a front-end sales charge and dealer commission. 8. In "Reduced Sales Charges for Class A Purchases" on page 22 the first sentence of the section "Right of Accumulation" is changed to read as follows: To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you and your spouse can add together Class A and Class B shares you purchase for your individual accounts, or jointly, or for trust or custodial accounts on behalf of your children who are minors. The first two sentences of the second paragraph of that section are revised to read as follows: Additionally, you can add together current purchases of Class A and Class B shares of the Fund and other OppenheimerFunds to reduce the sales charge rate that applies to current purchases of Class A shares. You can also count Class A and Class B shares of OppenheimerFunds 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 that investment in one of the OppenheimerFunds. 9. The first sentence of the section entitled "Letter of Intent" is revised to read as follows: Under a Letter of Intent, if you purchase Class A shares or Class A shares and Class B shares of the Fund and other OppenheimerFunds 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. 10. In the section entitled "Waivers of Class A Sales Charges" on pages 22 and 23 the following changes are made: The first sentence of the first paragraph is replaced by a new introductory paragraph set forth below and the list of circumstances describing the sales charge waivers follows a new initial sentence: - Waivers of Class A Sales Charges. The Class A sales charges are not imposed in the circumstances described below. There is an explanation of this policy in "Reduced Sales Charges" in the Statement of Additional Information. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers. Class A shares purchased by the following investors are not subject to any Class A sales charges: The introductory phrase preceding the list of sales charge waivers in the second paragraph is replaced by the following and a new subsection (d) is added to that same paragraph following subsection (c): Waivers of Initial and Contingent Deferred Sales Charges in Certain Transactions. Class A shares issued or purchased in the following transactions are not subject to Class A sales charges: . . . (d) shares purchased and paid for with the proceeds of shares redeemed in the prior 12 months from a mutual fund (other than a fund managed by the Manager or any of its subsidiaries) on which an initial sales charge or contingent deferred sales charge was paid (this waiver also applies to shares purchased by exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid for in this manner); this waiver must be requested when the purchase order is placed for your shares of the Fund, and the Distributor may require evidence of your qualification for this waiver. The third paragraph of that section is revised to read as follows: Waivers of the Class A Contingent Deferred Sales Charge. The Class A contingent deferred sales charge does not apply to purchases of Class A shares at net asset value without sales charge as described in the two sections above. It is also waived if shares that would otherwise be subject to the contingent deferred sales charge are redeemed in the following cases: - for retirement distributions or loans to participants or beneficiaries from qualified retirement plans, deferred compensation plans or other employee benefit plans, including OppenheimerFunds prototype 401(k) plans (these are all referred to as "Retirement Plans"); or - to return excess contributions made to Retirement Plans; or - to make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the original account value; or - involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (see "Shareholder Account Rules and Policies," below); or - if, at the time a purchase order is placed for Class A shares that would otherwise be subject to the Class A contingent deferred sales charge, the dealer agrees to accept the dealer's portion of the commission payable on the sale in installments of 1/18th of the commission per month (and no further commission will be payable if the shares are redeemed within 18 months of purchase); or - for distributions from OppenheimerFunds prototype 401(k) plans for any of the following cases or purposes: (1) following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary (the death or disability must occur after the participant's account was established); (2) hardship withdrawals, as defined in the plan; (3) under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code; (4) to meet the minimum distribution requirements of the Internal Revenue Code; (5) to establish "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code, or (6) separation from service. 11. The first paragraph of the section entitled "Waivers of Class B Sales Charge" on page 24 is amended by replacing the introductory phrase of that paragraph with the sentences below and adding a new subsection (5) at the end of that paragraph as follows: - Waivers of Class B Sales Charge. The Class B contingent deferred sales charge will not be applied to shares purchased in certain types of transactions nor will it apply to Class B shares redeemed in certain circumstances as described below. The reasons for this policy are in "Reduced Sales Charges" in the Statement of Additional Information. Waivers for Redemptions of Shares in Certain Cases. The Class B contingent deferred sales charge will be waived for redemptions of shares in the following cases: . . . . (5) for distributions from OppenheimerFunds prototype 401(k) plans (a) for hardship withdrawals; (b) under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code; (c) to meet minimum distribution requirements as defined in the Internal Revenue Code; (d) to make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code; or (e) for separation from service. 12. In the section entitled "Reinvestment Privilege" on page 26, the first three sentences are revised to read as follows: If you redeem some or all of your Class A or 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 OppenheimerFunds without paying a sales charge. This privilege applies to Class A shares that your purchased subject to an initial sales charge and to Class A or B shares on which you paid a contingent deferred sales charge when you redeemed them. 13. In the section entitled "Retirement Plans" on page 26, the following is added to the list of plans offered by the Distributor: - 401(k) prototype retirement plans for businesses 14. The first paragraph of the section entitled "How to Exchange Shares" on page 28 is amended by deleting the second and third sentences. July 14, 1995 PS0245.001 OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND Prospectus dated February 1, 1995 Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") is a mutual fund which seeks a high level of current income, consistent with stability of principal, as is available from a portfolio of investment grade debt securities. The Fund intends to invest its assets principally in the following three sectors: (i) U.S. government securities, (ii) foreign fixed-income securities, and (iii) investment grade corporate bonds and debentures. Under normal circumstances, at least 65% of the Fund's total assets will be invested in U.S. government securities and domestic and foreign bonds and debentures rated at least investment grade. The Fund may invest up to 35% of its total assets in certain other investments, including securities rated below investment grade. The securities the Fund invests in are described more completely in "Investment Objective and Policies." That section of the Prospectus also explains some of the risks of those investments. The Fund offers two classes of shares: (1) Class A shares, which are sold at a public offering price that includes a front-end sales charge, and (2) Class B shares, which are sold without a front-end sales charge, although you may pay a sales charge when you redeem your shares, depending on how long you hold them. Class B shares are also subject to an annual "asset-based sales charge." Each class of shares bears different expenses. In deciding which class of shares to buy, you should consider how much you plan to purchase, how long you plan to keep your shares, and other factors discussed in "How to Buy Shares" starting on page __. This Prospectus explains concisely what you should know before investing in the Fund. Please read this Prospectus carefully and keep it for future reference. You can find more detailed information about the Fund in the February 1, 1995 Statement of Additional Information. For a free copy, call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at the address on the back cover. The Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference (which means that it is legally part of this Prospectus). Shares of the Fund are not deposits or obligations of any bank, are not guaranteed by any bank, and are not insured by the F.D.I.C. or any other agency, and involve investment risks, including the possible loss of the principal amount invested. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Contents ABOUT THE FUND Expenses A Brief Overview of the Fund Financial Highlights Objective and Policies How the Fund is Managed Performance of the Fund ABOUT YOUR ACCOUNT How to Buy Shares Class A Shares Class B Shares Special Investor Services AccountLink Automatic Withdrawal and Exchange Plans Reinvestment Privilege Retirement Plans How to Sell Shares By Mail By Telephone Checkwriting How to Exchange Shares Shareholder Account Rules and Policies Dividends, Capital Gains and Taxes ABOUT THE FUND Expenses The Fund pays a variety of expenses directly for management of its assets, administration, distribution of its shares and other services, and those expenses are subtracted from the Fund's assets to calculate the Fund's net asset value per share. All shareholders therefore pay those expenses indirectly. Shareholders pay other expenses directly, such as sales charges and account transaction charges. The following tables are provided to help you understand your direct expenses of investing in the Fund and your share of the Fund's business operating expenses that you will bear indirectly. The numbers below are based on the Fund's expenses during its last fiscal year ended September 30, 1994. - Shareholder Transaction Expenses are charges you pay when you buy or sell shares of the Fund. Please refer to "About Your Account," from pages __ through __, for an explanation of how and when these charges apply.
Class A Shares Class B Shares Maximum Sales Charge on Purchases (as a % of offering price) 4.75% None Sales Charge on Reinvested Dividends None None Deferred Sales Charge (as a % of the lower of the original purchase price or redemption proceeds None(1) 5% in the first year, declining to 1% in the sixth year and eliminated thereafter Exchange Fee $5.00(2) $5.00(2) ________________________ (1) If you invest more than $1 million in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the calendar month during which you purchased those shares. See "How to Buy Shares - Class A Shares," below. (2) The fee is waived for automated exchanges, described in "How to Exchange Shares."
- Annual Fund Operating Expenses are paid out of the Fund's assets and represent the Fund's expenses in operating its business. For example, the Fund pays management fees to its investment adviser, Oppenheimer Management Corporation (which is referred to in this Prospectus as the "Manager"). The rates of the Manager's fees are set forth in "How the Fund is Managed," below. The Fund has other regular expenses for services, such as transfer agent fees, custodial fees paid to the bank that holds its portfolio securities, audit fees and legal expenses. Those expenses are detailed in the Fund's Financial Statements in the Statement of Additional Information. The numbers in the chart below are projections of the Fund's business expenses based on the Fund's expenses in its last fiscal year. These amounts are shown as a percentage of the average net assets of each class of the Fund's shares for that year. The expenses have been restated in the chart to reflect the termination, effective November 24, 1993, of a voluntary expense assumption by the Manager. Such restatement shows what the Fund's management fees and operating expenses would have been in the Fund's fiscal year ended September 30, 1994 had the expense assumption undertaking not been in effect during a portion of that year. Considering the effect of the voluntary expense undertaking by the Manager during the period ended November 24, 1993, the management fee during the fiscal year ended September 30, 1994 for Class A shares and Class B shares would have been 0.70% and 0.71%, respectively, of average net assets and "Total Fund Operating Expenses" would have been 1.33% for Class A shares and 2.12% for Class B shares. The 12b-1 Distribution Plan Fees for Class A shares are Service Plan Fees (which are a maximum of 0.25% of average annual net assets of that class), and for Class B shares are the Distribution and Service Plan Fee (a maximum of 0.25% for the service fee, and an asset- based sales charge of 0.75%). These plans are described in greater detail in "How to Buy Shares." The actual expenses for each class of shares in future years may be more or less than the numbers in the chart, depending on a number of factors, including the actual value of the Fund's assets represented by each class of shares.
Class A Shares Class B Shares Management Fees (Restated) .75% .75% 12b-1 Distribution Plan Fees .24% 1.00% Other Expenses .39% .41% Total Fund Operating Expenses (Restated) 1.38% 2.16%
- Examples. To try to show the effect of these expenses on an investment over time, we have created the hypothetical examples shown below. Assume that you make a $1,000 investment in each class of shares of the Fund, and the Fund's annual return is 5%, and that its operating expenses for each class are the ones shown in the Annual Fund Operating Expenses chart above. If you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years* Class A Shares $61 $89 $119 $205 Class B Shares $72 $98 $136 $211 If you did not redeem your investment, it would incur the following expenses: Class A Shares $61 $89 $119 $205 Class B Shares $22 $68 $116 $211
* The Class B expenses in years 7 through 10 are based on the Class A expenses shown above, because the Fund automatically converts your Class B shares into Class A shares after 6 years. Long term Class B shareholders could pay the economic equivalent of more than the maximum front-end sales charge allowed under applicable regulations, because of the effect of the asset-based sales charge and contingent deferred sales charge. The automatic conversion of Class B shares to Class A Shares is designed to minimize the likelihood that this will occur. Please refer to "How to Buy Shares - Class B Shares" for more information. These examples show the effect of expenses on an investment, but are not meant to state or predict actual or expected costs or investment returns of the Fund, all of which will vary. A Brief Overview of the Fund Some of the important facts about the Fund are summarized below, with references to the section of this Prospectus where more complete information can be found. You should carefully read the entire Prospectus before making a decision about investing. Keep the Prospectus for reference after you invest, particularly for information about your account, such as how to sell or exchange shares. - What is the Fund's Investment Objective? The Fund's investment objective is to seek a high level of current income, consistent with stability of principal, as is available from a portfolio of investment grade debt securities. - What Does the Fund Invest In? The Fund intends to invest its assets principally in the following three sectors: U.S. government securities, foreign fixed-income securities, and investment grade corporate bonds and debentures. Under normal circumstances, at least 65% of the Fund's total assets will be invested in U.S. government securities and domestic and foreign bonds and debentures that are rated investment grade. The Fund may invest up to 35% of its total assets in certain other investments, including securities rated below investment grade. The Fund may also use hedging instruments and some derivative investments to try to manage investment risks or for income. These investments are more fully explained in "Investment Objective and Policies," starting on page _. - Who Manages the Fund? The Fund's investment adviser is Oppenheimer Management Corporation, which (including a subsidiary) advises investment company portfolios having over $29 billion in assets. The Fund's portfolio managers, who are primarily responsible for the selection of the Fund's securities, are Arthur P. Steinmetz and David P. Negri. The Manager is paid an advisory fee by the Fund, based on its assets. The Fund's Board of Trustees, elected by shareholders, oversees the investment adviser and the portfolio managers. Please refer to "How the Fund is Managed" starting on page __ for more information about the Manager and its fees. - How Risky is the Fund? Although the Fund seeks a high level of current income consistent with stability of principal, certain of the Fund's investments and investment practices could be considered speculative and carry investment risks. For example, fixed-income securities are subject to interest rate risks and credit risks which can negatively impact the value of the security and the Fund's net asset value per share. The Fund's portfolio may consist of debt securities rated below investment grade in an amount up to 35% of its total assets. Such lower-rated securities are considered speculative and involve greater volatility of price and risk of principal and income default than securities in the higher-rated categories. Further, there are certain risks associated with investments in foreign securities, including those related to changes in foreign currency rates, that are not present in domestic securities. In its operations, the Fund may utilize leverage (borrowing to purchase securities) and short-term trading. These techniques may be considered to be speculative investment methods and subject an investment in the Fund to relatively greater risks and costs that may not be present in a mutual fund that does not utilize such techniques. While the Manager tries to reduce risks by diversifying investments, by carefully researching securities before they are purchased for the portfolio, and in some cases by using hedging techniques, there is no guarantee of success in achieving the Fund's objectives and your shares may be worth more or less than their original cost when you redeem them. Please refer to "Investment Objective and Policies" starting on page __ for a more complete discussion. - How Can I Buy Shares? You can buy shares through your dealer or financial institution, or you can purchase shares directly through the Distributor by completing an Application or by using an Automatic Investment Plan under AccountLink. Please refer to "How to Buy Shares" on page __ for more details. - Will I Pay a Sales Charge to Buy Shares? The Fund has two classes of shares. Class A shares are offered with a front-end sales charge, starting at 4.75%, and reduced for larger purchases. Class B shares are offered without a front-end sales charge, but may be subject to a contingent deferred sales charge (starting at 5% and declining as shares are held longer) if redeemed within 6 years of purchase. There is also an annual asset-based sales charge on Class B shares. Please review "How to Buy Shares" starting on page __ for more details, including a discussion about which class may be appropriate for you. - How Can I Sell My Shares? Shares can be redeemed by mail or by telephone call to the Transfer Agent on any business day, or through your dealer. Please refer to "How to Sell Shares" on page __. - How Has the Fund Performed? The Fund measures its performance by quoting its yield, average annual total return and cumulative total return, which measure historical performance. Such yields and returns can be compared to the yields and returns (over similar periods) of other funds. Of course, other funds may have different objectives, investments, and levels of risk. The Fund's performance can also be compared to a broad-based market index, which we have done on page __. Please remember that past performance does not guarantee future results. Financial Highlights The table on this page presents selected financial information about the Fund, including per share data and expense ratios and other data based on the Fund's average net assets. This information has been audited by Deloitte & Touche LLP, the Fund's independent auditors, whose report on the Fund's financial statements for the fiscal year ended September 30, 1994 is included in the Statement of Additional Information. Investment Objective and Policies Objective. The Fund's investment objective is to seek a high level of current income, consistent with the stability of principal, as is available from a portfolio of investment grade debt securities. Investment Policies and Strategies. In seeking its investment objective, the Fund intends to invest principally in the following three sectors: (i) U.S. government securities; (ii) foreign fixed-income securities; and (iii) investment grade corporate bonds and debentures. Although under normal market conditions the Fund intends to invest tin each of these three sectors, from time to time the Manager may adjust the amounts the Fund invests in each sector depending upon, among other things, the Manager's evaluation of economic and market conditions. Distributable income will fluctuate as the Fund shifts its assets among the three sectors. Under normal circumstances, the assets of the Fund will principally be invested in each of the three respective sectors described above, and at least 65% of the Fund's total assets (the "65% Policy") will be invested in U.S. government securities and domestic and foreign bonds and debentures rated at least investment grade. Investment grade debt securities are rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or at least "BBB" by Standard & Poor's Corporation ("Standard & Poor's") or, if unrated, are determined by the Manager as offering risks comparable to securities meeting those rating requirements. The Manager will not rely solely on the ratings assigned by rating services and may invest, without limitation, in unrated securities which are, as determined by the Manager, comparable to those rated securities in which the Fund may invest. The Fund may from time to time invest up to 35% of its total assets (including securities downgraded below investment grade subsequent to purchase) in other investments, such as non-investment grade domestic and foreign bonds and debentures, notes, preferred stocks, dividend-paying common stocks, participation interests, zero coupon securities, asset- backed securities, sinking fund and callable bonds and municipal securities, as well as short-term debt obligations issued by foreign governments or domestic or foreign corporations denominated in U.S. dollars or selected foreign currencies (including, among others, participation interests, commercial paper and bank obligations, discussed below). The Fund may invest in such securities if, in the Manager's judgment, the Fund has the opportunity of seeking a high level of current income without undue risk to principal. Although the Fund is not obligated to dispose of securities that fall below the above-stated investment grade ratings subsequent to purchase, no more than 35% of the Fund's total assets will be invested in bonds which have been downgraded below investment grade nor in other investments listed in the immediately preceding paragraph. Lower-rated securities are considered speculative and involve greater volatility of price and risk of principal and income default than securities in the higher-rated categories. They may be less liquid than higher-rated securities. If the Fund were forced to sell a lower-rated debt security during a period of rapidly-declining prices, it might experience significant losses especially if a substantial number of other holders decide to sell at the same time. Other risks may involve the default of the issuer or price changes in the issuer's securities due to changes in the issuer's financial strength or economic conditions. The Appendix to this Prospectus describes the rating categories and explains the degree to which bonds in the lowest permitted rating categories have or may develop speculative characteristics. In seeking its investment objective, the Fund's emphasis on securities with short, intermediate or longer-term maturities will change over time in response to changing market conditions. The Fund anticipates that it will move to securities of longer maturity as interest rates decline and to securities of shorter maturity as interest rates rise. The Fund may try to hedge against losses in the value of its portfolio securities by using hedging strategies and derivative investments described below. The Fund's portfolio manager may employ special investment techniques in selecting securities for the Fund. These are also described below. Additional information may be found about them under the same headings in the Statement of Additional Information. There can be no assurance that the Fund will achieve its investment objective. - Interest Rate Risks. In addition to credit risks, described below, debt securities are subject to changes in value due to changes in prevailing interest rates. When prevailing interest rates fall, the values of outstanding debt securities generally rise. Conversely, when interest rates rise, the values of outstanding debt securities generally decline. The magnitude of these fluctuations will be greater when the average maturity of the portfolio securities is longer. - Credit Risks. Debt securities are also subject to credit risks. Credit risk relates to the ability of the issuer of a debt security to make interest or principal payments on the security as they become due. Generally, higher-yielding, lower-rated bonds (which the Fund may hold) are subject to greater credit risk than higher-rated bonds. Securities issued or guaranteed by the U.S. Government are subject to little, if any, credit risk. While the Manager may rely to some extent on credit ratings by nationally recognized rating agencies, such as Standard & Poor's or Moody's, in evaluating the credit risk of securities selected for the Fund's portfolio, it may also use its own research and analysis. However, many factors affect an issuer's ability to make timely payments, and there can be no assurance that the credit risks of a particular security will not change over time. - Can the Fund's Investment Objective and Policies Change? The Fund has an investment objective, described above, as well as investment policies it follows to try to achieve its objective. Additionally, the Fund uses certain investment techniques and strategies in carrying out those investment policies. The Fund's investment policies and techniques are not "fundamental" unless this Prospectus or the Statement of Additional Information says that a particular policy is "fundamental." The Fund's investment objective is a fundamental policy. The Fund's Board of Trustees may change non-fundamental policies without shareholder approval, although significant changes will be described in amendments to this Prospectus. Fundamental policies are those that cannot be changed without the approval of a "majority" of the Fund's outstanding voting shares. The term "majority" is defined in the Investment Company Act to be a particular percentage of outstanding voting shares (and this term is explained in the Statement of Additional Information). - Domestic Fixed-Income Securities The Fund may invest in fixed-income securities and dividend paying common stocks denominated in U.S. dollars, or in non-U.S. currencies and issued by domestic corporations in any industry (e.g., industrial, financial or utility). There is no restriction as to the size of the issuer, although most will have total assets in excess of $100 million. These investments may include bonds, debentures (i.e., unsecured bonds) and notes (including variable and floating rate instruments), preferred stocks, participation interests, zero coupon securities, asset-backed securities and sinking fund and callable bonds. If a bond held by the Fund is selling at a premium (or discount) and the issuer exercises the call or makes a mandatory sinking fund payment, the Fund would realize a loss (or gain) in market value; the income from the reinvestment of the proceeds would be determined by current market conditions. The Fund is also permitted to invest a portion of its assets in municipal securities. The U.S. government securities in which the Fund may invest are separately described below. Preferred Stocks. Preferred stock, unlike common stock, generally offers a stated dividend rate payable from the corporation's earnings. Such preferred stock dividends may be cumulative or non-cumulative, fixed, participating, or auction rate. If interest rates rise, a fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. The rights to payment of preferred stocks are generally subordinate to rights associated with a corporation's debt securities. Participation Interests. The Fund may acquire participation interests in loans that are made to U.S. or foreign companies (the "borrower"). They may be interests in, or assignments of, the loan and are acquired from banks or brokers that have made the loan or are members of the lending syndicate. No more than 5% of the Fund's net assets can be invested in participation interests of the same issuer. The Manager has set certain creditworthiness standards for issuers of loan participations, and monitors their creditworthiness. The value of loan participation interests depends primarily upon the creditworthiness of the borrower, and its ability to pay interest and principal. Borrowers may have difficulty making payments. If a borrower fails to make scheduled interest or principal payments, the Fund could experience a decline in the net asset value of its shares. Some borrowers may have senior securities rated as low as "C" by Moody's or "D" by Standard & Poor's, but may be deemed acceptable credit risks. Participation interests are subject to the Fund's limitations on investments in illiquid securities. See "Illiquid and Restricted Securities". Zero Coupon Securities. The Fund may invest in zero coupon securities issued by private issuers. Zero coupon U.S. Treasury securities in which the Fund may invest are described below. Zero coupon securities issued by private issuers are (i) notes or debentures which do not pay current interest and are issued at substantial discounts from par value, or (ii) notes or debentures that pay no current interest until a stated date one or more years into the future, after which the issuer is obligated to pay interest until maturity, usually at a higher rate than if interest were payable from the date of issuance. Such zero coupon securities, in addition to the risks identified below under "U.S. Government Securities - - Zero Coupon Securities," are subject to the risk of the issuer's failure to pay interest and repay principal in accordance with the terms of the obligation. Asset-Backed Securities. The Fund may invest in securities that represent undivided fractional interests in pools of consumer loans, similar in structure to the mortgage-backed securities in which the Fund may invest, described below. Payments of principal and interest are passed through to holders of asset-backed securities and are typically supported by some form of credit enhancement, such as a letter of credit, surety bond, or limited guarantee by another entity or having a priority to certain of the borrower's other securities. The degree of credit enhancement varies, and generally applies, until exhausted, to only a fraction of the asset- backed security's par value. If the credit enhancement of an asset-backed security held by the Fund has been exhausted, and if any required payments of principal and interest are not made with respect to the underlying loans, the Fund may then experience losses or delays in receiving payment. Further details are set forth in the Statement of Additional Information under "Investment Objective and Policies - Domestic Securities - Asset-Backed Securities." Municipal Securities. The Fund may invest in municipal bonds (municipal securities that have a maturity when issued of one year or more), municipal notes (including tax anticipation notes, bond anticipation notes, revenue anticipation notes, construction loan notes and other loans) (municipal notes are municipal securities that have a maturity when issued of less than one year), tax-exempt commercial paper, certificates of participation and other debt obligations issued by or on behalf of the states and the District of Columbia, their political subdivisions, or any commonwealth, territory or possession of the United States, or their respective agencies, instrumentalities or authorities. From time to time the Fund may purchase private activity municipal securities. The Fund may invest in municipal securities that are "general obligations" (secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest) and "revenue obligations" (payable only from the revenues derived from a particular facility or class of facilities, or specific excise tax or other revenue source). - U.S. Government Securities. The Fund may invest in debt obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S. Government Securities"). Although U.S. Government Securities are considered among the most creditworthy of fixed-income investments, their yields are generally lower than the yields available from corporate debt securities, and the values of U.S. Government Securities (and of most fixed-income securities generally) will vary inversely to changes in prevailing domestic interest rates. To compensate for the lower yields available on U.S. Government Securities, the Fund will attempt to augment these yields by writing covered call options against them. See "Other Investment Techniques and Strategies - Hedging" below. Certain U.S. Government Securities, including U.S. Treasury notes and bonds, and securities guaranteed by the Government National Mortgage Association ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government Securities, issued or guaranteed by Federal agencies or government- sponsored enterprises, are not supported by the full faith and credit of the United States. These latter securities may include obligations supported by the right of the issuer to borrow from the U.S. Treasury (which is not under a legal obligation to make such loans), such as obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association bonds ("Fannie Maes"). U.S. Government Securities in which the Fund may invest include, among others, zero coupon U.S. Treasury securities, mortgage-backed securities and money market instruments. Zero Coupon Securities. The Fund may invest in zero coupon securities issued by the U.S. Treasury. In general, zero coupon U.S. Treasury securities include (1) U.S. Treasury notes or bonds which have been "stripped" of their unmatured interest coupons, (2) U.S. Treasury bills issued without interest coupons, or (3) certificates representing an interest in stripped securities. A zero coupon security pays no interest and trades at a deep discount from its face value. It will be subject to greater market fluctuations from changes in interest rates than interest paying securities. The Fund accrues taxable income from zero coupon securities issued by either the U.S. Treasury or corporations without receiving cash. As a result of holding these securities, the Fund could possibly be forced to sell portfolio securities in order to pay a dividend depending, among other things, upon the proportion of shareholders who elect to receive dividends in cash rather than reinvesting dividends in additional shares of the Fund. The Fund might also sell portfolio securities to maintain portfolio liquidity. In either case, cash distributed or held by the Fund and not reinvested in Fund shares will hinder the Fund in seeking a high level of current income. Mortgage-Backed Securities and CMOs. The Fund's investments may include securities which represent participation interests in pools of residential mortgage loans, including collateralized mortgage-backed obligations ("CMOs"), which may be issued or guaranteed by (i) agencies or instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie Macs and Fannie Maes) or (ii) private issuers. Such securities differ from conventional debt securities which provide for periodic payment of interest in fixed amounts (usually semi-annually) with principal payments at maturity or specified call dates. Mortgage-backed securities provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. The Fund's reinvestment of scheduled principal payments and unscheduled prepayments it receives may occur at lower rates than the original investment, thus reducing the yield of the Fund. Mortgage-backed securities may be less effective than debt obligations of similar maturity at maintaining yields during periods of declining interest rates. CMOs in which the Fund may invest are securities issued by a U.S. Government instrumentality that are collateralized by a portfolio of mortgages or mortgage-backed securities. The Fund may also invest in CMOs that are "stripped"; that is, the security is divided into two parts, one of which receives some or all of the principal payments and the other which receives some or all of the interest. The yield to maturity on the class that receives only interest is extremely sensitive to the rate of payment of the principal on the underlying mortgages. Principal prepayments increase that sensitivity. Stripped securities that pay interest only are therefore subject to greater price volatility when interest rates change, and have the additional risk that if the underlying mortgages are prepaid, which is more likely to happen if interest rates fall, the Fund will lose the anticipated cash flow from the interest on the mortgages that were prepaid. The Fund may also enter into "forward roll" transactions under which it sells the mortgage- backed securities in which it may invest to banks or other permitted entities and simultaneously agrees to repurchase a similar security from that party at a later date at an agreed-upon price. Forward rolls are considered to be a borrowing by the Fund (see "Other Investment Techniques and Strategies - Special Risks - Borrowing for Leverage"). The Fund would be required to place liquid assets (e.g., cash, U.S. Government securities or other high-grade debt securities) in a segregated account with its Custodian in an amount equal to its obligation under the roll; that amount is subject to the limitation on borrowing described below. The principal risk of forward rolls is the risk of default by the counterparty. As new types of mortgage-related securities are developed and offered to investors, the Manager will, subject to the direction of the Board and consistent with the Fund's investment objective and policies, consider making investments in such new types of mortgage-related securities. - Foreign Fixed-Income Securities. The Fund may invest in debt obligations (which may be denominated in U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign corporations, certain supranational entities (such as the World Bank) and foreign governments (including political subdivisions having taxing authority) or their agencies or instrumentalities, and debt obligations issued by U.S. corporations denominated in non-U.S. currencies. These investments may include (i) U.S. dollar denominated debt obligations known as "Brady Bonds", which are issued for the exchange of existing commercial bank loans to foreign entities for new obligations that are generally collateralized by zero coupon Treasury securities having the same maturity, (ii) debt obligations such as bonds (including sinking fund and callable bonds), (iii) debentures and notes (including variable and floating rate instruments), and (iv) preferred stocks and zero coupon securities. Further details on these securities and similar types of instruments are set forth under "Domestic Fixed-Income Securities," above and "Investment Objective and Policies" in the Statement of Additional Information. The percentage of the Fund's assets that will be allocated to such foreign securities will vary depending on, among other things, the relative yields of foreign and U.S. securities, the economies of foreign countries, the condition of such countries' financial markets, the interest rate climate of such countries, sovereign credit risk and the relationship of such countries' currency to the U.S. dollar. These factors are judged on the basis of fundamental economic criteria (e.g., relative inflation levels and trends, growth rate forecasts, balance of payments status, and economic policies) as well as technical and political data. Subsequent foreign currency losses may result in the Fund having previously distributed more income in a particular period than was available from investment income, which could result in a return of capital to shareholders. The Fund's portfolio of foreign securities may include those of a number of foreign countries or, depending upon market conditions, those of a single country. However, no more than 25% of the Fund's total assets, at the time of purchase, will be invested in government securities of any one foreign country or in debt securities issued by companies organized under the laws of any one foreign country. The Fund has no other restriction on the amount of its assets that may be invested in foreign securities and may purchase securities issued in any country, developed or underdeveloped. Investments in securities of issuers in non-industrialized countries generally involve more risk and may be considered highly speculative. Foreign securities have special risks. For example, foreign issuers are not subject to the same accounting and disclosure requirements that U.S. companies are subject to. The value of foreign investments may be affected by changes in foreign currency rates, exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political and economic factors. If the Fund's assets are held abroad, the countries in which they are held and the sub-custodians holding them must be approved by the Fund's Board of Trustees. More information about the risks and potential rewards of investing in foreign securities is contained in the Statement of Additional Information. - Portfolio Turnover. A change in the securities held by the Fund is known as "portfolio turnover." Because the Fund will actively use trading to benefit from short-term yield disparities among different issues of fixed-income securities or otherwise to increase its income, the Fund may be subject to a greater degree of portfolio turnover than might be expected from investment companies which invest substantially all of their assets on a long-term basis. Portfolio turnover affects a fund's ability to qualify as a "regulated investment company" under the Internal Revenue Code for tax deductions for dividends and capital gains distributions the Fund pays to shareholders. The Fund qualified in its last fiscal year and intends to do so in the coming year, although it reserves the right not to qualify. As most purchases made by the Fund are principal transactions, the Fund incurs little or no brokerage costs. Other Investment Techniques and Strategies. The Fund may also use the investment techniques and strategies described below. These techniques involve certain risks. The Statement of Additional Information contains more information about these practices, including limitations on their use that are designed to reduce some of the risks. - Special Risks - Borrowing for Leverage. The Fund may borrow money from banks to buy securities. The Fund will borrow only if it can do so without putting up assets as security for a loan. This is a speculative investment method known as "leverage." This investing technique may subject the Fund to greater risks and costs than Funds that do not borrow. These risks may include the possible reduction of income and the possibility that the Fund's net asset value per share will fluctuate more than funds that don't borrow since the Fund pays interest on borrowings and interest expense affects the Fund's share price and yield. Borrowing for leverage is subject to limits under the Investment Company Act described in more detail in "Borrowing for Leverage" in the Statement of Additional Information. - Repurchase Agreements. The Fund may enter into repurchase agreements. In a repurchase transaction, the Fund buys a security and simultaneously sells it to the vendor for delivery at a future date. There is no limit on the amount of the Fund's net assets that may be subject to repurchase agreements of seven days or less. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. The Fund will not enter into a repurchase agreement that causes more than 10% of its net assets to be subject to repurchase agreements having a maturity beyond seven days. - Loans of Portfolio Securities. To attempt to increase its income, the Fund may lend its portfolio securities (other than in repurchase transactions) to brokers, dealers and other financial institutions. These loans are limited to not more than 25% of the Fund's net assets and are subject to other conditions described in the Statement of Additional Information. The Fund presently does not intend to lend its portfolio securities, but if it does, the value of securities loaned is not expected to exceed 5% of the value of its total assets. - Illiquid and Restricted Securities. Under the policies and procedures established by the Fund's Board of Trustees, the Manager determines the liquidity of certain of the Fund's investments. Investments may be illiquid because of the absence of an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. A restricted security is one that has a contractual restriction on its resale or which cannot be sold publicly until it is registered under the Securities Act of 1933. The Fund will not invest more than 10% of its net assets in illiquid or restricted securities (that limit may increase to 15% if certain state laws are changed or the Fund's shares are no longer sold in those states). The Fund's percentage limitation on these investments does not apply to certain restricted securities that are eligible for resale to qualified institutional purchasers. - "When-Issued" and Delayed Delivery Transactions. The Fund may purchase securities on a "when-issued" basis and may purchase or sell securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery. There may be a risk of loss to the Fund if the value of the security declines prior to the settlement date. The Fund does not intend to make such purchases for speculative purposes. - Short Sales "Against-the-Box." In a short sale, the seller does not own the security that is sold, but normally borrows the security to fulfill its delivery obligation. The seller later buys the security to repay the loan, in the expectation that the price of the security will be lower when the purchase is made, resulting in a gain. The Fund may not sell securities short except in collateralized transactions referred to as short sales "against-the-box," where the Fund owns an equivalent amount of the securities sold short. This technique is primarily used for tax purposes. No more than 15% of the Fund's net assets will be held as collateral for such short sales at any one time. - Hedging. As described below, the Fund may purchase and sell certain kinds of futures contracts, put and call options, forward contracts, and options on futures, securities indices and securities, or enter into interest rate swap agreements. These are all referred to as "hedging instruments." The Fund does not use hedging instruments for speculative purposes, and has limits on the use of them, described below. The hedging instruments the Fund may use are described below and in greater detail in "Other Investment Techniques and Strategies" in the Statement of Additional Information. The Fund may buy and sell options, futures and forward contracts for a number of purposes. It may do so to try to manage its exposure to the possibility that the prices of its portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities. It may do so to try to manage its exposure to changing interest rates. Some of these strategies, such as selling futures, buying puts and writing covered calls, hedge the Fund's portfolio against price fluctuations. Other hedging strategies, such as buying futures and call options, tend to increase the Fund's exposure to the securities market. Forward contracts are used to try to manage foreign currency risks on the Fund's foreign investments. Foreign currency options are used to try to protect against declines in the dollar value of foreign securities the Fund owns, or to protect against an increase in the dollar cost of buying foreign securities. Writing covered call options may also provide income to the Fund for liquidity purposes or to raise cash to distribute to shareholders. Futures. The Fund may buy and sell futures contracts that relate to (1) securities indices (these are referred to as Financial Futures) and (2) interest rates (these are referred to as Interest Rate Futures). These types of Futures are described in "Hedging With Options and Futures Contracts" in the Statement of Additional Information. Put and Call Options. The Fund may buy and sell certain kinds of put options (puts) and call options (calls). The Fund may buy calls only on debt or equity securities, security indices, foreign currencies, Interest Rate Futures and Financial Futures or to terminate its obligation on a call the Fund previously wrote. The Fund may write (that is, sell) covered call options. When the Fund writes a call, it receives cash (called a premium). The call gives the buyer the ability to buy the investment on which the call was written from the Fund at the call price during the period in which the call may be exercised. If the value of the investment does not rise above the call price, it is likely that the call will lapse without being exercised, while the Fund keeps the cash premium (and the investment). The Fund may purchase put options. Buying a put on an investment gives the Fund the right to sell the investment at a set price to a seller of a put on that investment. The Fund can buy and sell only those puts that relate to (1) debt or equity securities, (2) securities indices or (3) Interest Rate Futures or Financial Futures. The Fund may buy and sell puts and calls only if certain conditions are met: (1) calls the Fund sells must be listed on a securities exchange, or traded in the over-the-counter market; (2) calls the Fund buys must be listed on a securities or commodities exchange, quoted on the Automated Quotation System of the National Association of Securities Dealers, Inc. (NASDAQ) or traded in the over-the-counter market; (3) in the case of puts and calls on foreign currency, they must be traded on a securities or commodities exchange, or quoted by recognized dealers in those options; (4) each call the Fund writes must be "covered" while it is outstanding: that means the Fund must own the investment on which the call was written or it must own other securities that are acceptable for the escrow arrangements required for calls; (5) puts the Fund buys and sells must be listed on a securities or commodities exchange, quoted on NASDAQ or traded in the over-the-counter market and any put sold must be covered by segregated liquid assets with not more than 50% of the Fund's assets subject to puts; (6) the Fund may write calls on Futures contracts it owns, but these calls must be covered by securities or other liquid assets the Fund owns and segregated to enable it to satisfy its obligations if the call is exercised; and (7) a call or put option may not be purchased if the value of all of the Fund's put and call options would exceed 5% of the Fund's total assets. Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy or sell foreign currency for future delivery at a fixed price. The Fund uses them to try to "lock in" the U.S. dollar price of a security denominated in a foreign currency that the Fund has bought or sold, or to protect against possible losses from changes in the relative values of the U.S. dollar and foreign currencies. The Fund may also use "cross-hedging," where the Fund hedges against changes in currencies other than the currency in which a security it holds is denominated. Interest Rate Swaps. In an interest rate swap, the Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they may swap a right to receive floating rate payments for fixed rate payments. The Fund will not use interest rate swaps for leverage. Swap transactions will be entered into only as to security positions held by the Fund. The Fund may not enter into swap transactions with respect to more than 25% of its total assets. Also, the Fund will segregate liquid assets (such as cash or U.S. Government securities) to cover any amounts it could owe under swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed. Hedging instruments can be volatile investments and may involve special risks. The use of hedging instruments requires special skills and knowledge of investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. The Fund could also experience losses if the prices of its Futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums and has special tax effects on the Fund. There are also special risks in particular hedging strategies. For example, if a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required to sell the investment at the call price and will not be able to realize any profit if the investment has increased in value above the call price. The use of forward contracts may reduce the gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. Interest rate swaps are subject to credit risks (if the other party fails to meet its obligations) and also to interest rate risks. The Fund could be obligated to pay more under its swap agreements than it receives under them, as a result of interest rate changes. These risks are described in greater detail in the Statement of Additional Information. - Derivative Investments. The Fund can invest in a number of different kinds of "derivative investments." The Fund may use some types of derivatives for hedging purposes, and may invest in others because they offer the potential for increased income and principal value. In general, a "derivative investment" is a specially-designed investment whose performance is linked to the performance of another investment or security, such as an option, future, index or currency. In the broadest sense, derivative investments include exchange-traded options and futures contracts (please refer to "Hedging" above). One risk of investing in derivative investments is the at the company issuing the instrument might not pay the amount due on maturity of the instrument. There is also the risk that the underlying investment or security might not perform the way the Manager expected it to perform. The performance of derivative investments may also be influenced by interest rate changes in the U.S. and abroad. All of these risks mean that the Fund will realize less than expected from its investments, or that it can lose part of the value of its investments, which will affect the Fund's share price. Certain derivative investments held by the Fund may trade in the over-the-counter market and may be illiquid. If that is the case, the Fund's investment in them will be limited, as discussed in "Illiquid and Restricted Securities," above. Another type of derivative the Fund may invest in is an "index-linked" note. On the maturity of this type of debt security, payment is made based on the performance of an underlying index, rather than based on a set principal amount for a typical note. Another derivative investment the Fund may invest in is a currency-indexed security. These are typically, short-term or intermediate-term debt securities. Their value at maturity or the interest rates at which they pay income are determined by the change in value of the U.S. dollar against one or more foreign currencies or an index. In some cases, these securities may pay an amount at maturity based on a multiple of the amount of the relative currency movements. This variety of index security offers the potential for greater income but at a greater risk of loss. Other derivative investments the Fund may invest in include "debt exchangeable for common stock" of an issuer or "equity-linked debt securities" of an issuer. At maturity, the debt security is exchanged for common stock of the issuer or is payable in an amount based on the price of the issuer's common stock at the time of maturity. In either case there is a risk that the amount payable at maturity will be less than the principal amount of the debt (because the price of the issuer's common stock is not as high as was expected). - Temporary Defensive Investments. In times of unstable economic or market conditions, when the Manager determines it appropriate to do so, the Fund may invest all or a portion of its assets in defensive securities. Securities selected for defensive purposes usually will include U.S. dollar-denominated debt obligations issued by the U.S. or foreign governments and domestic or foreign corporations or banks maturing in one year or less ("money market securities"), such as: (1) U.S. Government Securities; (2) Certificates of deposit, bankers' acceptances, time deposits, and letters of credit if they are payable in the United States or London, England, and are issued or guaranteed by a domestic or foreign bank having total assets in excess of $1 billion; (3) commercial paper rated at least "A-3" by Standard & Poor's or at least "Prime-3" by Moody's or, if not rated, issued by a corporation having an existing debt security rated at least "BBB" or "Baa" by Standard & Poor's or Moody's, respectively; (4) debt obligations (including master demand notes and obligations other than commercial paper) issued by domestic corporations and rated at least "BBB" or "Baa" by Standard & Poor's or Moody's, respectively, or unrated securities which are of comparable quality in the opinion of the Manager; (5) money market obligations of the type listed above, but not satisfying the standards set forth therein, if they are (a) subject to repurchase agreements or (b) guaranteed as to principal and interest by a domestic or foreign bank having total assets in excess of $1 billion, by a corporation whose commercial paper may be purchased by the Fund, or by a foreign government having an existing debt security rated at least "BBB" or "Baa"; and (6) other short-term investments of a type which the Board determines presents minimal credit risks and which are of "high quality" as determined by any major rating service or, in the case of an instrument that is not rated, of comparable quality as determined by the Board. Other Investment Restrictions. The Fund has other investment restrictions which are fundamental policies. Under these fundamental policies, the Fund cannot do any of the following: (1) purchase securities issued or guaranteed by any one issuer (except the U.S. Government or its agencies or instrumentalities), if, with respect to 75% of its total assets, more than 5% of the Fund's total assets would be invested in securities of that issuer or the Fund would then own more than 10% of that issuer's voting securities; (2) concentrate investments to the extent that 25% or more of the value of its total assets is invested in securities of issuers in the same industry (excluding the U.S. Government, its agencies and instrumentalities); for purposes of this limitation, utilities will be divided according to their services; for example, gas, gas transmission, electric and telephone each will be considered a separate industry; (3) make loans, except by purchasing debt obligations in accordance with its investment objectives and policies, or by entering into repurchase agreements, or as described in "Loans of Portfolio Securities"; (4) buy securities of an issuer which, together with any predecessor, has been in operation for less than three years, if as a result, the aggregate of such investments would exceed 5% of the value of the Fund's total assets; or (5) make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or by virtue of ownership of other securities has the right, without payment of any further consideration, to obtain an equal amount of securities sold short ("short sales against-the-box"). All of the percentage restrictions described above and elsewhere in this Prospectus other than those described under "Special Risks - Borrowing for Leverage," are applicable only at the time of investment and the Fund need not dispose of a security merely because the size of the Fund's assets has changed or the security has increased in value relative to the size of the Fund. There are other fundamental policies discussed in the Statement of Additional Information. How the Fund is Managed Organization and History. The Fund was organized in 1991 as a Massachusetts business trust. The Fund is an open-end, diversified management investment company, with an unlimited number of authorized shares of beneficial interest. The Fund is governed by a Board of Trustees, which is responsible under Massachusetts law for protecting the interests of shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review its performance, and review the actions of the Manager. "Trustees and Officers of the Fund" in the Statement of Additional Information names the Trustees and provides more information about them and the officers of the Fund. Although the Fund is not required by law to hold annual meetings, it may hold shareholder meetings from time to time on important matters, and shareholders have the right to call a meeting to remove a Trustee or to take other action described in the Fund's Declaration of Trust. The Board of Trustees has the power, without shareholder approval, to divide unissued shares of the Fund into two or more classes. The Board has done so, and the Fund currently has two classes of shares, Class A and Class B. Each class has its own dividends and distributions and pays certain expenses which may be different for the different classes. Each class may have a different net asset value. Each share has one vote at shareholder meetings, with fractional shares voting proportionally. Only shares of a particular class vote together on matters that affect that class alone. Shares are freely transferrable. The Manager and Its Affiliates. The Fund is managed by the Manager, Oppenheimer Management Corporation, which is responsible for selecting the Fund's investments and handles its day-to-day business. The Manager carries out its duties, subject to the policies established by the Board of Trustees, under an Investment Advisory Agreement which states the Manager's responsibilities. The Agreement sets forth the fees paid by the Fund to the Manager and describes the expenses that the Fund is responsible to pay to conduct its business. The Manager has operated as an investment adviser since 1959. The Manager and its affiliates currently manage investment companies, including other OppenheimerFunds, with assets of more than $29 billion as of December 30, 1994, and with more than 1.8 million shareholder accounts. The Manager is owned by Oppenheimer Acquisition Corp., a holding company that is owned in part by senior officers of the Manager and controlled by Massachusetts Mutual Life Insurance Company, a mutual life insurance company. - Portfolio Managers. Arthur P. Steinmetz and David P. Negri serve as Portfolio Managers and Vice Presidents of the Fund and have been principally responsible for the day-to-day management of the Fund's portfolio since its inception. During the past five years, Mr. Steinmetz has served as Senior Vice President of the Manager, Mr. Negri has served as a Vice President of the Manager and each has served as an officer of other mutual funds managed by the Manager (with the Fund, the OppenheimerFunds). - Fees and Expenses. Under the Investment Advisory Agreement, the Fund pays the Manager the following annual fees, which decline on additional assets as the Fund grows: 0.75% of the first $200 million of aggregate net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets in excess of $1 billion. The Fund's management fee (excluding the voluntary expense assumption in effect for a portion of the last fiscal year) for its last fiscal year was 0.75% of average annual net assets for both its Class A and Class B shares, which may be higher than the rate paid by some other mutual funds. The Fund pays expenses related to its daily operations, such as custodian fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those expenses are paid out of the Fund's assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by shareholders through their investment. More information about the investment advisory agreement and the other expenses paid by the Fund is contained in the Statement of Additional Information. There is also information about the Fund's brokerage policies and practices in "Brokerage Policies of the Fund" in the Statement of Additional Information. That section discusses how brokers and dealers are selected for the Fund's portfolio transactions. When deciding which brokers to use, the Manager is permitted by the investment advisory agreement to consider whether brokers have sold shares of the Fund or any other funds for which the Manager serves as investment adviser. - The Distributor. The Fund's shares are sold through dealers and brokers that have a sales agreement with Oppenheimer Funds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also distributes the shares of other OppenheimerFunds and is sub-distributor for funds managed by a subsidiary of the Manager. - The Transfer Agent. The Fund's transfer agent is Oppenheimer Shareholder Services, a division of the Manager, which acts as the shareholder servicing agent for the Fund and the other OppenheimerFunds on an "at-cost" basis. Shareholders should direct inquiries about their accounts to the Transfer Agent at the address and toll-free numbers shown below in this Prospectus and on the back cover. Performance of the Fund Explanation of Performance Terminology. The Fund uses the terms "total return," "average annual total return" and "yield" to illustrate its performance. The performance of each class of shares is shown separately, because the performance of each class will usually be different, as a result of the different kinds of expenses each class bears. This performance information may be useful to help you see how well your investment has done and to compare it to other funds or market indices, as we have done below. It is important to understand that the fund's total returns and yields represent past performance and should not be considered to be predictions of future returns or performance. This performance data is described below, but more detailed information about how total returns and yields are calculated is contained in the Statement of Additional Information, which also contains information about other ways to measure and compare the Fund's performance. The Fund's investment performance will vary, depending on market conditions, the composition of the portfolio, expenses and which class of shares you purchase. - Total Returns. There are different types of total returns used to measure the Fund's performance. Total return is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains distributions are reinvested in additional shares. The cumulative total return measures the change in value over the entire period (for example, ten years). An average annual total return shows the average rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average annual total returns do not show the Fund's actual year-by-year performance. When total returns are quoted for Class A shares, they reflect the payment of the current maximum initial sales charge. When total returns are shown for Class B shares, they reflect the effect of the contingent deferred sales charge that applies to the period for which total return is shown. Total returns may also be quoted "at net asset value," without considering the effect of the sales charge, and those returns would be reduced if sales charges were deducted. - Yield. Each Class of shares calculates its yield by dividing the annualized net investment income per share on the portfolio during a 30-day period by the maximum offering price on the last day of the period. The yield of each Class will differ because of the different expenses of each Class of shares. The yield data represents a hypothetical investment return on the portfolio, and does not measure an investment return based on dividends actually paid to shareholders. To show that return, a dividend yield may be calculated. Dividend yield is calculated by dividing the dividends of a Class derived from net investment income during a stated period by the maximum offering price on the last day of the period. Yields and dividend yields for Class A shares reflect the deduction of the maximum initial sales charge, but may also be shown based on the Fund's net asset value per share. Yields for Class B shares do not reflect the deduction of the contingent deferred sales charge. How Has the Fund Performed? Below is a discussion by the Manager of the Fund's performance during its last fiscal year ended September 30, 1994, followed by a graphical comparison of the Fund's performance to an appropriate broad-based market index. - Management's Discussion of Performance. During the Fund's past fiscal year, as the United States economy strengthened and domestic interest rates rose, the Manager sought to reduce the Fund's overall exposure to Treasury securities, which tend to lag investment grade corporate bonds in the mid-to-late stages of economic expansion. The Manager also adjusted the Fund's holdings within the investment grade corporate bond sector by de-emphasizing investments in companies whose earnings are sensitive to interest rate changes, such as consumer durable and financial services companies, and instead focused on larger industrial companies. With respect to the foreign markets, as interest rates rose offshore and the U.S. dollar weakened against major currencies, the Manager increased the Fund's holdings of foreign government bonds, and focused more attention on bonds issued by large European industrial companies believed to be positioned to benefit from economic growth. - Comparing the Fund's Performance to the Market. The chart below shows the performance of a hypothetical $10,000 investment in each Class of shares of the Fund held until September 30, 1994. In the case of Class A shares, performance is measured since the commencement of operations on April 22, 1992, and in the case of Class B shares, from the inception of the Class on November 30, 1992. In both cases, all dividends and capital gains distributions were reinvested in additional shares. The graph reflects the deduction of the 4.75% current maximum initial sales charge on Class A shares and the maximum 5% contingent deferred sales charge on Class B shares. The Fund's performance is compared to the performance of The Lehman Brothers Aggregate Bond Index, a broad-based index of U.S. Government Treasury and agency issues and investment grade corporate bond issues and fixed-rate mortgage-backed securities backed by mortgage pools issued by certain U.S. Government agencies. That index is widely regarded as a measure of the performance of the general bond market. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction costs, and none of the data below shows the effect of taxes. Moreover, index performance data does not reflect any assessment of the risk of the investment included in the index. The Fund's performance reflects the effect of Fund business and operating expenses. Oppenheimer Strategic Investment Grade Bond Comparison of Change in Value of a $10,000 Hypothetical Investment to the The Lehman Aggregate Bond Index (Graph) Past performance is not predictive of future performance. Oppenheimer Strategic Investment Grade Bond
Average Annual Total Returns Cumulative Total Return of the Fund at 9/30/94 of the Fund at 9/30/94 A Shares 1-Year Life: B Shares 1-Year Life: -6.43% 2.83% -7.03% 1.77%
ABOUT YOUR ACCOUNT How to Buy Shares Classes of Shares. The Fund offers investors two different classes of shares. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. - Class A Shares. If you buy Class A shares, you pay an initial sales charge (on investments up to $1 million). If you purchase Class A shares as part of an investment of at least $1 million in shares of one or more OppenheimerFunds, you will not pay an initial sales charge but if you sell any of those shares within 18 months after your purchase, you may pay a contingent deferred sales charge, which will vary depending on the amount you invested. Sales charges are described below. - Class B Shares. If you buy Class B shares, you pay no sales charge at the time of purchase, but if you sell your shares within six years, you will normally pay a contingent deferred sales charge that varies depending on how long you own your shares. It is described below. Which Class of Shares Should You Choose? Once you decide that the Fund is an appropriate investment for you, the decision as to which class of shares is better suited to your needs depends on a number of factors which you should discuss with your financial advisor. The Fund's operating costs that apply to a class of shares and the effect of the different types of sales charges on your investment will vary your investment results over time. The most important factors are how much you plan to invest, how long you plan to hold your investment, and whether you anticipate exchanging your shares for shares of other OppenheimerFunds (not all of which currently offer Class B shares). If your goals and objectives change over time and you plan to purchase additional shares, you should re-evaluate those factors to see if you should consider another class of shares. In the following discussion, to help provide you and your financial advisor with a framework in which to choose a class, we have made some assumptions using a hypothetical investment in the Fund. We used the sales charge rates that apply to Class A and B, considering the effect of the annual asset-based sales charge on Class B expenses (which, like all expenses, will affect your investment return). For the sake of comparison, we have assumed that there is a 10% rate of appreciation in the investment each year. Of course, the actual performance of your investment cannot be predicted and will vary, based on the Fund's actual investment returns and the operating expenses borne by each class of shares, and which class you invest in. The factors discussed below are not intended to be investment advice or recommendations, because each investor's financial considerations are different. - How Long Do You Expect to Hold Your Investment? The Fund is designed for long-term investment. While future financial needs cannot be predicted with certainty, knowing how long you expect to hold your investment will assist you in selecting the appropriate class of shares. The effect of the sales charge over time, using our assumptions, will generally depend on the amount invested. Because of the effect of class- based expenses, your choice will also depend on how much you invest. - How Much Do You Plan to Invest? If you plan to invest a substantial amount over the long term, the reduced sales charges available for larger purchases of Class A shares may offset the effect of paying an initial sales charge on your investment (which reduces the amount of your investment dollars used to buy shares for your account), compared to the effect over time of higher expenses on Class B, for which no initial sales charge is paid. Additionally, dividends payable to Class B shareholders will be reduced by the additional expenses borne solely by Class B, such as the asset-based sales charge described below. In general, if you plan to invest less than $100,000, Class B shares may be more advantageous than Class A shares, using the assumptions in our hypothetical example. However, if you plan to invest more than $100,000 (not only in the Fund, but possibly in other OppenheimerFunds as well), then Class A shares generally will be more advantageous than Class B, because of the effect of the reduction of initial sales charges on larger purchases of Class A shares (described in "Reduced Sales Charges for Class A Share Purchases," below). That is also the case because the annual asset-based sales charge on Class B shares will have a greater impact on larger investments than the initial sales charge on Class A shares because of the reductions of initial sales charge available for larger purchases. And for investors who invest $1 million or more, in most cases Class A shares will be the most advantageous choice, no matter how long you intend to hold your shares. For that reason, the Distributor normally will not accept purchase orders of $1 million or more of Class B shares from a single investor. Of course, these examples are based on approximations of the effect of current sales charges and expenses on a hypothetical investment over time, using the assumptions stated above. Therefore, these examples should not be relied on as rigid guidelines. - Are There Differences in Account Features That Matter To You? Because some features (such as Checkwriting) may not be available to Class B shareholders, or other features (such as Automatic Withdrawal Plans) may not be advisable (because of the effect of the contingent deferred sales charge) in non-retirement accounts for Class B shareholders, you should carefully review how you plan to use your investment account before deciding which class of shares to buy. Also, because not all of the OppenheimerFunds currently offer Class B shares, and because exchanges are permitted only to the same class of shares in another of the OppenheimerFunds, you should consider how important the exchange privilege is likely to be for you. - How Does It Affect Payments to My Broker? A salesperson, such as a broker, or any other person who is entitled to receive compensation for selling Fund shares may receive different compensation for selling or servicing one class of shares than another class. It is important that investors understand that the purpose of the Class B contingent deferred sales charge is the same as the purpose of the front-end sales charge on Class A shares: to compensate the Distributor for commissions it pays to dealers and financial institutions for sales of shares. How Much Must You Invest? You can open a Fund account with a minimum initial investment of $1,000 and make additional investments at any time with as little as $25. There are reduced minimum investments under special investment plans: With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial plans and military allotment plans, you can make initial and subsequent investments of as little as $25; and subsequent purchases of at least $25 can be made by telephone through AccountLink. Under pension and profit-sharing plans and Individual Retirement Accounts (IRAs), you can make an initial investment of as little as $250 (if your IRA is established under an Asset Builder Plan, the $25 minimum applies), and subsequent investments may be as little as $25. There is no minimum investment requirement if you are buying shares by reinvesting dividends from the Fund or other OppenheimerFunds (a list of them appears in the Statement of Additional Information, or you can ask your dealer or call the Transfer Agent), or by reinvesting distributions from unit investment trusts that have made arrangements with the Distributor. - How Are Shares Purchased? You can buy shares several ways -- through any dealer, broker or financial institution that has a sales agreement with the Distributor, or directly through the Distributor, or automatically through an Asset Builder Plan under the OppenheimerFunds AccountLink service. When you buy shares, be sure to specify Class A or Class B shares. If you do not choose, your investment will be made in Class A shares. - Buying Shares Through Your Dealer. Your dealer will place your order with the Distributor on your behalf. - Buying Shares Through the Distributor. Complete an OppenheimerFunds New Account Application and return it with a check payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you don't list a dealer on the application, the Distributor will act as your agent in buying the shares. - Buying Shares Through OppenheimerFunds AccountLink. You can use AccountLink to link your Fund account with an account at a U.S. bank or other financial institution that is an Automated Clearing House (ACH) member, to transmit funds electronically to purchase shares, to send redemption proceeds, and to transmit dividends and distributions. Shares are purchased for your account on Accountlink on the regular business day the Distributor is instructed by you to initiate the ACH transfer to buy shares. You can provide those instructions automatically, under an Asset Builder Plan, described below, or by telephone instructions using OppenheimerFunds PhoneLink, also described below. You should request AccountLink privileges on the application or dealer settlement instructions used to establish your account. Please refer to "AccountLink" below for more details. - Asset Builder Plans. You may purchase shares of the Fund (and up to four other OppenheimerFunds) automatically each month from your account at a bank or other financial institution under an Asset Builder Plan with AccountLink. Details are on the Application and in the Statement of Additional Information. - At What Price Are Shares Sold? Shares are sold at the public offering price based on the net asset value (and any initial sales charge that applies) that is next determined after the Distributor receives the purchase order in Denver. In most cases, to enable you to receive that day's offering price, the Distributor must receive your order by the time of day The New York Stock Exchange closes, which is normally 4:00 P.M., New York time, but may be earlier on some days (all references to time in this Prospectus mean "New York time"). The net asset value of each class of shares is determined as of that time on each day The New York Stock Exchange is open (which is a "regular business day"). If you buy shares through a dealer, the dealer must receive your order by the close of The New York Stock Exchange on a regular business day and transmit it to the Distributor so that it is received before the Distributor's close of business that day, which is normally 5:00 P.M. The Distributor may reject any purchase order for the Fund's shares, in its sole discretion. Class A Shares. Class A shares are sold at their offering price, which is normally net asset value plus an initial sales charge. However, in some cases, described below, where purchases are not subject to an initial sales charge, the offering price may be net asset value. In some cases, reduced sales charges may be available, as described below. Out of the amount you invest, the Fund receives the net asset value to invest for your account. The sales charge varies depending on the amount of your purchase. A portion of the sales charge may be retained by the Distributor and allocated to your dealer as a commission. The current sales charge rates and commissions paid to dealers and brokers are as follows:
Front-End Front-End Sales Charge Sales Charge as Commission as Approximate as Percentage Percentage Percentage of Offering of Amount of Offering Amount of Purchase Price Invested Price - ------------------------------------------------------------------------------------------------------------------------ Less than $50,000 4.75% 4.98% 4.00% - ------------------------------------------------------------------------------------------------------------------------ $50,000 or more but less than $100,000 4.50% 4.71% 3.75% - ----------------------------------------------------------------------------------------------------------------------- $100,000 or more but less than $250,000 3.50% 3.63% 2.75% - ----------------------------------------------------------------------------------------------------------------------- $250,000 or more but less than $500,000 2.50% 2.56% 2.00% - ----------------------------------------------------------------------------------------------------------------------- $500,000 or more but less than $1 million 2.00% 2.04% 1.60%
The Distributor reserves the right to reallow the entire commission to dealers. If that occurs, the dealer may be considered an "underwriter" under Federal securities laws. - Class A Contingent Deferred Sales Charge. There is no initial sales charge on purchases of Class A shares of any one or more OppenheimerFunds aggregating $1 million or more. However, the Distributor pays dealers of record commissions on such purchases in an amount equal to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of share purchases over $5 million. That commission may be paid only on the amount of those purchases in excess of $1 million that were not previously subject to a front-end sales charge and dealer commission. If you redeem any of those shares within 18 months of the end of the calendar month of their purchase, a contingent deferred sales charge (called the "Class A contingent deferred sales charge") may be deducted from the redemption proceeds. That sales charge will be equal to 1.0% of the aggregate net asset value of either (1) the redeemed shares (not including shares purchased by reinvestment of dividends or capital gain distributions) or (2) the original cost of the shares, whichever is less. However, the Class A contingent deferred sales charge will not exceed the aggregate commissions the Distributor paid to your dealer on all Class A shares of all OppenheimerFunds you purchased subject to the Class A contingent deferred sales charge. In determining whether a contingent deferred sales charge is payable, the Fund will first redeem shares that are not subject to the sales charge, including shares purchased by reinvestment of dividends and capital gains, and then will redeem other shares in the order that you purchased them. The Class A contingent deferred sales charge is waived in certain cases described in "Waivers of Class A Sales Charges" below. No Class A contingent deferred sales charge is charged on exchanges of shares under the Fund's Exchange Privilege (described below). However, if the shares acquired by exchange are redeemed within 18 months of the end of the calendar month of the purchase of the exchanged shares, the sales charge will apply. - Special Arrangements With Dealers. The Distributor may advance up to 13 months' commissions to dealers that have established special arrangements with the Distributor for Asset Builder Plans for their clients. Dealers whose sales of Class A shares of OppenheimerFunds (other than money market funds) under OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5 million per year (calculated per quarter), will receive monthly one-half of the Distributor's retained commissions on those sales, and if those sales exceed $10 million per year, those dealers will receive the Distributor's entire retained commission on those sales. Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy Class A shares at reduced sales charge rates in one or more of the following ways: - Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you and your spouse can add together Class A shares you purchase for your individual accounts, or jointly, or on behalf of your children who are minors, under trust or custodial accounts. A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one or more employee benefit plans of the same employer) that has multiple accounts. Additionally, you can add together current purchases of Class A shares of the Fund and other OppenheimerFunds. You can also include Class A shares of OppenheimerFunds you previously purchased subject to a sales charge, provided that you still hold your investment in one of the OppenheimerFunds. The value of those shares will be based on the greater of the amount you paid for the shares or their current value (at offering price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the Statement of Additional Information, or a list can be obtained from the Transfer Agent. The reduced sales charge will apply only to current purchases and must be requested when you buy your shares. - Letter of Intent. Under a Letter of Intent, you may purchase Class A shares of the Fund and other OppenheimerFunds during a 13-month period at the reduced sales charge rate that applies to the aggregate amount of the intended purchases, including purchases made up to 90 days before the date of the Letter. More information is contained in the Application and in "Reduced Sales Charges" in the Statement of Additional Information. - Waivers of Class A Sales Charges. No sales charge is imposed on sales of Class A shares to the following investors: (1) the Manager or its affiliates; (2) present or former officers, directors, trustees and employees (and their "immediate families" as defined in "Reduced Sales Charges" in the Statement of Additional Information) of the Fund, the Manager and its affiliates, and retirement plans established by them for their employees; (3) registered management investment companies, or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose; (4) dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own accounts or for retirement plans for their employees; (5) employees and registered representatives (and their spouses) of dealers or brokers described above or financial institutions that have entered into sales arrangements with such dealers or brokers (and are identified to the Distributor) or with the Distributor; the purchaser must certify to the Distributor at the time of purchase that the purchase is for the purchaser's own account (or for the benefit of such employee's spouse or minor children); (6) dealers, brokers or registered investment advisers that have entered into an agreement with the Distributor providing specifically for the use of shares of the Fund in particular investment products made available to their clients; and (7) dealers, brokers or registered investment advisers that have entered into an agreement with the Distributor to sell shares of defined contribution employee retirement plans for which the dealer, broker or investment adviser provides administration services. Additionally, no sales charge is imposed on shares that are (a) issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the Fund is a party, or (b) purchased by the reinvestment of loan repayments by a participant in a retirement plan for which the Manager or its affiliates acts as sponsor, or (c) purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment arrangements have been made with the Distributor. There is a further discussion of this policy in "Reduced Sales Charges" in the Statement of Additional Information. The contingent deferred sales charge does not apply to purchases of Class A shares at net asset value described above and is also waived if shares are redeemed in the following cases: (1) retirement distributions or loans to participants or beneficiaries from qualified retirement plans, deferred compensation plans or other employee benefit plans ("Retirement Plans"), (2) returns of excess contributions made to Retirement Plans, (3) Automatic Withdrawal Plan payments that are limited to no more than 12% of the original account value annually, (4) involuntary redemptions of shares by operation of law or under the procedures set forth in the Fund's Declaration of Trust or adopted by the Board of Trustees, and (5) if, at the time an order is placed for Class A shares that would otherwise be subject to the Class A contingent deferred sales charge, the dealer agrees to accept the dealer's portion of the commission payable on the sale in installments of 1/18th of the commission per month (with no further commission payable if the shares are redeemed within 18 months of purchase). - Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A shares to reimburse the Distributor for a portion of its costs incurred in connection with the personal service and maintenance of accounts that hold Class A shares. Reimbursement is made quarterly at an annual rate that may not exceed 0.25% of the average annual net assets of Class A shares of the Fund. The Distributor uses all of those fees to compensate dealers, brokers, banks and other financial institutions quarterly for providing personal service and maintenance of accounts of their customers that hold Class A shares and to reimburse itself (if the Fund's Board of Trustees authorizes such reimbursements, which it has not yet done) for its other expenditures under the Plan. Services to be provided include, among others, answering customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans available and providing other services at the request of the Fund or the Distributor. Payments are made by the Distributor quarterly at an annual rate not to exceed 0.25% of the average annual net assets of Class A shares held in accounts of the dealer or its customers. The Class A Plan has the effect of increasing annual expenses of Class A shares of the Fund by up to 0.25% of the class's average annual net assets from what its expenses would otherwise be. For more details, please refer to "Distribution and Service Plans" in the Statement of Additional Information. Class B Shares. Class B shares are sold at net asset value per share without an initial sales charge. However, if Class B shares are redeemed within 6 years of their purchase, a contingent deferred sales charge will be deducted from the redemption proceeds. That sales charge will not apply to shares purchased by the reinvestment of dividends or capital gains distributions. The charge will be assessed on the lesser of the net asset value of the shares at the time of redemption or the original purchase price. The contingent deferred sales charge is not imposed on the amount of your account value represented by the increase in net asset value over the initial purchase price (including increases due to the reinvestment of dividends and capital gains distributions). The Class B contingent deferred sales charge is paid to the Distributor to reimburse its expenses of providing distribution-related services to the Fund in connection with the sale of Class B shares. To determine whether the contingent deferred sales charge applies to a redemption, the Fund redeems shares in the following order: (1) shares acquired by reinvestment of dividends and capital gains distributions, (2) shares held for over 6 years, and (3) shares held the longest during the 6-year period. The amount of the contingent deferred sales charge will depend on the number of years since you invested and the dollar amount being redeemed, according to the following schedule:
Contingent Deferred Sales Charge Years Since Beginning of Month In on Redemptions in that Year Which Purchase Order Was Accepted (As % of Amount Subject to Charge) 0 - 1 5.0% 1 - 2 4.0% 2 - 3 3.0% 3 - 4 3.0% 4 - 5 2.0% 5 - 6 1.0% 6 and following None
In the table, a "year" is a 12-month period. All purchases are considered to have been made on the first regular business day of the month in which the purchase was made. - Waivers of Class B Sales Charge. The Class B contingent deferred sales charge will be waived if the shareholder requests it for any of the following redemptions: (1) distributions to participants or beneficiaries from Retirement Plans, if the distributions are made (a) under an Automatic Withdrawal Plan after the participant reaches age 59-1/2, as long as the payments are no more than 10% of the account value annually (measured from the date the Transfer Agent receives the request), or (b) following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary; (2) redemptions from accounts other than Retirement Plans following the death or disability of the shareholder (the disability must have occurred after the account was established and you must provide evidence of a determination of disability by the Social Security Administration); (3) returns of excess contributions to Retirement Plans; and (4) distributions from IRAs (including SEP-IRAs and SAR/SEP accounts) before the participant is age 591/2, and distributions from 403(b)(7) custodial plans or pension or profit sharing plans before the participant is age 591/2 but only after the participant has separated from service, if the distributions are made in substantially equal periodic payments over the life (or life expectancy) of the participant or the joint lives (or joint life and last survivor expectancy) of the participant and the participant's designated beneficiary (and the distributions must comply with other requirements for such distributions under the Internal Revenue Code and may not exceed 10% of the account value annually, measured from the date the Transfer Agent receives the request). The contingent deferred sales charge is also waived on Class B shares in the following cases: (i) shares sold to the Manager or its affiliates; (ii) shares sold to registered management investment companies or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose; (iii) shares issued in plans of reorganization to which the Fund is a party; and (iv) shares redeemed in involuntary redemptions as described below. Further details about this policy are contained in "Reduced Sales Charges" in the Statement of Additional Information. - Automatic Conversion of Class B Shares. 72 months after you purchase Class B shares, those shares will automatically convert to Class A shares. This conversion feature relieves Class B shareholders of the asset-based sales charge that applies to Class B shares under the Class B Distribution Plan, described below. The conversion is based on the relative net asset value of the two classes, and no sales load or other charge is imposed. When Class B shares convert, any other Class B shares that were acquired by the reinvestment of dividends and distributions on the converted shares will also convert to Class A shares. The conversion feature is subject to the continued availability of a tax ruling described in "Alternative Sales Arrangements - Class A and Class B Shares" in the Statement of Additional Information. - Distribution and Service Plan for Class B Shares. The Fund has adopted a Distribution and Service Plan for Class B shares to compensate the Distributor for its services and costs in distributing Class B shares and servicing accounts. Under the Plan, the Fund pays the Distributor an annual "asset-based sales charge" of 0.75% per year on Class B shares that are outstanding for 6 years or less. The Distributor also receives a service fee of 0.25% per year. Both fees are computed on the average annual net assets of Class B shares, determined as of the close of each regular business day. The asset-based sales charge allows investors to buy Class B shares without a front-end sales charge while allowing the Distributor to compensate dealers that sell Class B shares. The Distributor uses the service fee to compensate dealers for providing personal services for accounts that hold Class B shares. Those services are similar to those provided under the Class A Service Plan, described above. The asset-based sales charge and service fees increase Class B expenses by up to 1.00% of average net assets per year. The Distributor pays the 0.25% service fee to dealers in advance for the first year after Class B shares have been sold by the dealer. After the shares have been held for a year, the Distributor pays the fee on a quarterly basis. The Distributor pays sales commissions of 3.75% of the purchase price to dealers from its own resources at the time of sale. The Distributor retains the asset-based sales charge to recoup the sales commissions it pays, the advances of service fee payments it makes, financing costs and other expenses. The Distributor's actual expenses in selling Class B shares may be more than the payments it receives from contingent deferred sales charges collected on redeemed shares and from the Fund under the Distribution and Service Plan for Class B shares. Therefore, those expenses may be carried over and paid in future years. At September 30, 1994, the end of the Plan year, the Distributor had incurred unreimbursed expenses under the Plan of $696,002 (equal to 4.7% of the Fund's net assets represented by Class B shares on that date), which have been carried over into the present Plan year. If the Plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the asset-based sales charge to the Distributor for expenses it incurred before the Plan was terminated. Special Investor Services AccountLink. OppenheimerFunds AccountLink links your Fund account to your account at your bank or other financial institution to enable you to send money electronically between those accounts to perform a number of types of account transactions. These include purchases of shares by telephone (either through a service representative or by PhoneLink, described below), automatic investments under Asset Builder Plans, and sending dividends and distributions or Automatic Withdrawal Plan payments directly to your bank account. Please refer to the Application for details or call the Transfer Agent for more information. AccountLink privileges must be requested on the Application you use to buy shares, or on your dealer's settlement instructions if you buy your shares through your dealer. After your account is established, you can request AccountLink privileges on signature-guaranteed instructions to the Transfer Agent. AccountLink privileges will apply to each shareholder listed in the registration on your account as well as to your dealer representative of record unless and until the Transfer Agent receives written instructions terminating or changing those privileges. After you establish AccountLink for your account, any change of bank account information must be made by signature-guaranteed instructions to the Transfer Agent signed by all shareholders who own the account. - Using AccountLink to Buy Shares. Purchases may be made by telephone only after your account has been established. To purchase shares in amounts up to $250,000 through a telephone representative, call the Distributor at 1-800-852-8457. The purchase payment will be debited from your bank account. - PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that enables shareholders to perform a number of account transactions automatically using a touch-tone phone. PhoneLink may be used on already-established Fund accounts after you obtain a Personal Identification Number (PIN), by calling the special PhoneLink number: 1- 800-533-3310. - Purchasing Shares. You may purchase shares in amounts up to $100,000 by phone, by calling 1-800-533-3310. You must have established AccountLink privileges to link your bank account with the Fund, to pay for these purchases. - Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described below, you can exchange shares automatically by phone from your Fund account to another OppenheimerFunds account you have already established by calling the special PhoneLink number. Please refer to "How to Exchange Shares," below, for details. - Selling Shares. You can redeem shares by telephone automatically by calling the PhoneLink number and the Fund will send the proceeds directly to your AccountLink bank account. Please refer to "How to Sell Shares," below, for details. Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable you to sell shares automatically or exchange them to another OppenheimerFunds account on a regular basis: - Automatic Withdrawal Plans. If your Fund account is worth $5,000 or more, you can establish an Automatic Withdrawal Plan to receive payments of at least $50 on a monthly, quarterly, semi-annual or annual basis. The checks may be sent to you or sent automatically to your bank account on AccountLink. You may even set up certain types of withdrawals of up to $1,500 per month by telephone. You should consult the Application and Statement of Additional Information for more details. - Automatic Exchange Plans. You can authorize the Transfer Agent automatically to exchange an amount you establish in advance for shares of up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum purchase for each OppenheimerFunds account is $25. These exchanges are subject to the terms of the Exchange Privilege, described below. Reinvestment Privilege. If you redeem some or all of your Fund shares, you have up to 6 months to reinvest all or part of the redemption proceeds in Class A shares of the Fund or other OppenheimerFunds without paying a sales charge. This privilege applies to Fund shares that you purchased with an initial sales charge. It also applies to shares on which you paid a contingent deferred sales charge when you redeemed them. You must be sure to ask the Distributor for this privilege when you send your payment. Please consult the Statement of Additional Information for more details. Retirement Plans. Fund shares are available as an investment for your retirement plans. If you participate in a plan sponsored by your employer, the plan trustee or administrator must make the purchase of shares for your retirement plan account. The Distributor offers a number of different retirement plans that can be used by individuals and employers: - Individual Retirement Accounts including rollover IRAs, for individuals and their spouses - 403(b)(7) Custodial Plans for employees of eligible tax-exempt organizations, such as schools, hospitals and charitable organizations - SEP-IRAs (Simplified Employee Pension Plans) for small business owners or people with income from self-employment, including SARSEP-IRAs - Pension and Profit-Sharing Plans for self-employed persons and other employers Please call the Distributor for the OppenheimerFunds plan documents, which contain important information and applications. How to Sell Shares You can arrange to take money out of your account on any regular business day by selling (redeeming) some or all of your shares. Your shares will be sold at the next net asset value calculated after your order is received and accepted by the Transfer Agent. The Fund offers you a number of ways to sell your shares: in writing or by telephone. You can also set up Automatic Withdrawal Plans to redeem shares on a regular basis, as described above. If you have questions about any of these procedures, and especially if you are redeeming shares in a special situation, such as due to the death of the owner, or from a retirement plan, please call the Transfer Agent first, at 1-800-525-7048, for assistance. - Retirement Accounts. To sell shares in an OppenheimerFunds retirement account in your name, call the Transfer Agent for a distribution request form. There are special income tax withholding requirements for distributions from retirement plans and you must submit a withholding form with your request to avoid delay. If your retirement plan account is held for you by your employer, you must arrange for the distribution request to be sent by the plan administrator or trustee. There are additional details in the Statement of Additional Information. - Certain Requests Require a Signature Guarantee. To protect you and the Fund from fraud, certain redemption requests must be in writing and must include a signature guarantee in the following situations (there may be other situations also requiring a signature guarantee): - You wish to redeem more than $50,000 worth of shares and receive a check - A redemption check is not payable to all shareholders listed on the account statement - A redemption check is not sent to the address of record on your statement - Shares are being transferred to a Fund account with a different owner or name - Shares are redeemed by someone other than the owners (such as an Executor) - Where Can I Have My Signature Guaranteed? The Transfer Agent will accept a guarantee of your signature by a number of financial institutions, including: a U.S. bank, trust company, credit union or savings association, or by a foreign bank that has a U.S. correspondent bank, or by a U.S. registered dealer or broker in securities, municipal securities or government securities, or by a U.S. national securities exchange, a registered securities association or a clearing agency. If you are signing on behalf of a corporation, partnership or other business, or as a fiduciary, you must also include your title in the signature. Selling Shares by Mail. Write a "letter of instructions" that includes: - Your name - The Fund's name - Your Fund account number (from your statement) - The dollar amount or number of shares to be redeemed - Any special payment instructions - Any share certificates for the shares you are selling, and - Any special requirements or documents requested by the Transfer Agent to assure proper authorization of the person asking to sell shares. Use the following address for requests by mail:Send courier or Express Mail requests to: Oppenheimer Shareholder Services P.O. Box 5270, Denver, Colorado 80217 Send courier or Express Mail requests to: Oppenheimer Shareholder Services 10200 E. Girard Avenue, Building D Denver, Colorado 80231 Selling Shares by Telephone. You and your dealer representative of record may also sell your shares by telephone. To receive the redemption price on a regular business day, your call must be received by the Transfer Agent by the close of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be earlier on some days. You may not redeem shares held in an OppenheimerFunds retirement plan or under a share certificate by telephone. - To redeem shares through a service representative, call 1-800-852- 8457 - To redeem shares automatically on PhoneLink, call 1-800-533-3310 Whichever method you use, you may have a check sent to the address on the account statement, or, if you have linked your Fund account to your bank account on AccountLink, you may have the proceeds wired to that bank account. - Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by telephone, in any 7-day period. The check must be payable to all owners of record of the shares and must be sent to the address on the account statement. This service is not available within 30 days of changing the address on an account. - Telephone Redemptions Through AccountLink. There are no dollar limits on telephone redemption proceeds sent to a bank account designated when you establish AccountLink. Normally the ACH wire to your bank is initiated on the business day after the redemption. You do not receive dividends on the proceeds of the shares you redeemed while they are waiting to be wired. Checkwriting. To be able to write checks against your Fund account, you may request that privilege on your account Application or you can contact the Transfer Agent for signature cards, which must be signed (with a signature guarantee) by all owners of the account and returned to the Transfer Agent so that checks can be sent to you to use. Shareholders with joint accounts can elect in writing to have checks paid over the signature of one owner. - Checks can be written to the order of whomever you wish, but may not be cashed at the Fund's bank or custodian. - Checkwriting privileges are not available for accounts holding Class B or Class A shares that are subject to a contingent deferred sales charge. - Checks must be written for at least $100. - Checks cannot be paid if they are written for more than your account value. Remember: your shares fluctuate in value and you should not write a check close to the total account value. - You may not write a check that would require the Fund to redeem shares that were purchased by check or Asset Builder Plan payments within the prior 10 days. - Don't use your checks if you changed your Fund account number. The Fund will charge a $10 fee for any check that is not paid because (1) the owners of the account told the Fund not to pay the check, or (2) the check was for more than the account balance, or (3) the check did not have the proper signatures, or (4) the check was written for less than $100. Selling Shares Through Your Dealer. The Distributor has made arrangements to repurchase Fund shares from dealers and brokers on behalf of their customers. Brokers or dealers may charge for that service. Please refer to "Special Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement of Additional Information for more details. How to Exchange Shares Shares of the Fund may be exchanged for shares of certain OppenheimerFunds at net asset value per share at the time of exchange, without sales charge. A $5 service fee will be deducted from the fund account you are exchanging into to help defray administrative costs. That charge is waived for automated exchanges made by brokers on Fund/SERV and for automated exchanges between already established accounts on PhoneLink described below. To exchange shares, you must meet several conditions: - Shares of the fund selected for exchange must be available for sale in your state of residence - The prospectuses of this Fund and the fund whose shares you want to buy must offer the exchange privilege - You must hold the shares you buy when you establish your account for at least 7 days before you can exchange them; after the account is open 7 days, you can exchange shares every regular business day - You must meet the minimum purchase requirements for the fund you purchase by exchange - Before exchanging into a fund, you should obtain and read its prospectus Shares of a particular class may be exchanged only for shares of the same class in the other OppenheimerFunds. For example, you can exchange Class A shares of this Fund only for Class A shares of another fund. At present, not all of the OppenheimerFunds offer the same classes of shares. If a fund has only one class of shares that does not have a class designation, they are "Class A" shares for exchange purposes. Certain OppenheimerFunds offer Class A shares and Class B or Class C shares, and a list can be obtained by calling the Distributor at 1-800-525-7048. In some cases, sales charges may be imposed on exchange transactions. Please refer to "How to Exchange Shares" in the Statement of Additional Information for more details. Exchanges may be requested in writing or by telephone: - Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form, signed by all owners of the account. Send it to the Transfer Agent at the addresses listed in "How to Sell Shares." - Telephone Exchange Requests. Telephone exchange requests may be made either by calling a service representative at 1-800-852-8457 or by using PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone exchanges may be made only between accounts that are registered with the same name(s) and address. Shares held under certificates may not be exchanged by telephone. You can find a list of OppenheimerFunds currently available for exchanges in the Statement of Additional Information or by calling a service representative at 1-800-525-7048. Exchanges of shares involve a redemption of the shares of the fund you own and a purchase of shares of the other fund. There are certain exchange policies you should be aware of: - Shares are normally redeemed from one fund and purchased from the other fund in the exchange transaction on the same regular business day on which the Transfer Agent receives an exchange request by the close of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be earlier on some days. However, either fund may delay the purchase of shares of the fund you are exchanging into if it determines it would be disadvantaged by a same-day transfer of the proceeds to buy shares. For example, the receipt of multiple exchange requests from a dealer in a "market-timing" strategy might require the disposition of portfolio securities at a time or price disadvantageous to the Fund. - Because excessive trading can hurt fund performance and harm shareholders, the Fund reserves the right to refuse any exchange request that will disadvantage it, or to refuse multiple exchange requests submitted by a shareholder or dealer. - The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund will attempt to provide you notice whenever it is reasonably able to do so, it may impose these changes at any time. - If the Transfer Agent cannot exchange all the shares you request because of a restriction cited above, only the shares eligible for exchange will be exchanged. Shareholder Account Rules and Policies - Net Asset Value Per Share is determined for each class of shares as of the close of The New York Stock Exchange on each regular business day by dividing the value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Fund's Board of Trustees has established procedures to value the Fund's securities to determine net asset value. In general, securities values are based on market value. There are special procedures for valuing illiquid and restricted securities, obligations for which market values cannot be readily obtained, and call options and hedging instruments. These procedures are described more completely in the Statement of Additional Information. - The offering of shares may be suspended during any period in which the determination of net asset value is suspended, and the offering may be suspended by the Board of Trustees at any time the Board believes it is in the Fund's best interest to do so. - Telephone Transaction Privileges for purchases, redemptions or exchanges may be modified, suspended or terminated by the Fund at any time. If an account has more than one owner, the Fund and the Transfer Agent may rely on the instructions of any one owner. Telephone privileges apply to each owner of the account and the dealer representative of record for the account unless and until the Transfer Agent receives cancellation instructions from an owner of the account. - The Transfer Agent will record any telephone calls to verify data concerning transactions and has adopted other procedures to confirm that telephone instructions are genuine, by requiring callers to provide tax identification numbers and other account data or by using PINs, and by confirming such transactions in writing. If the Transfer Agent does not use reasonable procedures it may be liable for losses due to unauthorized transactions, but otherwise neither it nor the Fund will be liable for losses or expenses arising out of telephone instructions reasonably believed to be genuine. If you are unable to reach the Transfer Agent during periods of unusual market activity, you may not be able to complete a telephone transaction and should consider placing your order by mail. - Redemption or transfer requests will not be honored until the Transfer Agent receives all required documents in proper form. From time to time, the Transfer Agent in its discretion may waive certain of the requirements for redemptions stated in this Prospectus. - Dealers that can perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients' permission to perform those transactions and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly. - The redemption price for shares will vary from day to day because the value of the securities in the Fund's portfolio fluctuates, and the redemption price, which is the net asset value per share, will normally be different for Class A and Class B shares. Therefore, the redemption value of your shares may be more or less than their original cost. - Payment for redeemed shares is made ordinarily in cash and forwarded by check or through AccountLink (as elected by the shareholder under the redemption procedures described above) within 7 days after the Transfer Agent receives redemption instructions in proper form, except under unusual circumstances determined by the Securities and Exchange Commission delaying or suspending such payments. The Transfer Agent may delay forwarding a check or processing a payment via AccountLink for recently purchased shares, but only until the purchase payment has cleared. That delay may be as much as 10 days from the date the shares were purchased. That delay may be avoided if you purchase shares by certified check or arrange with your bank to provide telephone or written assurance to the Transfer Agent that your purchase payment has cleared. - Involuntary redemptions of small accounts may be made by the Fund if the account value has fallen below $200 for reasons other than the fact that the market value of shares has dropped, and in some cases involuntary redemptions may be made to repay the Distributor for losses from the cancellation of share purchase orders. - Under unusual circumstances, shares of the Fund may be redeemed "in kind," which means that the redemption proceeds will be paid with securities from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement of Additional Information for more details. - "Backup Withholding" of Federal income tax may be applied at the rate of 31% from dividends, distributions and redemption proceeds (including exchanges) if you fail to furnish the Fund a certified Social Security or Employer Identification Number when you sign your application, or if you violate Internal Revenue Service regulations on tax reporting of dividends. - The Fund does not charge a redemption fee, but if your dealer or broker handles your redemption, they may charge a fee. That fee can be avoided by redeeming your Fund shares directly through the Transfer Agent. Under the circumstances described in "How To Buy Shares," you may be subject to a contingent deferred sales charge when redeeming certain Class A and Class B shares. - To avoid sending duplicate copies of materials to households, the Fund will mail only one copy of each annual and semi-annual report to shareholders having the same last name and address on the Fund's records. However, each shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of those materials be sent personally to that shareholder. Dividends, Capital Gains and Taxes Dividends. The Fund declares dividends separately for Class A and Class B shares from net investment income and pays such dividends to shareholders monthly on the fourth Wednesday of each month, but the Board of Trustees can change that date. It is expected that distributions paid with respect to Class A shares will generally be higher than for Class B shares because expenses allocable to Class B shares will generally be higher. From September 30, 1993 through November 24, 1993, the Manager had undertaken to assume the Fund's expenses (other than extraordinary non- recurring expenses) to enable the Fund to pay a dividend of $.3738 per share, per annum, with the limitation that the dividend could not exceed the Fund's annual gross earnings per share. As a result of this undertaking, the net asset value of the Fund's Class A shares were higher during such period than they otherwise would have been. This undertaking terminated as of November 24, 1993 and as of such date there is no fixed dividend rate. Further, there can be no assurance as to the payment of any dividends or the realization of any capital gains. Capital Gains. The Fund may make distributions annually in December out of any net short-term or long-term capital gains, and the Fund may make supplemental distributions of dividends and capital gains following the end of its fiscal year. Long-term capital gains will be separately identified in the tax information the Fund sends you after the end of the year. Short-term capital gains are treated as dividends for tax purposes. There can be no assurance that the Fund will pay any capital gains distributions in a particular year. Distribution Options. When you open your account, specify on your application how you want to receive your distributions. For OppenheimerFunds retirement accounts, all distributions are reinvested. For other accounts, you have four options: - Reinvest All Distributions in the Fund. You can elect to reinvest all dividends and long-term capital gains distributions in additional shares of the Fund. - Reinvest Long-Term Capital Gains Only. You can elect to reinvest long-term capital gains in the Fund while receiving dividends by check or sent to your bank account on AccountLink. - Receive All Distributions in Cash. You can elect to receive a check for all dividends and long-term capital gains distributions or have them sent to your bank on AccountLink. - Reinvest Your Distributions in Another OppenheimerFunds Account. You can reinvest all distributions in another OppenheimerFunds account you have established. Taxes. If your account is not a tax-deferred retirement account, you should be aware of the following tax implications of investing in the Fund. Long-term capital gains are taxable as long-term capital gains when distributed to shareholders. It does not matter how long you held your shares. Dividends paid from short-term capital gains and net investment income are taxable as ordinary income. Distributions are subject to federal income tax and may be subject to state or local taxes. Your distributions are taxable when paid, whether you reinvest them in additional shares or take them in cash. Every year the Fund will send you and the IRS a statement showing the amount of each taxable distribution you received in the previous year. - "Buying a Dividend": When a fund goes ex-dividend, its share price is reduced by the amount of the distribution. If you buy shares on or just before the ex-dividend date, or just before the Fund declares a capital gains distribution, you will pay the full price for the shares and then receive a portion of the price back as a taxable dividend or capital gain. - Taxes on Transactions: Share redemptions, including redemptions for exchanges, are subject to capital gains tax. A capital gain or loss is the difference between the price you paid for the shares and the price you received when you sold them. - Returns of Capital: In certain cases distributions made by the Fund may be considered a non-taxable return of capital to shareholders. If that occurs, it will be identified in notices to shareholders. A non- taxable return of capital may reduce your tax basis in your Fund shares. This information is only a summary of certain federal tax information about your investment. More information is contained in the Statement of Additional Information, and in addition you should consult with your tax adviser about the effect of an investment in the Fund on your particular tax situation. Appendix: Description of Ratings Description of Moody's Investors Service, Inc. Bond Ratings Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, the changes that can be expected are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as "high-grade" bonds. They are rated lower than the best bonds because margins of protection may not be as large as with "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than those of "Aaa" securities. A: Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated "Baa" are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have speculative characteristics as well. Ba: Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated "B" generally lack characteristics of desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated "Caa" are of poor standing and may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated "Ca" represent obligations which are speculative in a high degree and are often in default or have other marked shortcomings. C: Bonds which are rated "C" can be regarded as having extremely poor prospects of ever retaining any real investment standing. Description of Standard & Poor's Bond Ratings AAA: "AAA" is the highest rating assigned to a debt obligation and indicates an extremely strong capacity to pay principal and interest. AA: Bonds rated "AA" also qualify as high quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from "AAA" issues only in small degree. A: Bonds rated "A" have a strong capacity to pay principal and interest, although they are somewhat more susceptible to adverse effects of change in circumstances and economic conditions. BBB: The bond investments in which the Fund will principally invest will be in the lower-rated categories, described below. Bonds rated "BBB" are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the "A" category. BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "CC" the highest degree. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C, D: Bonds on which no interest is being paid are rated "C." Bonds rated "D" are in default and payment of interest and/or repayment of principal is in arrears. APPENDIX TO PROSPECTUS OF OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND Graphic material included in Prospectus of Oppenheimer Strategic Investment Grade Bond Fund: "Comparison of Total Return of Oppenheimer Strategic Investment Grade Bond Fund with The Lehman Aggregate Bond Index - - Change in Value of a $10,000 Hypothetical Investment" A linear graph will be included in the Prospectus of Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") depicting the initial account value and subsequent account value of a hypothetical $10,000 investment in (i) Class A shares of the Fund during each of the Fund's fiscal years since the commencement of the Fund's operations (April 22, 1992) and (ii) Class B shares of the Fund during each of the Fund's fiscal years since the public offering on November 30, 1992 in each case comparing such values with the same investments over the same time periods with The Lehman Aggregate Bond Index. Set forth below are the relevant data points that will appear on the linear graph. Additional information with respect to the foregoing, including a description of The Lehman Aggregate Bond Index, is set forth in the Prospectus under "Fund Performance Information - - Management's Discussion of Performance."
Oppenheimer Strategic Fiscal Year Investment Grade Bond Fund Lehman Aggregate (Period) Ended Class A Shares Bond Index 04/22/92 * $ 9,525 $10,000 09/30/92 $10,147(1) $10,773 09/30/93 $10,881 $11,847 09/30/94 $10,710 $11,466 Oppenheimer Strategic Fiscal Year Investment Grade Bond Fund Lehman Aggregate (Period) Ended Class B Shares Bond Index 11/30/92 $10,000 $10,000 09/30/93 $10,961(2) $11,141 09/30/94 $10,330 $10,782 ______________________________ * The Fund commenced operations on April 27, 1992. (1) From commencement of operations (4/22/92) to 9/30/92. (2) From commencement of first public offering of Class B shares (11/30/92) to 9/30/93.
Oppenheimer Strategic Investment Grade Bond Fund 3410 South Galena Street Denver, Colorado 80231 1-800-525-7048 Investment Adviser Oppenheimer Management Corporation Two World Trade Center New York, New York 10048-0203 Distributor Oppenheimer Funds Distributor, Inc. Two World Trade Center New York, New York 10048-0203 Transfer Agent Oppenheimer Shareholder Services P.O. Box 5270 Denver, Colorado 80217 1-800-525-7048 Custodian of Portfolio Securities The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche LLP 1560 Broadway Denver, Colorado 80202 Legal Counsel Myer, Swanson, Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202 No dealer, broker, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus or the Statement of Additional Information, and if given or made, such information and representations must not be relied upon as having been authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer Funds Distributor, Inc., or any affiliate thereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any state to any person to whom it is unlawful to make such offer in such state. PR0285001.0295 (1/95)* Printed on recycled paper OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND Supplement dated July 14, 1995 to the Statement of Additional Information dated February 1, 1995 The following changes are made to the Statement of Additional: 1. The first, third and fourth sentences of the first paragraph of the section entitled "Letters of Intent" on page 38 are replaced in their entirety with the following: - Letters of Intent. A Letter of Intent ("Letter") is the investor's statement of intention to purchase Class A shares and Class B shares (or shares of either class) of the Fund (and other eligible OppenheimerFunds) during the 13-month period from the investor's first purchase pursuant to the Letter (the "Letter of Intent period"), which may, at the investor's request include purchases made up to 90 days prior to the date of the Letter. . . . This enables the investor to count the shares to be purchased under the Letter of Intent to obtain the reduced sales charge rate (as set forth in the Prospectus) that applies under the Right of Accumulation to current purchases of Class A shares. . . . Each purchase of Class A shares under the Letter will be made at the public offering price (including the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the Letter. 2. Item 5 of the section entitled "Terms of Escrow That Apply to Letters of Intent" on page 39 is replaced in its entirety with the following: 5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of a Letter) include Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales charge, Class B shares, and Class A or B shares acquired in exchange for either (a) Class A shares of one of the other OppenheimerFunds that were acquired subject to a Class A initial or contingent deferred sales charge or (b) Class B shares of one of the other OppenheimerFunds. 3. The listing of OppenheimerFunds that offer Class B shares in the section entitled "How to Exchange Shares" on page 44 is amended by adding the following OppenheimerFunds to that listing: Oppenheimer Equity Income Fund Oppenheimer International Bond Fund Oppenheimer U.S. Government Trust (continued) 4. The paragraph following the listing of OppenheimerFunds that offer Class B shares on page 44 is amended by adding a new third sentence as follows: However, if the Distributor receives, at the time of purchase, notice that shares of Oppenheimer Money Market Fund, Inc. are being purchased with the redemption proceeds of shares of other mutual funds (other than other money market funds) that are not part of the OppenheimerFunds family, those shares of Oppenheimer Money Market Fund, Inc. may be exchanged for shares of other OppenheimerFunds at net asset value without paying a sales charge. July 14, 1995 SAI0245.795 Oppenheimer Strategic Investment Grade Bond Fund 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 Statement of Additional Information dated February 1, 1995 This Statement of Additional Information is not a Prospectus. This document contains additional information about the Fund and supplements information in the Prospectus dated February 1, 1995. It should be read together with the Prospectus, which may be obtained by writing to the Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free number shown above. Contents Page About the Fund 2 Investment Objectives and Policies 2 Investment Policies and Strategies 2 Other Investment Techniques and Strategies 8 Other Investment Restrictions 20 How the Fund is Managed 21 Organization and History 21 Trustees and Officers of the Fund 22 The Manager and Its Affiliates 25 Brokerage Policies of the Fund 26 Performance of the Fund 28 Distribution and Service Plans 32 About Your Account 34 How To Buy Shares 34 How To Sell Shares 40 How To Exchange Shares 44 Dividends, Capital Gains and Taxes 45 Additional Information About the Fund 47 Financial Information About the Fund 48 Independent Auditors' Report 48 Financial Statements 49 Appendix A: Industry Classifications A-1 ABOUT THE FUND Investment Objective and Policies Investment Policies and Strategies. The investment objective and policies of the Fund are described in the Prospectus. Set forth below is supplemental information about those policies and the types of securities in which the Fund invests, as well as the strategies the Fund may use to try to achieve its objective. Capitalized terms used in this Statement of Additional Information have the same meaning as those terms have in the Prospectus. In selecting securities for the Fund's portfolio, the Fund's investment manager, Oppenheimer Management Corporation (the "Manager"), evaluates the investment merits of fixed-income securities primarily through the exercise of its own investment analysis. This may include, among other things, consideration of the financial strength of the issuer, including its historic and current financial condition, the trading activity in its securities, present and anticipated cash flow, estimated current value of assets in relation to historical cost, the issuer's experience and managerial expertise, responsiveness to changes in interest rates and business conditions, debt maturity schedules, current and future borrowing requirements, and any change in the financial condition of the issuer and the issuer's continuing ability to meet its future obligations. The Manager also may consider anticipated changes in business conditions, levels of interest rates of bonds as contrasted with levels of cash dividends, industry and regional prospects, the availability of new investment opportunities and the general economic, legislative and monetary outlook for specific industries, the nation and the world. - Investment Risks of Fixed-Income Securities. All fixed-income securities are subject to two types of risks: credit risk and interest rate risk. Credit risk relates to the ability of the issuer to meet interest or principal payments on a security as they become due. Generally, higher yielding lower-grade bonds are subject to credit risk to a greater extent than lower yielding, investment grade bonds. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting solely from the inverse relationship between price and yield of outstanding fixed-income securities. An increase in prevailing interest rates will generally reduce the market value of already-issued fixed- income investments, and a decline in interest rates will tend to increase their value. In addition, debt securities with longer maturities, which tend to produce higher yields, are subject to potentially greater changes in their prices from changes in interest rates than obligations with shorter maturities. Fluctuations in the market value of fixed-income securities after the Fund buys them will not affect the interest payable on those securities, nor the cash income from such securities. However, those price fluctuations will be reflected in the valuations of these securities and therefore the Fund's net asset values. The Fund may from time to time invest up to 35% of its total assets (the "35% Policy") in non-investment grade securities and other investments as described in the Prospectus, including short-term debt obligations issued by foreign governments or domestic or foreign corporations denominated in U.S. dollars or selected foreign currencies (including, among others, participation interests, commercial paper and bank obligations). Included within this 35% Policy are investment grade securities purchased by the Fund which have been subsequently downgraded. Obligations rated as low as "C" by Moody's or "D" by Standard & Poor's indicate that the obligations are speculative in a high degree and may be in default. Risks of lower rated, high yield securities may include: (i) limited liquidity and secondary market support, (ii) substantial market price volatility resulting from changes in prevailing interest rates, (iii) subordination to the prior claims of banks and other senior lenders, (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates whereby the Fund may be able to reinvest premature redemption proceeds only in lower yielding portfolio securities, (v) the possibility that earnings of the issuer may be insufficient to meet its debt service, and (vi) the issuer's low creditworthiness and potential for insolvency during periods of rising interest rates and economic downturn. As a result of the limited liquidity of high yield securities, at times their prices have experienced significant and rapid declines when a substantial number of holders decided to sell simultaneously. A decline is also likely in the high yield bond market during a general economic downturn. An economic downturn or an increase in interest rates could severely disrupt the market for high yield bonds and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, there have been several Congressional attempts to limit the use of tax and other advantages of high yield bonds which, if enacted, could adversely affect the value of these securities and the Fund's net asset value. For example, federally-insured savings and loan associations have been required to divest their investments in high yield bonds. - - Domestic Fixed-Income Securities. Further information about the Fund's investments in domestic debt obligations is provided below. Preferred Stocks. Dividends on some preferred stock may be "cumulative" requiring all or a portion of prior unpaid dividends to be paid. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. The rights of preferred stocks on distribution of a corporation's assets in the event of a liquidation are generally subordinate to rights associated with a corporation's debt securities. Participation Interests. The Fund may invest in participation interests, subject to its limitation on investments in illiquid securities, set forth in the Prospectus. These participation interests provide the Fund an undivided interest in a loan made by the issuing financial institution in the proportion that the Fund's participation interest bears to the total principal amount of the loan. The issuing financial institution may have no obligation to the Fund other than to pay the Fund the proportionate amount of the principal and interest payments it receives. Participation interests are primarily dependent upon the creditworthiness of the borrower for payment of interest and principal, and such borrowers may have difficulty making payments. In the event the borrower fails to pay scheduled interest or principal payments, the Fund could experience a reduction in its income and might experience a decline in the value of that participation interest and in the net asset value of its shares. In the event of a failure by the financial institution to perform its obligation in connection with the participation agreement, the Fund might incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest. Asset-Backed Securities. The value of asset-backed securities is affected by changes in the market's perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans, or the financial institution providing any credit enhancement, and is also affected if any credit enhancement is exhausted. The risks of investing in asset-backed securities are ultimately dependent upon payment of the underlying consumer loans by the individuals, and the Fund would generally have no recourse to the entity that originated the loans in the event of default by a borrower. The underlying loans are subject to prepayments which shorten the weighted average life of asset-backed securities and may lower their return, in the same manner as described in the Prospectus and in "Mortgage-Backed Securities and CMOs" below for prepayments of a pool of mortgage loans underlying mortgage-backed securities. - U.S. Government Securities. U.S. Government Securities are debt obligations issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities, and include "zero coupon" Treasury securities, mortgage-backed securities and money market instruments. Mortgage-Backed Securities. These securities represent participation interests in pools of residential mortgage loans which may or may not be guaranteed by agencies or instrumentalities of the U.S. Government. Such securities differ from conventional debt securities which generally provide for periodic payment of interest in fixed or determinable amounts (usually semi-annually) with principal payments at maturity or specified call dates. Some of the mortgage-backed securities in which the Fund may invest may be backed by the full faith and credit of the U.S. Treasury (e.g., direct pass-through certificates of the Government National Mortgage Association (the "GNMA")); some are supported by the right of the issuer to borrow from the U.S. Government (e.g., obligations of Federal Home Loan Banks); and some are backed by only the credit of the issuer itself. Any such guarantees do not extend to the value of or yield of the mortgage-backed securities themselves or to the net asset value of the Fund's shares. Any of these government agencies may issue collateralized mortgage-backed obligations ("CMO's"), discussed below. The yield on mortgage-backed securities is based on the average expected life of the underlying pool of mortgage loans. The actual life of any particular pool will be shortened by any unscheduled or early payments of principal and interest. Principal prepayments generally result from the sale of the underlying property or the refinancing or foreclosure of underlying mortgages. The occurrence of prepayments is affected by a wide range of economic, demographic and social factors and, accordingly, it is not possible to predict accurately the average life of a particular pool. Yield on such pools is usually computed by using the historical record of prepayments for that pool, or, in the case of newly- issued mortgages, the prepayment history of similar pools. The actual prepayment experience of a pool of mortgage loans may cause the yield realized by the Fund to differ from the yield calculated on the basis of the expected average life of the pool. Prepayments tend to increase during periods of falling interest rates, while during periods of rising interest rates prepayments will most likely decline. When prevailing interest rates rise, the value of a pass-through security may decrease as do other debt securities, but, when prevailing interest rates decline, the value of a pass-through security is not likely to rise on a comparable basis with other debt securities because of the prepayment feature of pass-through securities. The Fund's reinvestment of scheduled principal payments and unscheduled prepayments it receives may occur at higher or lower rates than the original investment, thus affecting the yield of the Fund. Monthly interest payments received by the Fund have a compounding effect which may increase the yield to the Fund more than debt obligations that pay interest semi-annually. Due to those factors, mortgage-backed securities may be less effective than Treasury bonds of similar maturity at maintaining yields during periods of declining interest rates. Accelerated prepayments adversely affect yields for pass-through securities purchased at a premium (i.e., at a price in excess of principal amount) and may involve additional risk of loss of principal because the premium may not have been fully amortized at the time the obligation is repaid. The opposite is true for pass- through securities purchased at a discount. The Fund may purchase mortgage-backed securities at par, at a premium or at a discount. GNMA Certificates. Certificates of the Government National Mortgage Association ("GNMA Certificates") are mortgage-backed securities which evidence an undivided interest in a pool or pools of mortgages. The GNMA Certificates that the Fund may purchase are of the "modified pass-through" type, which entitle the holder to receive timely payment of all interest and principal payments due on the mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether the mortgagor actually makes the payments. The National Housing Act authorizes GNMA to guarantee the timely payment of principal and interest on securities backed by a pool of mortgages insured by the Federal Housing Administration ("FHA") or guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith and credit of the U.S. Government. GNMA is also empowered to borrow without limitation from the U.S. Treasury if necessary to make any payments required under its guarantee. The average life of a GNMA Certificate is likely to be substantially shorter than the original maturity of the mortgages underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal investment long before the maturity of the mortgages in the pool. Foreclosures impose no risk to principal investment because of the GNMA guarantee, except to the extent that the Fund has purchased the certificates at a premium in the secondary market. FNMA Securities. The Federal National Mortgage Association ("FNMA") was established to create a secondary market in mortgages insured by the FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate represents a pro rata share of all interest and principal payments made and owed on the underlying pool. FNMA guarantees timely payment of interest and principal on FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit of the U.S. Government. FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC") was created to promote development of a nationwide secondary market for conventional residential mortgages. FHLMC issues two types of mortgage pass-through securities ("FHLMC Certificates"): mortgage participation certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata share of all interest and principal payments made and owed on the underlying pool. FHMLC guarantees timely monthly payment of interest on PCs and the ultimate payment of principal. GMCs also represent a pro rata interest in a pool of mortgages. However, these instruments pay interest semi-annually and return principal once a year in guaranteed minimum payments. The expected average life of these securities is approximately ten years. The FHLMC guarantee is not backed by the full faith and credit of the U.S. Government. Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully- collateralized bonds which are the general obligations of the issuer thereof, either the U.S. Government, a U.S. Government instrumentality, or a private issuer. Such bonds generally are secured by an assignment to a trustee (under the indenture pursuant to which the bonds are issued) of collateral consisting of a pool of mortgages. Payments with respect to the underlying mortgages generally are made to the trustee under the indenture. Payments of principal and interest on the underlying mortgages are not passed through to the holders of the CMOs as such (i.e., the character of payments of principal and interest is not passed through, and therefore payments to holders of CMOs attributable to interest paid and principal repaid on the underlying mortgages do not necessarily constitute income and return of capital, respectively, to such holders), but such payments are dedicated to payment of interest on and repayment of principal of the CMOs. CMOs often are issued in two or more classes with different characteristics such as varying maturities and stated rates of interest. Because interest and principal payments on the underlying mortgages are not passed through to holders of CMOs, CMOs of varying maturities may be secured by the same pool of mortgages, the payments on which are used to pay interest on each class and to retire successive maturities in sequence. Unlike other mortgage-backed securities (discussed above), CMOs are designed to be retired as the underlying mortgages are repaid. In the event of prepayment on such mortgages, the class of CMO first to mature generally will be paid down. Therefore, although in most cases the issuer of CMOs will not supply additional collateral in the event of such prepayment, there will be sufficient collateral to secure CMOs that remain outstanding. Mortgage-Backed Security Rolls. The Fund may enter into "forward roll" transactions with respect to mortgage-backed securities issued by GNMA, FNMA or FHLMC. In a forward roll transaction, which is considered to be a borrowing by the Fund, the Fund will sell a mortgage-backed security to a bank or other permitted entity and simultaneously agree to repurchase a similar security from the institution at a later date at an agreed upon price. The mortgage securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories than those sold. Risks of mortgage-backed security rolls include: (i) the risk of prepayment prior to maturity, (ii) the possibility that the Fund may not be entitled to receive interest and principal payments on the securities sold and that the proceeds of the sale may have to be invested in money market instruments (typically repurchase agreements) maturing not later than the expiration of the roll, and (iii) the risk that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to purchase the securities. Upon entering into a mortgage-backed security roll, the Fund will be required to place cash, U.S. Government securities or other high-grade debt securities in a segregated account with its Custodian in an amount equal to its obligation under the roll. - - Foreign Fixed-Income Securities. "Foreign securities" include equity and debt securities of companies organized under the laws of countries other than the United States and debt securities of foreign governments that are traded on foreign securities exchanges or in the foreign over- the-counter markets. Securities of foreign issuers that are represented by American Depository Receipts or that are listed on a U.S. securities exchange or traded in the U.S. over-the-counter markets are not considered "foreign securities" for the purpose of the Fund's investment allocations, because they are not subject to many of the special considerations and risks, discussed below, that apply to foreign securities traded and held abroad. The Fund may invest in U.S. dollar-denominated foreign debt obligations known as "Brady Bonds," which are issued for the exchange of existing commercial bank loans to foreign entities for new obligations that are generally collateralized by zero coupon U.S. Treasury securities having the same maturity. Because the Fund may purchase securities denominated in foreign currencies, a change in the value of such foreign currency against the U.S. dollar will result in a change in the amount of income the Fund has available for distribution. Because a portion of the Fund's investment income may be received in foreign currencies, the Fund will be required to compute its income in U.S. dollars for distribution to shareholders, and therefore the Fund will absorb the cost of currency fluctuations. After the Fund has distributed income, subsequent foreign currency losses may result in the Fund's having distributed more income in a particular fiscal period than was available from investment income, which could result in a return of capital to shareholders. Investing in foreign securities offers potential benefits not available from investing solely in securities of domestic issuers, including the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking advantage of foreign stock markets that do not move in a manner parallel to U.S. markets. If the Fund's portfolio securities are held abroad, the countries in which they may be held and the sub-custodians holding them must be approved by the Fund's Board of Trustees under applicable rules of the Securities and Exchange Commission. - Risks of Foreign Investing. Investments in foreign securities present special additional risks and considerations not typically associated with investments in domestic securities: reduction of income by foreign taxes; fluctuation in value of foreign portfolio investments due to changes in currency rates and control regulations (e.g., currency blockage); transaction charges for currency exchange; lack of public information about foreign issuers; lack of uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers; less volume on foreign exchanges than on U.S. exchanges; greater volatility and less liquidity on foreign markets than in the U.S.; less regulation of foreign issuers, stock exchanges and brokers than in the U.S.; greater difficulties in commencing lawsuits; higher brokerage commission rates than in the U.S.; increased risks of delays in settlement of portfolio transactions or loss of certificates for portfolio securities; possibilities in some countries of expropriation, confiscatory taxation, political, financial or social instability or adverse diplomatic developments; and unfavorable differences between the U.S. economy and foreign economies. In the past, U.S. Government policies have discouraged certain investments abroad by U.S. investors, through taxation or other restrictions, and it is possible that such restrictions could be re-imposed. - - Money Market Securities. The money market securities in which the Fund may invest include: (a) Bank Obligations and Instruments Secured Thereby. Time deposits, certificates of deposit and bankers' acceptances if they are: (i) obligations of a domestic bank with total assets of at least $1 billion or (ii) U.S. dollar-denominated obligations of a foreign bank with total assets of at least U.S. $1 billion. The Fund may also invest in instruments secured by such bank obligations (e.g., debt which is guaranteed by the bank). For purposes of this section, the term "bank" includes commercial banks, savings banks, and savings and loan associations which may or may not be members of the Federal Deposit Insurance Corporation. Time Deposits. Time deposits are non-negotiable deposits in a bank for a specified period of time at a stated interest rate, whether or not subject to withdrawal penalties. However, such deposits which are subject to withdrawal penalties, other than those maturing in seven days or less, are subject to the limitation on the Fund's investment in illiquid investments set forth in the Prospectus under "Illiquid and Restricted Securities." Bankers Acceptances. Banker's acceptances are marketable short-term credit instruments used to finance the import, export, transfer or storage of goods. They are deemed "accepted" when a bank guarantees their payment at maturity. (b) Commercial Paper. The Fund's commercial paper investments include: Variable Amount Master Demand Notes. Master demand notes are corporate obligations which permit the investment of fluctuating amounts by the Fund at varying rates of interest pursuant to direct arrangements between the Fund, as lender, and the borrower. They permit daily changes in the amounts borrowed. The Fund has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount, and the borrower may prepay up to the full amount of the note without penalty. These notes may or may not be backed by bank letters of credit. Because these notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that they will be traded. There is no secondary market for these notes, although they are redeemable (and thus immediately repayable by the borrower) at principal amount, plus accrued interest, at any time. Accordingly, the Fund's right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. The Fund has no limitations on the type of issuer from whom these notes will be purchased; however, in connection with such purchase and on an ongoing basis, the Manager will consider the earning power, cash flow and other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes made demand simultaneously. Investments in master demand notes are subject to the limitation on the Fund's investment illiquid securities, described in the Prospectus. Floating Rate/Variable Rate Notes. Some of the notes the Fund may purchase may have variable or floating interest rates. Variable rates are adjustable at stated periodic intervals; floating rates are automatically adjusted according to a specified market rate for such investments, such as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury bill rate. Such obligations may be secured by bank letters of credit or other credit support arrangements. Other Investment Techniques and Strategies. - Borrowing for Leverage. From time to time, the Fund may increase its ownership of securities by borrowing from banks on a unsecured basis and investing the borrowed funds, subject to the restrictions stated in the Prospectus. Any such borrowing will be made only from banks and, pursuant to the requirements of the Investment Company Act of 1940 (the "Investment Company Act"), will be made only to the extent that the value of the Fund's assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing and amounts covering the Fund's obligations under "forward roll" transactions. If the value of the Fund's assets, when computed in that manner, should fail to meet the 300% asset coverage requirement, the Fund is required within three days to reduce its bank debt to the extent necessary to meet such requirement. To do so, the Fund may have to sell a portion of its investments at a time when independent investment judgment would not dictate such sale. Interest on money borrowed is an expense the Fund would not otherwise incur, so that during a period of substantial borrowing, its expenses may increase more than funds that do not borrow. - Repurchase Agreements. The Fund may acquire securities subject to repurchase agreements for liquidity purposes to meet anticipated redemptions, or pending the investment of the proceeds from sales of Fund shares, or pending the settlement of purchases of portfolio securities. In a repurchase transaction, the Fund acquires a security from, and simultaneously resells it to, an approved vendor. An "approved vendor" is a U.S. commercial bank or the U.S. branch of a foreign bank or a broker-dealer that has been designated a primary dealer in government securities, that must meet credit requirements set by the Fund's Board of Trustees from time to time. The resale price exceeds the purchase price by an amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement is in effect. The majority of these transactions run from day to day, and delivery pursuant to the resale typically will occur within one to five days of the purchase. Repurchase agreements are considered "loans" under the Investment Company Act, collateralized by the underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement is in effect, the value of the collateral must equal or exceed the repurchase price to fully collateralize the repayment obligation. Additionally, the Manager will impose creditworthiness requirements to confirm that the vendor is financially sound and will continuously monitor the collateral's value. - Loans of Portfolio Securities. The Fund may lend its portfolio securities subject to the restrictions stated in the Prospectus. Under applicable regulatory requirements (which are subject to change), the loan collateral on each business day must at least equal the market value of the loaned securities and must consist of cash, bank letters of credit, U.S. Government securities, or other cash equivalents in which the Fund is permitted to invest. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Fund. When it lends securities, the Fund receives amounts equal to the interest paid or the dividends declared on the loaned securities and also receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on short-term debt securities purchased with such loan collateral. Either type of interest may be shared with the borrower. The Fund may also pay reasonable finder's, custodian, and administrative fees. The terms of the Fund's loans must meet applicable tests un the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or on time to vote on any important matter. - Restricted and Illiquid Securities. To enable the Fund to sell restricted securities not registered under the Securities Act of 1933, the Fund may have to cause those securities to be registered. The expenses of registration of restricted securities may be negotiated by the Fund with the issuer at the time such securities are purchased by the Fund, if such registration is required before such securities may be sold publicly. When registration must be arranged because the Fund wishes to sell the security, a considerable period may elapse between the time the decision is made to sell the securities and the time the Fund would be permitted to sell them. The Fund would bear the risks of any downward price fluctuation during that period. The Fund may also acquire, through private placements, securities having contractual restrictions on their resale, which might limit the Fund's ability to dispose of such securities and might lower the amount realizable upon the sale of such securities. The Fund has percentage limitations that apply to purchases of restricted securities, as stated in the Prospectus. Those percentage restrictions do not limit purchases of restricted securities that are eligible for sale to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933, provided that those securities have been determined to be liquid by the Board of Trustees of the Fund or by the Manager under Board-approved guidelines. Those guidelines take into account the trading activity for such securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, the Fund's holding of that security may be deemed to be illiquid. - When-Issued and Delayed Delivery Transactions. The Fund may purchase securities on a "when-issued" basis, and may purchase or sell such securities on a "delayed delivery" basis. Although the Fund will enter into such transactions for the purpose of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement. "When- issued" or "delayed delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. The Fund does not intend to make such purchases for speculative purposes. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security and involve a risk of loss if the value of the security declines prior to the settlement date. During the period between commitment by the Fund and settlement (generally within two months but not to exceed 120 days), no payment is made for the securities purchased by the purchaser, and no interest accrues to the purchaser from the transaction. Such securities are subject to market fluctuation; the value at delivery may be less than the purchase price. The Fund will maintain a segregated account with its Custodian, consisting of cash, U.S. Government securities or other high grade debt obligations at least equal to the value of purchase commitments until payment is made. The Fund will engage in when-issued transactions in order to secure what is considered to be an advantageous price and yield at the time of entering into the obligation. When the Fund engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to consummate the transaction. Failure of the buyer or seller to do so may result in the Fund losing the opportunity to obtain a price and yield considered to be advantageous. At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased, or if a sale, the proceeds to be received, in determining its net asset value. If the Fund chooses to (i) dispose of the right to acquire a when-issued security prior to its acquisition or (ii) dispose of its right to deliver or receive against a forward commitment, it may incur a gain or loss. To the extent the Fund engages in when-issued and delayed delivery transactions, it will do so for the purpose of acquiring or selling securities consistent with its investment objective and policies and not for the purposes of investment leverage. The Fund enters into such transactions only with the intention of actually receiving or delivering the securities, although (as noted above), when-issued securities and forward commitments may be sold prior to settlement date. In addition, changes in interest rates before settlement in a direction other than that expected by the Manager will affect the value of such securities and may cause a loss to the Fund. When-issued transactions and forward commitments allow the Fund a technique to use against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods of falling interest rates and rising prices, the Fund might sell portfolio securities and purchase the same or similar securities on a when-issued or forward commitment basis, thereby obtaining the benefit of currently higher cash yields. - Hedging. The Fund may use hedging instruments for the purposes described in the Prospectus. When hedging to attempt to protect against declines in the market value of the Fund's portfolio, or to permit the Fund to retain unrealized gains in the value of portfolio securities which have appreciated, or to facilitate selling securities for investment reasons, the Fund may: (i) sell Futures, (ii) buy puts on such Futures, securities, or securities indices or (iii) write covered calls on securities held by it or on Futures. When hedging to protect against declines in the dollar value of a foreign currency - dominated security, the Fund may: (i) buy puts on that foreign currency, (ii) write calls on that currency or (iii) enter into Forward Contract at a higher or lower rate that the spot ("cash") rate. The Fund's strategy of hedging with Futures and options on Futures will be incidental to the Fund's investment activities in the underlying cash market. In the future, the Fund may employ hedging instruments and strategies that are not presently contemplated but which may be developed, to the extent such investment methods are consistent with the Fund's investment objective, and are legally permissible and disclosed in the Prospectus. Additional information about the hedging instruments the Fund may use is provided below. - Writing and Purchasing Calls and Puts. As described in the Prospectus, the Fund may write covered calls. When the Fund writes a call on an investment, it receives a premium and agrees to sell the callable investment to a purchaser of a corresponding call during the call period (usually not more than 9 months) at a fixed exercise price (which may differ from the market price of the underlying investment) regardless of market price changes during the call period. To terminate its obligation on a call it has written, the Fund may purchase a corresponding call in a "closing purchase transaction." A profit or loss will be realized, depending upon whether the net of the amount of option transaction costs and the premium received on the call the Fund has written is more or less than the price of the call the Fund subsequently purchased. A profit may also be realized if the call lapses unexercised, because the Fund retains the underlying investment and the premium received. Those profits are considered short-term capital gains for Federal income tax purposes, as are premiums on lapsed calls, and when distributed by the Fund are taxable as ordinary income. Call writing affects the Fund's turnover rate and the brokerage commissions it pays. Commissions, normally higher than on general securities transactions, are payable on writing or purchasing a call. The Fund may also write calls on Futures without owning a futures contract or deliverable securities, provided that at the time the call is written, the Fund covers the call by segregating in escrow an equivalent dollar value of deliverable securities or liquid assets. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below 100% of the current value of the Future. In no circumstances would an exercise notice requires the Fund to deliver a futures contract; it would simply put the Fund in a short futures position, which is permitted by the Fund's hedging policies. The Fund may purchase calls to protect against the possibility that the Fund's portfolio will not participate in an anticipated rise in the securities market. When the Fund purchases a call, it pays a premium (other than in a closing purchase transaction) and, except as to calls on indices, has the right to buy the underlying investment from a seller of a corresponding call on the same investment during the call period at a fixed exercise price. In purchasing a call, the Fund benefits only if the call is sold at a profit or if, during the call period, the market price of the underlying investment is above the sum of the call price, transaction costs, and the premium paid, and the call is exercised. If the call is not exercised or sold (whether or not at a profit), it will become worthless at its expiration date and the Fund will lose its premium payment and the right to purchase the underlying investment. When the Fund purchases a call on an index, it pays a premium, but settlement is in cash rather than by delivery of the underlying investment to the Fund. When the Fund purchases a put, it pays a premium and, except as to puts on stock indices, has the right to sell the underlying investment to a seller of a corresponding put on the same investment during the put period at a fixed exercise price. Buying a put on an investment the Fund owns (a "protective put") enables the Fund to attempt to protect itself during the put period against a decline in the value of the underlying investment below the exercise price by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market price of the underlying investment is equal to or above the exercise price and as a result the put is not exercised or resold, the put will become worthless at its expiration and the Fund will lose the premium payment and the right to sell the underlying investment. However, the put may be sold prior to expiration (whether or not at a profit). Buying a put on an investment it does not own, either a put on an index or a put on a Future not held by the Fund, permits the Fund either to resell the put or buy the underlying investment and sell it at the exercise price. The resale price of the put will vary inversely with the price of the underlying investment. If the market price of the underlying investment is above the exercise price, and as a result the put is not exercised, the put will become worthless on the expiration date. When the Fund purchases a put on an index, or on a Future not held by it, the put protects the Fund to the extent that the index moves in a similar pattern to the securities held. In the case of a put on an index or Future, settlement is in cash rather than by delivery by the Fund of the underlying investment. The Fund's option activities may affect its portfolio turnover rate and brokerage commissions. The exercise of calls written by the Fund may cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in the absence of the put. The Fund will pay a brokerage commission each time it buys or sells a call, put or an underlying investment in connection with the exercise of a put or call. Those commissions may be higher than the commissions for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the market value of the underlying investments and, consequently, put and call options offer large amounts of leverage. The leverage offered by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investments. A put option on securities gives the purchaser the right to sell, and the writer the obligation to buy, the underlying investment at the exercise price during the option period. Writing a put covered by segregated liquid assets equal to the exercise price of the put has the same economic effect to the Fund as writing a covered call. The premium the Fund receives from writing a put option represents a profit, as long as the price of the underlying investment remains above the exercise price. However, the Fund has also assumed the obligation during the option period to buy the underlying investment from the buyer of the put at the exercise price, even though the value of the investment may fall below the exercise price. If the put expires unexercised, the Fund (as the writer of the put) realizes a gain in the amount of the premium less transaction costs. If the put is exercised, the Fund must fulfill its obligation to purchase the underlying investment at the exercise price, which will usually exceed the market value of the investment at that time. In that case, the Fund may incur a loss, equal to the sum of the sale price of the underlying investment and the premium received minus the sum of the exercise price and any transaction costs incurred. When writing put options on securities or on foreign currencies, to secure its obligation to pay for the underlying security, the Fund will deposit in escrow liquid assets with a value equal to or greater than the exercise price of the underlying securities. The Fund therefore forgoes the opportunity of investing the segregated assets or writing calls against those assets. As long as the obligation of the Fund as the put writer continues, it may be assigned an exercise notice by the broker- dealer through whom such option was sold, requiring the Fund to take delivery of the underlying security against payment of the exercise price. The Fund has no control over when it may be required to purchase the underlying security, since it may be assigned an exercise notice at any time prior to the termination of its obligation as the writer of the put. This obligation terminates upon expiration of the put, or such earlier time at which the Fund effects a closing purchase transaction by purchasing a put of the same series as that previously sold. Once the Fund has been assigned an exercise notice, it is thereafter not allowed to effect a closing purchase transaction. The Fund may effect a closing purchase transaction to realize a profit on an outstanding put option it has written or to prevent an underlying security from being put. Furthermore, effecting such a closing purchase transaction will permit the Fund to write another put option to the extent that the exercise price thereof is secured by the deposited assets, or to utilize the proceeds from the sale of such assets for other investments by the Fund. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from writing the option. As stated above for writing covered calls, any and all such profits described herein from writing puts are considered short-term gains for Federal tax purposes, and when distributed by the Fund, are taxable as ordinary income. - Financial Futures and Interest Rate Futures. The Fund may buy and sell futures contracts relating to a securities index ("Financial Futures"). Financial futures are contracts based on the future value of the basket of securities that comprise the underlying index. The contracts obligate the seller to deliver, and the purchaser to take, cash to settle the futures transaction or to enter into an offsetting contract. No physical delivery of the securities underlying the index is made on settling the futures obligation. No monetary amount is paid or received by the Fund on the purchase or sale of a Financial Future. The Fund may also buy Futures relating to debt securities ("Interest Rate Futures"). An Interest Rate Future obligates the seller to deliver and the purchaser to take a specific type of debt security at a specific future date for a fixed price to settle the futures transaction, or to enter into an offsetting contract. As with Financial Futures, no monetary amount is paid or received by the Fund on the purchase of an Interest Rate Future. Upon entering into a Futures transaction, the Fund will be required to deposit an initial margin payment, in cash or U.S. Treasury bills, with the futures commission merchant (the "futures broker"). Initial margin payments will be deposited with the Fund's Custodian in an account registered in the futures broker's name; however, the futures broker can gain access to that account only under certain specified conditions. As the Future is marked to market (that is, its value on the Fund's books is changed) to reflect changes in its market value, subsequent margin payments, called variation margin, will be paid to or by the futures broker on a daily basis. At any time prior to the expiration of the Future, the Fund may elect to close out its position by taking an opposite position, at which time a final determination of variation margin is made and additional cash is required to be paid by or released to the Fund. Any gain or loss is then realized by the Fund on the Future for tax purposes. Although Financial Futures by their terms call for settlement by the delivery of cash, and Interest Rate Futures call for the delivery of a specific debt security, in most cases the settlement obligation is fulfilled without such delivery by entering into an offsetting transaction. All Futures transactions are effected through a clearing house associated with the exchange on which the contracts are traded. - Options on Foreign Currency. The Fund intends to write and purchase calls on foreign currencies. The Fund may purchase and write puts and calls on foreign currencies that are traded on a securities or commodities exchange or over-the-counter markets or are quoted by major recognized dealers in such options. It does so to protect against declines in the dollar value of foreign securities and against increases in the dollar cost of foreign securities to be acquired. If the Manager anticipates a rise in the dollar value of a foreign currency in which securities to be acquired are denominated, the increased cost of such securities may be partially offset by purchasing calls or writing puts on that foreign currency. If a decline in the dollar value of a foreign currency is anticipated, the decline in value of portfolio securities denominated in that currency may be partially offset by writing calls or purchasing puts on that foreign currency. However, in the event of currency rate fluctuations adverse to the Fund's position, it would lose the premium it paid and transactions costs. A call written on a foreign currency by the Fund is covered if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call may be written by the Fund on a foreign currency to provide a hedge against a decline due to an expected adverse change in the exchange rate in the U.S. dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option. This is a cross-hedging strategy. In such circumstances, the Fund collateralizes the option by maintaining in a segregated account with the Fund's custodian, cash or U.S. Government Securities in an amount not less than the value of the underlying foreign currency in U.S. dollars marked-to- market daily. - Forward Contracts. The Fund may enter into foreign currency exchange contracts ("Forward Contracts"), which obligate the seller to deliver and the purchaser to take a specific amount of foreign currency at a specific future date for a fixed price. A Forward Contract involves bilateral obligations of one party to purchase, and another party to sell, a specific currency at a future date (which may be any fixed number of days from the date of the contract agreed upon by the parties), at a price set at the time the contract is entered into. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The Fund may enter into a Forward Contract in order to "lock in" the U.S. dollar price of a security denominated in a foreign currency which it has purchased or sold but which has not yet settled, or to protect against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and a foreign currency. There is a risk that use of Forward Contracts may reduce the gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. To attempt to limit its exposure to loss under Forward Contracts in a particular foreign currency, the Fund limits its use of these contracts to the amount of its assets denominated in that currency or denominated in a closely-correlated foreign currency. Forward contracts include standardized foreign currency futures contracts which are traded on exchanges and are subject to procedures and regulations applicable to other Futures. The Fund may also enter into a forward contract to sell a foreign currency denominated in a currency other than that in which the underlying security is denominated. This is done in the expectation that there is a greater correlation between the foreign currency of the forward contract and the foreign currency of the underlying investment than between the U.S. dollar and the foreign currency of the underlying investment. This technique is referred to as "cross hedging." The success of cross hedging is dependent on many factors, including the ability of the Manager to correctly identify and monitor the correlation between foreign currencies and the U.S. dollar. To the extent that the correlation is not identical, the Fund may experience losses or gains on both the underlying security and the cross currency hedge. The Fund may use Forward Contracts to protect against uncertainty in the level of future exchange rates. The use of Forward Contracts does not eliminate fluctuations in the prices of the underlying securities the Fund owns or intends to acquire, but it does fix a rate of exchange in advance. In addition, although Forward Contracts limit the risk of loss due to a decline in the value of the hedged currencies, at the same time they limit any potential gain that might result should the value of the currencies increase. There is no limitation as to the percentage of the Fund's assets that may be committed to foreign currency exchange contracts. The Fund does not enter into such forward contracts or maintain a net exposure in such contracts to the extent that the Fund would be obligated to deliver an amount of foreign currency in excess of the value of the Fund's assets denominated in that currency, or enter into a "cross hedge," unless it is denominated in a currency or currencies that the Manager believes will have price movements that tend to correlate closely with the currency in which the investment being hedged is denominated. See "Tax Aspects of Covered Calls and Hedging Instruments" below for a discussion of the tax treatment of foreign currency exchange contracts. The Fund may enter into Forward Contracts with respect to specific transactions. For example, when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates receipt of dividend payments in a foreign currency, the Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of such payment by entering into a Forward Contract, for a fixed amount of U.S. dollars per unit of foreign currency, for the purchase or sale of the amount of foreign currency involved in the underlying transaction ("transaction hedge"). The Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received. The Fund may also use Forward Contracts to lock in the U.S. dollar value of portfolio positions ("position hedge"). In a position hedge, for example, when the Fund believes that foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency, or when the Fund believes that the U.S. dollar may suffer a substantial decline against a foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount. In this situation the Fund may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount where the Fund believes that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated ("cross hedge"). The Fund's Custodian will place cash or U.S. Government securities or other liquid high-quality debt securities in a separate account of the Fund having a value equal to the aggregate amount of the Fund's commitments under forward contracts to cover its short positions. The Fund will not enter into such Forward Contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio securities or other assets denominated in that currency. The Fund, however, in order to avoid excess transactions and transaction costs, may maintain a net exposure to Forward Contracts in excess of the value of the Fund's portfolio securities or other assets denominated in that currency provided the excess amount is "covered" by liquid, high-grade debt securities, denominated in any currency, at least equal at all times to the amount of such excess. As an alternative to maintaining all or part of the separate account, the Fund may purchase a call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price, or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The precise matching of the Forward Contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of these securities between the date the Forward Contract is entered into and the date it is sold. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot (i.e., cash) market (and bear the expense of such purchase), if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short- term hedging strategy is highly uncertain. Forward Contracts involve the risk that anticipated currency movements will not be accurately predicted, causing the Fund to sustain losses on these contracts and transactions costs. At or before the maturity of a Forward Contract requiring the Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund may close out a Forward Contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an offsetting Forward Contract under either circumstance to the extent the exchange rate or rates between the currencies involved moved between the execution dates of the first contract and offsetting contract. The cost to the Fund of engaging in Forward Contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because Forward Contracts are usually entered into on a principal basis, no fees or commissions are involved. Because such contracts are not traded on an exchange, the Fund must evaluate the credit and performance risk of each particular counterparty under a Forward Contract. Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from time to time, and investors should be aware of the costs of currency conversion. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference between the prices at which they buy and sell various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. - Interest Rate Swap Transactions. Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates in the future, the payments made by the Fund under a swap agreement will have been greater than those received by it. Credit risk arises from the possibility that the counterparty will default. If the counterparty to an interest rate swap defaults, the Fund's loss will consist of the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis. The Fund will enter into swap transactions with appropriate counterparties pursuant to master netting agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty under the master agreement shall be regarded as parts of an integral agreement. If on any date amounts are payable in the same currency in respect of one or more swap transactions, the net amount payable on that date in that currency shall be paid. In addition, the master netting agreement may provide that if one party defaults generally or on one swap, the counterparty may terminate the swaps with that party. Under such agreements, if there is a default resulting in a loss to one part, the measure of that part's damages is calculated by reference to the average cost of a replacement swap with respect to each swap (i.e., the mark-to-market value at the time of the termination of each swap). The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps and the netting of gains and losses on termination is generally referred to as "aggregation." The Fund will not invest more than 25% of its assets in interest rate swap transactions. An option position may be closed out only on a market that provides secondary trading for option of the same series, and there is no assurance that a liquid secondary market will exist for a particular option. If the Fund could not effect a closing purchase transaction due to the lack of a market, it would have to hold the callable investment until the call lapsed or was exercised. - Additional Information About Hedging Instruments and Their Use. The Fund's Custodian, or a securities depository acting for the Custodian, will act as the Fund's escrow agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund has written options that are traded on exchanges, or as to other acceptable escrow securities, so that no margin will be required from the Fund for such option transactions. OCC will release the securities covering a call on the expiration of the call or when the Fund enters into a closing purchase transaction. An option position may be closed out only on a market that provides secondary trading for option of the same series, and there is no assurance that a liquid secondary market will exist for a particular option. If the Fund could not effect a closing purchase transaction due to the lack of a market, it would have to hold the callable investment until the call lapsed or was exercised. When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. Government securities dealer, which would establish a formula price at which the Fund would have the absolute right to repurchase that OTC option. That formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option is exercisable below the market price of the underlying security (that is, the extent to which the option is "in-the-money"). When the Fund writes an OTC option, it will treat as illiquid (for purposes of the limit on its assets that may be invested in illiquid securities, stated in the Prospectus) the mark-to-market value of any OTC option held by it. The Fund will also treat as illiquid any OTC option held by it. The SEC is evaluating whether OTC options should be considered liquid securities, and the procedure described above could be affected by the outcome of that evaluation. - Regulatory Aspects of Hedging Instruments. The Fund is required to operate within certain guidelines and restrictions with respect to its use of futures and options thereon as established by the Commodities Futures Trading Commission ("CFTC"). In particular, the Fund is excluded from registration as a "commodity pool operator" if it complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the percentage of the Fund's assets that may be used for Futures margin and related option premiums for a bona fide hedging position. However, under the Rule the Fund must limit its aggregate initial futures margin and related option premiums to no more than 5% of the Fund's net assets for hedging strategies that are not considered bona fide hedging strategies under the Rule. Transactions in options by the Fund are subject to limitations established by option exchanges governing the maximum number of options that may be written or held by a single investor or group of investors acting in concert, regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more accounts or through one or more different exchanges or through one or more brokers. Thus the number of options which the Fund may write or hold may be affected by options written or held by other entities, including other investment companies having the same adviser as the Fund (or an adviser that is an affiliate of the Fund's adviser). The exchanges also impose position limits on Futures transactions. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain other sanctions. Due to requirements under the Investment Company Act, when the Fund purchases a Future, the Fund will maintain, in a segregated account or accounts with its Custodian, cash or readily-marketable, short-term (maturing in one year or less) debt instruments in an amount equal to the market value of the securities underlying such Future, less the margin deposit applicable to it. - Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code (although it reserves the right not to qualify). That qualification enables the Fund to "pass through" its income and realized capital gains to shareholders without having to pay tax on them. This avoids a "double tax" on that income and capital gains, since shareholders normally will be taxed on the dividends and capital gains they receive from the Fund (unless the Fund's shares are held in a retirement account or the shareholder is otherwise exempt from tax). One of the tests for the Fund's qualification as a regulated investment company is that less than 30% of its gross income must be derived from gains realized on the sale of securities held for less than three months. To comply with this 30% cap, the Fund will limit the extent to which it engages in the following activities, but will not be precluded from them: (i) selling investments, including Futures, held for less than three months, whether or not they were purchased on the exercise of a call held by the Fund; (ii) purchasing calls or puts which expire in less than three months; (iii) effecting closing transactions with respect to calls or puts written or purchased less than three months previously; (iv) exercising puts or calls held by the Fund for less than three months; or (v) writing calls on investments held less than three months. Certain foreign currency exchange contracts (Forward Contracts) in which the Fund may invest are treated as "section 1256 contracts." Gains or losses relating to section 1256 contracts generally are characterized under the Internal Revenue Code as 60% long-term and 40% short-term capital gains or losses. However, foreign currency gains or losses arising from certain section 1256 contracts (including Forward Contracts) generally are treated as ordinary income or loss. In addition, section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized. These contracts also may be marked- to-market for purposes of the excise tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue Code. An election can be made by the Fund to exempt these transactions from this marked-to-market treatment. Certain Forward Contracts entered into by the Fund may result in "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund on straddle positions. Generally, a loss sustained on the disposition of a position(s) making up a straddle is allowed only to the extent such loss exceeds any unrecognized gain in the offsetting positions making up the straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in the offsetting positions making up the straddle, or the offsetting position is disposed of. Under the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of foreign currency forward contracts, gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as an ordinary gain or loss. Currency gains and losses are offset against market gains and losses before determining a net "section 988" gain or loss under the Internal Revenue Code, which may increase or decrease the amount of the Fund's investment company income available for distribution to its shareholders. - Risks of Hedging With Options and Futures. An option position may be closed out only on a market that provides secondary trading for options of the same series, and there is no assurance that a liquid secondary market will exist for any particular option. In addition to the risks associated with hedging that are discussed in the Prospectus and above, there is a risk in using short hedging by selling Futures to attempt to protect against declines in the value of the Fund's portfolio securities (due to an increase in interest rates). The risk is that the prices of such Futures will correlate imperfectly with the behavior of the cash (i.e., market value) prices of the Fund's securities. The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to differences in the natures of those markets. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close out futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures markets depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures markets could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures markets are less onerous than margin requirements in the securities markets. Therefore, increased participation by speculators in the futures markets may cause temporary price distortions. The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the securities included in the applicable index. To compensate for the imperfect correlation of movements in the price of the portfolio securities being hedged and movements in the price of the hedging instruments, the Fund may use hedging instruments in a greater dollar amount than the dollar amount of portfolio securities being hedged if the historical volatility of the prices of the portfolio securities being hedged is more than the historical volatility of the applicable index. It is also possible that if the Fund has used hedging instruments in a short hedge, the market may advance and the value of equity securities held in the Fund's portfolio may decline. If that occurred, the Fund would lose money on the hedging instruments and also experience a decline in value in its portfolio securities. However, while this could occur for a very brief period or to a very small degree, over time the value of a diversified portfolio of equity securities will tend to move in the same direction as the indices upon which the hedging instruments are based. If the Fund uses hedging instruments to establish a position in the equities markets as a temporary substitute for the purchase of individual equity securities (long hedging) by buying Futures and/or calls on such Futures or on debt securities, it is possible that the market may decline. If the Fund then concludes not to invest in such securities at that time because of concerns as to a possible further market decline or for other reasons, the Fund will realize a loss on the hedging instruments that is not offset by a reduction in the price of the debt securities purchased. Other Investment Restrictions The Fund's significant investment restrictions are set forth in the Prospectus. There are additional investment restrictions that the Fund must follow that are also fundamental policies. Fundamental policies and the Fund's investment objective cannot be changed without the vote of a "majority" of the Fund's outstanding shares. Under the Investment Company Act, such a "majority" vote is defined as the vote of the holders of the lesser of: (i) 67% or more of the shares present or represented by proxy at a shareholders meeting, if the holders of more than 50% of the outstanding shares are present, or (ii) more than 50% of the outstanding shares. Under these additional restrictions, the Fund cannot: (1) buy or sell real estate, or commodities or commodity contracts including futures contracts; however, the Fund may invest in debt securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which invest in real estate or interests therein, and the Fund may buy and sell any of the Hedging Instruments which it may use as approved by the Board, whether or not such Hedging Instrument is considered to be a commodity or commodity contract; (2) buy securities on margin, except that the Fund may make margin deposits in connection with any of the Hedging Instruments which it may use; (3) underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter for purposes of the Securities Act of 1933; (4) buy and retain securities of any issuer if those officers, Trustees or Directors of the Fund or the Manager who beneficially own more than .5% of the securities of such issuer together own more than 5% of the securities of such issuer; (5) invest in oil, gas, or other mineral exploration or development programs; or (6) buy the securities of any company for the purpose of exercising management control, except in connection with a merger, consolidation, reorganization or acquisition of assets. In connection with the qualification of its shares in certain states, the Fund has undertaken that in addition to the above, it will not: (1) invest in real estate limited partnerships or (2) invest more than 10% of its total assets in other investment companies as defined in the Investment Company Act, except in connection with a merger, consolidation, reorganization or acquisition of assets. In the event that the Fund's shares cease to be qualified under such laws or if such undertaking(s) otherwise cease to be operative, the Fund would not be subject to such restrictions. For purposes of the Fund's policy not to concentrate described under investment restriction number 2 of the Prospectus, the Fund has adopted the industry classifications set forth in Appendix A to this Statement of Additional Information. How the Fund Is Managed Organization and History. As a Massachusetts business trust, the Fund is not required to hold, and does not plan to hold, regular annual meetings of shareholders. The Fund will hold meetings when required to do so by the Investment Company Act or other applicable law, or when a shareholder meeting is called by the Trustees or upon proper request of the shareholders. Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of the record holders of 10% of its outstanding shares. In addition, if the Trustees receive a request from at least 10 shareholders (who have been shareholders for at least six months) holding shares of the Fund valued at $25,000 or more or holding at least 1% of the Fund's outstanding shares, whichever is less, stating that they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the Fund's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense, or the Trustees may take such other action as set forth under Section 16(c) of the Investment Company Act. The Fund's Declaration of Trust contains an express disclaimer of shareholder or Trustee liability for the Fund's obligations, and provides for indemnification and reimbursement of expenses out of its property for any shareholder held personally liable for its obligations. The Declaration of Trust also provides that the Fund shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Fund and satisfy any judgment thereon. Thus, while Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable as a "partner" under certain circumstances, the risk of a Fund shareholder incurring financial loss on account of shareholder liability is limited to the relatively remote circumstances in which the Fund would be unable to meet its obligations described above. Any person doing business with the Trust, and any shareholder of the Trust, agrees under the Trust's Declaration of Trust to look solely to the assets of the Trust for satisfaction of any claim or demand which may arise out of any dealings with the Trust, and the Trustees shall have no personal liability to any such person, to the extent permitted by law. Trustees And Officers of the Fund. The Fund's Trustees and officers and their principal occupations and business affiliations during the past five years are listed below. All of the Trustees are also trustees, directors or managing general partners of Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer Integrity Funds, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Bond Fund, Oppenheimer Limited-Term Government Fund, The New York Tax-Exempt Income Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Funds Trust, Oppenheimer Strategic Income & Growth Fund, Oppenheimer Strategic Short-Term Income Fund and Oppenheimer Variable Account Funds; as well as the following "Centennial Funds": Daily Cash Accumulation Fund, Inc., Centennial America Fund, L.P., Centennial Money Market Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial Tax Exempt Trust and Centennial California Tax Exempt Trust, (all of the foregoing funds are collectively referred to as the "Denver-based OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is Chairman of the Denver-based OppenheimerFunds. As of January 18, 1995, the Trustees and officers of the Fund as a group owned of record or beneficially less than 1% of each class of shares of the Fund. The foregoing does not include shares held of record by an employee benefit plan for employees of the Manager (for which plan two of the officers listed above, Messrs. Fossel and Donohue, are trustees) other than the shares beneficially owned under that plan by the officers of the Fund. Robert G. Avis, Trustee; Age 63. * One North Jefferson Ave., St. Louis, Missouri 63103 Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G. Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset Management and A.G. Edwards Trust Company (its affiliated investment adviser and trust company, respectively). William A. Baker, Trustee; Age 80. 197 Desert Lakes Drive, Palm Springs, California 92264 Management Consultant. __________________ *A Trustee who is an "interested person" of the Fund as defined in the Investment Company Act. Charles Conrad, Jr., Trustee; Age 64. 19411 Merion Circle, Huntington Beach, California 92648 Vice President of McDonnell Douglas Space Systems Co.; formerly associated with the National Aeronautics and Space Administration. Jon S. Fossel, President and Trustee Age 52.* Two World Trade Center, New York, New York 10048-0203 Chairman, Chief Executive Officer and a director of the Manager; President and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company; President and a director of HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of the Manager; a director of Shareholder Services, Inc. ("SSI") and Shareholder Financial Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly President of the Manager. Raymond J. Kalinowski, Trustee; Age 65. 44 Portland Drive, St. Louis, Missouri 63131 Director of Wave Technologies International, Inc.; formerly Vice Chairman and a director of A.G. Edwards, Inc., parent holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice President. C. Howard Kast, Trustee; Age 73. 2552 East Alameda, Denver, Colorado 80209 Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting firm). Robert M. Kirchner, Trustee; Age 73. 7500 E. Arapahoe Road, Englewood, Colorado 80112 President of The Kirchner Company (management consultants). Ned M. Steel, Trustee; 79. 3416 S. Race Street, Englewood, Colorado 80110 Chartered Property and Casualty Underwriter; Director of Visiting Nurse Corporation; formerly Senior Vice President and a director of Van Gilder Insurance Corp. (insurance brokers). James C. Swain, Chairman and Trustee; Age 61.* 3410 South Galena Street, Denver, Colorado 80231 Vice Chairman and a Director of the Manager; President and Director of Centennial Asset Management Corporation, an investment adviser subsidiary of the Manager ("Centennial"); formerly Chairman of the Board of SSI. Andrew J. Donohue, Vice President; Age 44. Two World Trade Center, New York, New York 10048-0203 Executive Vice President and General Counsel of the Manager and Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly Senior Vice President and Associate General Counsel of the Manager and the Distributor; Partner in, Kraft & McManimon (a law firm); an officer of First Investors Corporation (a broker-dealer) and First Investors Management Company, Inc. (broker-dealer and investment adviser) and a director and an officer of the First Investors Family of Funds and First Investors Life Insurance Company. __________________ *A Trustee who is an "interested person" of the Fund as defined in the Investment Company Act. George C. Bowen, Vice President, Secretary and Treasurer; Age 57. 3410 South Galena Street Denver, Colorado 80231 Senior Vice President and Treasurer of the Manager; Vice President and Treasurer of the Distributor and HarbourView; Senior Vice President, Treasurer, Assistant Secretary and a director of Centennial; Vice President, Treasurer and Secretary of SSI and SFSI; an officer of other OppenheimerFunds. Arthur P. Steinmetz, Vice President and Portfolio Manager; Age 36. Two World Trade Center, New York, New York 10048 Senior Vice President of the Manager; an officer of other OppenheimerFunds. David P. Negri, Vice President and Portfolio Manager; Age 40. Two World Trade Center, New York, New York 10048 Vice President of the Manager; an officer of other OppenheimerFunds. Robert G. Zack, Assistant Secretary; Age 46. Two World Trade Center, New York, New York 10048-0203 Senior Vice President and Associate General Counsel of the Manager; Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds. Robert J. Bishop, Assistant Treasurer; Age 35. 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting; an officer of other OppenheimerFunds; previously a Fund Controller of the Manager, prior to which he was an Accountant for Resolution Trust Corporation and previously an Accountant and Commissions Supervisor for Stuart James Company Inc., a broker-dealer. Scott Farrar, Assistant Treasurer; Age 29. 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting, an officer of other OppenheimerFunds; previously a Fund Controller for the Manager, prior to which he was an International Mutual Fund Supervisor for Brown Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant for State Street Bank & Trust Company. - Remuneration of Trustees. The officers of the Fund are affiliated with the Manager; they and the Trustees of the Fund who are affiliated with the Manager (Messrs. Fossel and Swain, who are both officers and Trustees) receive no salary or fee from the Fund. The Trustees of the Fund (excluding Messrs. Fossel and Swain) received the total amounts shown below from all 22 of the Denver-based OppenheimerFunds (including the Fund) listed in the first paragraph of this section, for services in the positions shown:
Total Compensation From All Name Position Denver-based OppenheimerFunds1 Robert G. Avis Trustee $53,000.00 William A. Baker Study and Audit Committee $73,257.01 Chairman and Trustee Charles Conrad, Jr. Study and Audit Committee $68,293.67 Member and Trustee Raymond J. Kalinowski Trustee $53,000.00 C. Howard Kast Trustee $53,000.00 Robert M. Kirchner Study and Audit Committee $68,293.67 Member and Trustee Ned M. Steel Trustee $53,000.00 ______________________ 1 For the 1994 calendar year.
- Major Shareholders. As of January 18, 1995, no person owned of record or was known by the Fund to own beneficially 5% or more of the shares of the Fund as a whole or either class of the Fund's outstanding shares. The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual Life Insurance Company. OAC is also owned in part by certain of the Manager's directors and officers, some of whom also serve as officers of the Fund, and two of whom (Mr. Fossel and Mr. Swain) serve as Trustees of the Fund. - The Investment Advisory Agreement. The investment advisory agreement between the Manager and the Fund requires the Manager, at its expense, to provide the Fund with adequate office space, facilities and equipment, and to provide and supervise the activities of all administrative and clerical personnel required to provide effective corporate administration for the Fund, including the compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of the Fund. Expenses not expressly assumed by the Manager under the advisory agreement or by the Distributor under the General Distributor's Agreement are paid by the Fund. The advisory agreement lists examples of expenses paid by the Fund, the major categories of which relate to interest, taxes, brokerage commissions, fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs. For the fiscal period from April 22, 1992 (commencement of operations) to September 30, 1992 and for the fiscal year ended September 30, 1993, and September 30, 1994, management fees payable by the Fund to the Manager would have been $15,887, $227,907, and $319,025, respectively, absent the Manager's assumption of Fund expenses, as discussed below, in the amount of $36,153, $106,134, and $19,540, respectively, which reduced the management fee and the Fund's "Other Expenses" identified above by the amount of the expense assumption. The advisory agreement contains no expense limitation. However, independently of the agreement, the Manager has undertaken that the total expenses of the Fund in any fiscal year (including the management fee but excluding taxes, interest, brokerage commissions, distribution plan payments and any extraordinary non-recurring expenses, including litigation) shall not exceed (and the Manager undertakes to reduce the Fund's management fee in the amount by which such expenses shall exceed) the most stringent state regulatory limitation on fund expenses applicable to the Fund unless a waiver is obtained. At present, that limitation is imposed by California and limits expenses (with specified exclusions) to 2.5% of the first $30 million of average annual net assets, 2% of the next $70 million of average net assets and 1.5% of average net assets in excess of $100 million. The payment of the management fee at the end of any month will be reduced so that there will not be any accrued but unpaid liability under such assumption limitation. The Manager reserves the right to terminate or amend such expense assumption undertaking at any time. Any assumption of the Fund's expenses under this undertaking would lower the Fund's overall expense ratio and increase its total return during any period in which expenses are limited. Until November 24, 1993, the Manager had also undertaken to assume the Fund's expenses (other than extraordinary non-recurring expenses) to enable the Fund to pay a dividend of $.3738 per share per annum, with the limitation that the dividend could not exceed the Fund's annual gross earnings per share. That undertaking terminated November 24, 1993. Pursuant to this undertaking the Manager reimbursed the Fund $19,540 during such period. As a result of that expense assumption, the Fund's yield and total return were higher during that period than they otherwise would have been. The advisory agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties under the Agreement, the Manager is not liable for any loss sustained by reason of good faith errors or omissions in connection with any matters to which the Agreement relates. The Agreement permits the Manager to act as investment adviser for any other person, firm or corporation and to use the name "Oppenheimer" in connection with other investment companies for which it may act as investment adviser or general distributor. If the Manager or one of its affiliates shall no longer act as investment adviser to the Fund, the right of the Fund to use the name "Oppenheimer" as part of its name may be withdrawn. - The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor acts as the Fund's principal underwriter in the continuous public offering of the Fund's Class A and Class B shares but is not obligated to sell a specific number of shares. Expenses normally attributable to sales (excluding payments under the Distribution and Service Plans but including advertising and the cost of printing and mailing prospectuses, other than those furnished to existing shareholders), are borne by the Distributor. During the period from April 22, 1992 (commencement of operations) through September 30, 1992 and for the fiscal years ended September 30, 1993 and 1994, the aggregate sales charges on sales of the Fund's Class A shares were $435,397, $811,099 and $212,013 respectively, of which the Distributor and an affiliated broker- dealer retained in the aggregate $76,427, $236,748, and $77,763 in those respective years. During the Fund's fiscal year ended September 30, 1994, the contingent deferred sales charges collected on the Fund's Class B shares totalled $40,567, all of which the Distributor retained. For additional information about distribution of the Fund's shares and the expenses connected with such activities, please refer to "Distribution and Service Plans," below. - The Transfer Agent. Oppenheimer Shareholder Services, the Fund's Transfer Agent, is responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for shareholder servicing and administrative functions. Brokerage Policies of the Fund Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the advisory agreement is to arrange the portfolio transactions for the Fund. The advisory agreement contains provisions relating to the employment of broker-dealers ("brokers") to effect the Fund's portfolio transactions. In doing so, the Manager is authorized by the advisory agreement to employ broker-dealers, including "affiliated" brokers, as that term is defined in the Investment Company Act, as may, in its best judgment based on all relevant factors, implement the policy of the Fund to obtain, at reasonable expense, the "best execution" (prompt and reliable execution at the most favorable price obtainable) of such transactions. The Manager need not seek competitive commission bidding or base its selection on "posted" ratios, but is expected to minimize the commissions paid to the extent consistent with the interest and policies of the Fund as established by its Board of Trustees. Purchases of securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price. Most purchases of money market instruments and debt obligations are principal transactions at net prices, and the Fund incurs little or no brokerage costs. For those transactions, instead of using a broker the Fund normally deals directly with the selling or purchasing principal or market maker unless it is determined that a better price or execution can be obtained using a broker. Purchases of these securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price. The Fund seeks to obtain prompt execution of such orders at the most favorable net price. Under the advisory agreement, the Manager is authorized to select brokers that provide brokerage and/or research services for the Fund and/or the other accounts over which the Manager or its affiliates have investment discretion. The commissions paid to such brokers may be higher than another qualified broker would have charged if a good faith determination is made by the Manager that the commission is fair and reasonable in relation to the services provided. Subject to the foregoing considerations, the Manager may also consider sales of shares of the Fund and other investment companies managed by the Manager or its affiliates as a factor in the selection of brokers for the Fund's portfolio transactions. Description of Brokerage Practices Followed by the Manager. Subject to the provisions of the advisory agreement, and the procedures and rules described above, allocations of brokerage are generally made by the Manager's portfolio traders based upon recommendations from the Manager's portfolio managers. In certain instances, portfolio managers may directly place trades and allocate brokerage, also subject to the provisions of the advisory agreement and the procedures and rules described above. Regardless, brokerage is allocated under the supervision of the Manager's executive officers. As most purchases made by the Fund are principal transactions at net prices, the Fund incurs little or no brokerage costs. Transactions in securities other than those for which an exchange is the primary market are generally done with principals or market makers. When the Fund engages in an option transaction, ordinarily the same broker will be used for the purchase or sale of the option and any transaction in the securities to which the option relates. When possible, concurrent orders to purchase or sell the same security by more than one of the accounts managed by the Manager or its affiliates are combined. The transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each account. The research services provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates, and investment research received for the commissions of those other accounts may be useful both to the Fund and one or more of such other accounts. Such research, which may be supplied by a third party at the instance of a broker, includes information and analyses on particular companies and industries as well as market or economic trends and portfolio strategy, receipt of market quotations for portfolio evaluations, information systems, computer hardware and similar products and services. If a research service also assists the Manager in a non- research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment decision-making process may be paid in commission dollars. The Board has permitted the Manager to use concessions on fixed price offerings to obtain research, in the same manner as permitted for agency transactions. The research services provided by brokers broaden the scope and supplement the research activities of the Manager, by making available additional views for consideration and comparisons, and by enabling the Manager to obtain market information for the valuation of securities held in the Fund's portfolio or being considered for purchase. The Board of Trustees, including the "independent" Trustees of the Fund (those Trustees of the Fund who are not "interested persons" as defined in the Investment Company Act, and who have no direct or indirect financial interest in the operation of the advisory agreement or the Distribution Plans described below) annually reviews information furnished by the Manager as to the commissions paid to brokers furnishing such services so that the Board may ascertain whether the amount of such commissions was reasonably related to the value or benefit of such services. Performance of the Fund Yield and Total Return Information. As described in the Prospectus, from time to time the "standardized yield," "dividend yield," "average annual total return," "cumulative total return" and "total return at net asset value" of an investment in a class of shares of the Fund may be advertised. An explanation of how these total returns are calculated for each class and the components of those calculations is set forth below. The Fund's advertisements of its performance data must, under applicable rules of the Securities and Exchange Commission, include the average annual total returns for each class of shares of the Fund for the 1, 5, and 10-year periods (or the life of the class, if less) ending as of the most recently-ended calendar quarter prior to the publication of the advertisement. This enables an investor to compare the Fund's performance to the performance of other funds for the same periods. However, a number of factors should be considered before using such information as a basis for comparison with other investments. An investment in the Fund is not insured; its returns and share prices are not guaranteed and normally will fluctuate on a daily basis. When redeemed, an investor's shares may be worth more or less than their original cost. Returns for any given past period are not a prediction or representation by the Fund of future returns. The returns of Class A and Class B shares of the Fund are affected by portfolio quality, the type of investments the Fund holds and its operating expenses allocated to the particular class. - Standardized Yields - Yield. The Fund's "yield" (referred to as "standardized yield") for a given 30-day period for a class of shares is calculated using the following formula set forth in rules adopted by the Securities and Exchange Commission that apply to all funds that quote yields: a-b 6 Standardized Yield = 2 ((------ + 1) - 1) cd The symbols above represent the following factors: a = dividends and interest earned during the 30-day period. b = expenses accrued for the period (net of any expense reimbursements). c = the average daily number of shares of that class outstanding during the 30-day period that were entitled to receive dividends. d = the maximum offering price per share of that class on the last day of the period, adjusted for undistributed net investment income. The standardized yield of a class of shares for a 30-day period may differ from its yield for any other period. The SEC formula assumes that the standardized yield for a 30-day period occurs at a constant rate for a six-month period and is annualized at the end of the six-month period. This standardized yield is not based on actual distributions paid by the Fund to shareholders in the 30-day period, but is a hypothetical yield based upon the net investment income from the Fund's portfolio investments calculated for that period. The standardized yield may differ from the "dividend yield" of that class, described below. Additionally, because each class of shares is subject to different expenses, it is likely that the standardized yields of the Fund's classes of shares will differ. For the 30-day period ended September 30, 1994, the standardized yields for the Fund's Class A and Class B shares were 6.64% and 6.35%, respectively. - Dividend Yield and Distribution Return. From time to time the Fund may quote a "dividend yield" or a "distribution return" for each class. Dividend yield is based on the Class A or Class B share dividends derived from net investment income during a stated period. Distribution return includes dividends derived from net investment income and from realized capital gains declared during a stated period. Under those calculations, the dividends and/or distributions for that class declared during a stated period of one year or less (for example, 30 days) are added together, and the sum is divided by the maximum offering price per share of that class on the last day of the period. When the result is annualized for a period of less than one year, the "dividend yield" is calculated as follows: Dividend Yield of the Class = Dividends of the Class - ---------------------------------------------------- Max Offering Price of the Class (last day of period) Divided by number of days (accrual period) x 365 The maximum offering price for Class A shares includes the maximum front-end sales charge. For Class B shares, the maximum offering price is the net asset value per share, without considering the effect of contingent deferred sales charges. From time to time similar yield or distribution return calculations may also be made using the Class A net asset value (instead of its respective maximum offering price) at the end of the period. The dividend yields on Class A shares for the 30-day period ended September 30, 1994, were 6.50% and 6.82% when calculated at maximum offering price and at net asset value, respectively. The dividend yield on Class B shares for the 30-day period ended September 30, 1994, was 6.20% when calculated at net asset value. - - Total Return Information - Average Annual Total Returns. The "average annual total return" of each class is an average annual compounded rate of return for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of that investment, according to the following formula: ( ERV ) 1/n (-----) -1 = Average Annual Total Return ( P ) - Cumulative Total Returns. The cumulative "total return" calculation measures the change in value of a hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the same factors as average annual total return, but it does not average the rate of return on an annual basis. Cumulative total return is determined as follows: ERV - P - ------- = Total Return P In calculating total returns for Class A shares, the current maximum sales charge of 4.75% (as a percentage of the offering price) is deducted from the initial investment ("P") (unless the return is shown at net asset value, as described below). For Class B shares, the payment of the applicable contingent deferred sales charge (5.0% for the first year, 4.0% for the second year, 3.0% for the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is applied to the investment result for the time period shown (unless the total return is shown at net asset value, as described below). Total returns also assume that all dividends and capital gains distributions during the period are reinvested to buy additional shares at net asset value per share, and that the investment is redeemed at the end of the period. The "average annual total returns" on an investment in Class A shares of the Fund for the one year period ended September 30, 1994 and for the period from April 22, 1992 (commencement of operations) through September 30, 1994 were (6.43)%, and 2.83%, respectively. The "average annual total return" on an investment in Class B shares of the Fund for the fiscal year ended September 30, 1994 and the period from November 30, 1992 (inception of the class) through September 30, 1994 was (7.03)% and 1.77% respectively. The cumulative "total return" on Class A shares for the period from April 22, 1992 (commencement of operations) through September 30, 1994 was 7.06%. The cumulative total return on Class B shares for the period from November 30, 1992 through September 30, 1994 was 3.26%. - Total Returns at Net Asset Value. From time to time the Fund may also quote an average annual total return at net asset value or a cumulative total return at net asset value for Class A or Class B shares. Each is based on the difference in net asset value per share at the beginning and the end of the period for a hypothetical investment in that class of shares (without considering front-end or contingent deferred sales charges) and takes into consideration the reinvestment of dividends and capital gains distributions. The cumulative total return at net asset value of the Fund's Class A shares for the fiscal year ended September 30, 1994 and for the period from April 22, 1992 to September 30, 1994 were (1.76)% and 12.40% respectively. The cumulative total returns at net asset value for Class B shares for the fiscal year ended September 30, 1994 and for the period from November 30, 1992 through September 30, 1994 were (2.45)% and 7.07%, respectively. Other Performance Comparisons. From time to time the Fund may publish the ranking of its Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors the performance of regulated investment companies, including the Fund, and ranks their performance for various periods based on categories relating to investment objectives. The performance of the Fund is ranked against (i) all other funds (excluding money market funds) and (ii) all other- fixed income funds. The Lipper performance rankings are based on total returns that include the reinvestment of capital gain distributions and income dividends but do not take sales charges or taxes into consideration. From time to time the Fund may publish the ranking of the performance of its Class A or Class B shares by Morningstar, Inc., an independent mutual fund monitoring service that ranks mutual funds, including the Fund, monthly in broad investment categories (equity, taxable bond, municipal bond and hybrid) based on risk-adjusted investment return. Investment return measures a fund's three, five and ten-year average annual total returns (when available) in excess of 90-day U.S. Treasury bill returns after considering sales charges and expenses. Risk reflects fund performance below 90-day U.S. Treasury bill monthly returns. Risk and return are combined to produce star rankings reflecting performance relative to the average fund in a fund's category. Five stars is the "highest" ranking (top 10%), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars is "below average" (next 22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class A and Class B shares of the Fund in relation to other fixed-income bond funds. Rankings are subject to change. The total return on an investment in the Fund's Class A or Class B shares may be compared with performance for the same period of the Lehman Brothers Aggregate Bond Index, as described in the Prospectus. The Index includes a factor for the reinvestment of interest but does not reflect expenses or taxes on the reinvestment of capital gains. Yield and total return information may be useful to investors in reviewing the Fund's performance. However, a number of factors should be considered before using such information as a basis for comparison with other investments. An investment in the Fund is not insured; its yield and total return are not guaranteed and normally will fluctuate on a daily basis. Yield and total return for any given past period are not an indication or representation by the Fund of future yields or rates of return on its shares. The yield and total return of Class A and Class B shares of the Fund are affected by portfolio quality, portfolio maturity, type of investments held and operating expenses. When comparing yield, total return and investment risk of Class A or Class B shares of the Fund with those of other investment instruments, investors should understand that certain other investment alternatives such as money market instruments, certificates of deposit ("CD's"), U.S. Government securities or bank accounts provide yields that are fixed or that may vary above a stated minimum, and may be insured or guaranteed. Distribution and Service Plans The Fund has adopted a Service Plan for Class A shares and a Distribution and Service Plan for Class B shares under Rule 12b-1 of the Investment Company Act pursuant to which the Fund will reimburse the Distributor quarterly for all or a portion of its costs incurred in connection with the distribution and/or servicing of the shares of that class, as described in the Prospectus. Each Plan has been approved by a vote of (i) the Board of Trustees of the Fund, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on that Plan, and (ii) the holders of a "majority" (as defined in the Investment Company Act) of the shares of each class. In addition, under the Plans the Manager and the Distributor, in their sole discretion, from time to time may use their own resources (which, in the case of the Manager, may include profits from the advisory fee it receives from the Fund) to make payments to brokers, dealers or other financial institutions (each is referred to as a "Recipient" under the Plans) for distribution and administrative services they perform. The Distributor and the Manager may, in their sole discretion, increase or decrease the amount of payments they make from their own resources to Recipients. Unless terminated as described below, each Plan continues in effect from year to year but only as long as its continuance is specifically approved at least annually by the Fund's Board of Trustees and its Independent Trustees by a vote cast in person at a meeting called for the purpose of voting on such continuance. Either Plan may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding shares of that class. Neither Plan may be amended to increase materially the amount of payments to be made unless such amendment is approved by shareholders of the class affected by the amendment. In addition, because Class B shares of the Fund automatically convert into Class A shares after six years, the Fund is required by an exemptive order issued by the SEC to obtain the approval of Class B as well as Class A shareholders for a proposed amendment to the Class A Plan that would materially increase the amount to be paid by Class A shareholders under the Class A Plan. Such approval must be by a "majority" of the Class A and Class B shares (as defined in the Investment Company Act), voting separately by Class. All material amendments must be approved by the Independent Trustees. While the Plans are in effect, the Treasurer of the Fund shall provide separate written reports to the Fund's Board of Trustees at least quarterly on the amount of all payments made pursuant to each Plan, the purpose for which each payment was made and the identity of each Recipient that received any payment. The report for the Class B Plan shall also include the distribution costs for that quarter, and such costs for previous fiscal periods that have been carried forward, as explained in the Prospectus and below. Those reports, including the allocations on which they are based, will be subject to the review and approval of the Independent Trustees in the exercise of their fiduciary duty. Each Plan further provides that while it is in effect, the selection and nomination of those Trustees of the Fund who are not "interested persons" of the Fund is committed to the discretion of the Independent Trustees. This does not prevent the involvement of others in such selection and nomination if the final decision on selection or nomination is approved by a majority of the Independent Trustees. Under the Plans, no payment will be made to any Recipient in any quarter if the aggregate net asset value of all Fund shares held by the Recipient for itself and its customers, did not exceed a minimum amount, if any, that may be determined from time to time by a majority of the Fund's Independent Trustees. Initially, the Board of Trustees has set the fees at the maximum rate and set no requirement for a minimum amount of the assets. For the fiscal year ended September 30, 1994, payments under the Class A Plan totalled $67,190, all of which was paid by the Distributor to Recipients, including $11,485 paid to MML Investor Services, Inc., an affiliate of the Distributor. Any unreimbursed expenses incurred by the Distributor with respect to Class A shares for any fiscal year may not be recovered in subsequent years. Payments received by the Distributor under the Plan for Class A shares will not be used to pay any interest expense, carrying charge, or other financial costs, or allocation of overhead by the Distributor. The Class B Plan allows the service fee payment to be paid by the Distributor to Recipients in advance for the first year Class B shares are outstanding, and thereafter on a quarterly basis, as described in the Prospectus. Service fee payments by the Distributor to Recipients will be made (i) in advance for the first year Class B shares are outstanding, following the purchase of shares, in an amount equal to 0.25% of the net asset value of the shares purchased by the Recipient or its customers and (ii) thereafter, on a quarterly basis, computed as of the close of business each day at an annual rate of 0.25% of the average daily net asset value of Class B shares held in accounts of the Recipient or its customers. An exchange of shares does not entitle the Recipient to an advance service fee payment. In the event Class B shares are redeemed during the first year that the shares are outstanding, the Recipient will be obligated to repay a pro rata portion of the advance payment for those shares to the Distributor. Payments made under the Class B Plan during the fiscal year ended September 30, 1994 totalled $142,407, of which $132,607 was retained by the Distributor. Although the Class B Plan permits the Distributor to retain both the asset-based sales charges and the service fee on Class B shares, or to pay Recipients the service fee on a quarterly basis, without payment in advance, the Distributor intends to pay the service fee to Recipients in the manner described above. A minimum holding period may be established from time to time under the Class B Plan by the Board. Initially, the Board has set no minimum holding period. All payments under the Class B Plan are subject to the limitations imposed by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. on payments of asset-based sales charges and service fees. The Distributor anticipates that it will take a number of years for it to recoup (from the Fund's payments to the Distributor under the Class B Plan and recoveries of the contingent deferred sales charge) the sales commissions paid to authorized brokers or dealers. Asset-based sales charge payments are designed to permit an investor to purchase shares of the Fund without the assessment of a front-end sales load and at the same time permit the Distributor to compensate brokers and dealers in connection with the sale of Class B shares of the Fund. The Distributor's actual distribution expenses for any given year may exceed the aggregate of payments received pursuant to the Class B Plan and from contingent deferred sales charges, and such expenses will be carried forward and paid in future years. The Fund will be charged only for interest expenses, carrying charges or other financial costs that are directly related to the carry-forward of actual distribution expenses. For example, if the Distributor incurred distribution expenses of $4 million in a given fiscal year, of which $2,000,000 was recovered in the form of contingent deferred sales charges paid by investors and $1,600,000 was reimbursed in the form of payments made by the Fund to the Distributor under the Class B Plan, the balance of $400,000 (plus interest) would be subject to recovery in future fiscal years from such sources. The Class B Plan allows for the carry-forward of distribution expenses, to be recovered from asset-based sales charges in subsequent fiscal periods, as described in the Prospectus. The asset-based sales charge paid to the Distributor by the Fund under the Class B Plan is intended to allow the Distributor to recoup the cost of sales commissions paid to authorized brokers and dealers at the time of sale, plus financing costs, as described in the Prospectus. Such payments may also be used to pay for the following expenses in connection with the distribution of Class B shares: (i) financing the advance of the service fee payment to Recipients under the Class B Plan, (ii) compensation and expenses of personnel employed by the Distributor to support distribution of Class B shares, and (iii) costs of sales literature, advertising and prospectuses (other than those furnished to current shareholders) and state "blue sky" registration fees. ABOUT YOUR ACCOUNT How To Buy Shares Alternative Sales Arrangements - Class A and Class B Shares. The availability of two classes of shares permits an investor to choose the method of purchasing shares that is more beneficial to the investor depending on the amount of the purchase, the length of time the investor expects to hold shares and other relevant circumstances. Investors should understand that the purpose and function of the deferred sales charge and asset-based sales charge with respect to Class B shares are the same as those of the initial sales charge with respect to Class A shares. Any salesperson or other person entitled to receive compensation for selling Fund shares may receive different compensation with respect to one class of shares than the other. The Distributor will not accept any order for $1 million or more of Class B shares on behalf of a single investor (not including dealer "street name" or omnibus accounts) because generally it will be more advantageous for that investor to purchase Class A shares of the Fund instead. The two classes of shares each represent an interest in the same portfolio investments of the Fund. However, each class has different shareholder privileges and features. The net income attributable to Class B shares and the dividends payable on Class B shares will be reduced by incremental expenses borne solely by that class, including the asset-based sales charge to which Class B shares are subject. The conversion of Class B shares to Class A shares after six years is subject to the continuing availability of a private letter ruling from the Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect that the conversion of B shares does not constitute a taxable event for the holder under Federal income tax law. If such a revenue ruling or opinion is no longer available, the automatic conversion feature may be suspended, in which event no further conversions of Class B shares would occur while such suspension remained in effect. Although Class B shares could then be exchanged for Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales charge or fee, such exchange could constitute a taxable event for the holder, and absent such exchange, Class B shares might continue to be subject to the asset-based sales charge for longer than six years. The methodology for calculating the net asset value, dividends and distributions of the Fund's Class A and Class B shares recognizes two types of expenses. General expenses that do not pertain specifically to either class are allocated pro rata to the shares of each class, based on the percentage of the net assets of such class to the Fund's total assets, and then equally to each outstanding share within a given class. Such general expenses include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials for current shareholders, (iv) fees to Independent Trustees, (v) custodian expenses, (vi) share issuance costs, (vii) organization and start-up costs, (viii) interest, taxes and brokerage commissions, and (ix) non- recurring expenses, such as litigation costs. Other expenses that are directly attributable to a class are allocated equally to each outstanding share within that class. Such expenses include (i) Distribution Plan fees, (ii) incremental transfer and shareholder servicing agent fees and expenses, (iii) registration fees and (iv) shareholder meeting expenses, to the extent that such expenses pertain to a specific class rather than to the Fund as a whole. Determination of Net Asset Values Per Share. The net asset values per share of Class A and Class B shares of the Fund are determined as of the close of business of The New York Stock Exchange ("NYSE") on each day that the NYSE is open by dividing the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The NYSE normally closes at 4:00 P.M., New York time, but may close earlier on some days (for example, in case of weather emergencies or on days falling before a holiday). The NYSE's most recent annual announcement (which is subject to change) states that it will close on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days. The Fund may invest a substantial portion of its assets in foreign securities primarily listed on foreign exchanges which may trade on Saturdays or customary U.S. business holidays on which the NYSE is closed. Because the Fund's net asset value will not be calculated on those days, the Fund's net asset values per share may be significantly affected on such days when shareholders may not purchase or redeem shares. The Fund's Board of Trustees has established procedures for the valuation of the Fund's securities, generally as follows: (i) equity securities traded on a securities exchange or on NASDAQ for which last sale information is regularly reported are valued at the last reported sale price on their primary exchange or NASDAQ that day (or, in the absence of sales that day, at values based on the last sales prices of the preceding trading day, or closing bid and asked prices); (ii) securities traded on NASDAQ and other unlisted equity securities for which last sale prices are not regularly reported but for which over-the-counter market quotations are readily available are valued at the highest closing bid price at the time of valuation, or, if no closing bid price is reported, on the basis of a closing bid price obtained from a dealer who maintains an active market in that security; (iii) unlisted debt securities having a maturity in excess of 60 days are valued at the mean between the bid and asked prices determined by a portfolio pricing service approved by the Board or obtained from active market makers on the basis of reasonable inquiry; (iv) short-term debt securities having a remaining maturity of 60 days or less are valued at cost, adjusted for amortization of premiums and accretion of discounts; (v) securities (including restricted securities) not having readily-available market quotations are valued at fair value under the Board's procedures; and (vi) securities traded on foreign exchanges or in foreign over-the-counter markets are valued as determined by a portfolio pricing service approved by the Board, based upon last sales prices reported on a principal exchange, or, if none, at the mean between closing bid and asked prices and reflect prevailing rates of exchange taken from the closing price on the London foreign exchange market that day. Trading in securities on European and Asian exchanges and over-the- counter markets is normally completed before the close of the NYSE. Events affecting the values of foreign securities traded in stock and bond markets that occur between the time their prices are determined and the close of the NYSE will not be reflected in the Fund's calculation of net asset value unless the Board of Trustees or the Manager, under procedures established by the Board of Trustees, determines that the particular event would materially affect the Fund's net asset value, in which case an adjustment would be made. Foreign currency will be valued as close to the time fixed for the valuation date as is reasonably practicable. The values of securities denominated in foreign currency will be converted to U.S. dollars at the prevailing rates of exchange at the time of valuation. Foreign exchanges on which the Fund's foreign securities are primarily listed may trade on Saturdays or other customary U.S. business holidays on which the NYSE is closed. Because the Fund's offering price and net asset value will not be calculated on those days, if foreign securities held by the Fund are traded on those days, the Fund's net asset value per share may be affected on such days when shareholders will not have the ability to purchase or redeem shares. In the case of U.S. Government Securities, mortgage-backed securities, foreign securities and corporate bonds, when last sale information is not generally available, such pricing procedures may include "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield, maturity, and other special factors involved. The Board has authorized the Manager to employ a pricing service to price U.S. Government Securities, mortgage-backed securities, foreign securities and corporate bonds. The Trustees will monitor the accuracy of such pricing services by comparing prices used for portfolio evaluation to actual sales prices of selected securities. Puts, calls and Futures held by the Fund are valued at the last sales price on the principal exchange on which they are traded, or on NASDAQ, as applicable, or, if there are no sales that day, in accordance with (i), above. Forward currency contracts are valued at the closing price on the London foreign exchange market. When the Fund writes an option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is "marked-to-market" to reflect the current market value of the option. In determining the Fund's gain on investments, if a call written by the Fund is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain in the amount of the premium; if the Fund enters into a closing purchase transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund. AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25.00. Shares will be purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House transfer to buy the shares. Dividends will begin to accrue on shares purchased by the proceeds of ACH transfers on the business day the Fund receives Federal Funds for the purchase through the ACH system before the close of the NYSE. The NYSE normally closes at 4:00 P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the NYSE, the shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any delays in purchasing shares resulting from delays in ACH transmissions. Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor, dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in the Prospectus because the Distributor incurs little or no selling expenses. The term "immediate family" refers to one's spouse, children, grandchildren, grandparents, parents, parents-in- law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse and a spouse's siblings. - The OppenheimerFunds. The OppenheimerFunds are those mutual funds for which the Distributor acts as the distributor or the sub-distributor and include the following: Oppenheimer Tax-Free Bond Fund Oppenheimer New York Tax-Exempt Fund Oppenheimer California Tax-Exempt Fund Oppenheimer Intermediate Tax-Exempt Bond Fund Oppenheimer Insured Tax-Exempt Bond Fund Oppenheimer Main Street California Tax-Exempt Fund Oppenheimer Florida Tax-Exempt Fund Oppenheimer Pennsylvania Tax-Exempt Fund Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Fund Oppenheimer Discovery Fund Oppenheimer Time Fund Oppenheimer Target Fund Oppenheimer Growth Fund Oppenheimer Equity Income Fund Oppenheimer Value Stock Fund Oppenheimer Asset Allocation Fund Oppenheimer Total Return Fund, Inc. Oppenheimer Main Street Income & Growth Fund Oppenheimer High Yield Fund Oppenheimer Champion High Yield Fund Oppenheimer Investment Grade Bond Fund Oppenheimer U.S. Government Trust Oppenheimer Limited-Term Government Fund Oppenheimer Mortgage Income Fund Oppenheimer Global Fund Oppenheimer Global Emerging Growth Fund Oppenheimer Global Growth & Income Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer Strategic Income Fund Oppenheimer Strategic Investment Grade Bond Fund Oppenheimer Strategic Short-Term Income Fund Oppenheimer Strategic Income & Growth Fund Oppenheimer Strategic Diversified Income Fund and the following "Money Market Funds": Oppenheimer Money Market Fund, Inc. Oppenheimer Cash Reserves Centennial Money Market Trust Centennial Tax Exempt Trust Centennial Government Trust Centennial New York Tax Exempt Trust Centennial California Tax Exempt Trust Centennial America Fund, L.P. Daily Cash Accumulation Fund, Inc. There is an initial sales charge on the purchase of Class A shares of each of the OppenheimerFunds except Money Market Funds (under certain circumstances described herein, redemption proceeds of Money Market Fund shares may be subject to a contingent deferred sales charge). - Letters of Intent. A Letter of Intent ("Letter") is the investor's statement of intention to purchase Class A shares of the Fund (and other eligible OppenheimerFunds) sold with a front-end sales charge during the 13-month period from the investor's first purchase pursuant to the Letter (the "Letter of Intent period"), which may, at the investor's request, include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's intention to make the aggregate amount of purchases (excluding any purchases made by reinvestments of dividends or distributions or purchases made at net asset value without sales charge), which together with the investor's holdings of such funds (calculated at their respective public offering prices calculated on the date of the Letter) will equal or exceed the amount specified in the Letter. This enables the investor to obtain the reduced sales charge rate (as set forth in the Prospectus) applicable to purchases of shares in that amount (the "intended purchase amount"). Each purchase under the Letter will be made at the public offering price applicable to a single lump-sum purchase of shares in the intended purchase amount, as described in the Prospectus. In submitting a Letter, the investor makes no commitment to purchase shares, but if the investor's purchases of shares within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge applicable to such purchases, as set forth in "Terms of Escrow," below (as those terms may be amended from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this Statement of Additional Information and the Application used for such Letter of Intent, and if such terms are amended, as they may be from time to time by the Fund, that those amendments will apply automatically to existing Letters of Intent. If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount, the commissions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor will be adjusted to the rates applicable to actual purchases. If total eligible purchases during the Letter of Intent period exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the applicable prospectus, the sales charges paid will be adjusted to the lower rate, but only if and when the dealer returns to the Distributor the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions that apply to the actual amount of purchases. The excess commissions returned to the Distributor will be used to purchase additional shares for the investor's account at the net asset value per share in effect on the date of such purchase, promptly after the Distributor's receipt thereof. In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such purchases must be made through the Distributor. - Terms of Escrow That Apply to Letters of Intent. 1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal in value to 5% of the intended purchase amount specified in the Letter shall be held in escrow by the Transfer Agent. For example, if the intended purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the public offering price adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the investor's account. 2. If the intended purchase amount specified under the Letter is completed within the thirteen-month Letter of Intent period, the escrowed shares will be promptly released to the investor. 3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter are less than the intended purchase amount specified in the Letter, the investor must remit to the Distributor an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. Such sales charge adjustment will apply to any shares redeemed prior to the completion of the Letter. If such difference in sales charges is not paid within twenty days after a request from the Distributor or the dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Full and fractional shares remaining after such redemption will be released from escrow. If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the sales charge will be withheld from the redemption proceeds. 4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to surrender for redemption any or all escrowed shares. 5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of the Letter) do not include any shares sold without a front-end sales charge or without being subject to a Class A contingent deferred sales charge unless (for the purpose of determining completion of the obligation to purchase shares under the Letter) the shares were acquired in exchange for shares of one of the OppenheimerFunds whose shares were acquired by payment of a sales charge. 6. Shares held in escrow hereunder will automatically be exchanged for shares of another fund to which an exchange is requested, as described in the section of the Prospectus entitled "Exchange Privilege," and the escrow will be transferred to that other fund. Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a check (minimum $25) for the initial purchase must accompany the application. Shares purchased by Asset Builder Plan payments from bank accounts are subject to the redemption restrictions for recent purchases described in "How To Sell Shares," in the Prospectus. Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases of shares of up to four other OppenheimerFunds. There is a front-end sales charge on the purchase of certain OppenheimerFunds, or a contingent deferred sales charge may apply to shares purchased by Asset Builder payments. An application should be obtained from the Distributor, completed and returned, and a prospectus of the selected fund(s) should be obtained from the Distributor or your financial advisor before initiating Asset Builder payments. The amount of the Asset Builder investment may be changed or the automatic investments may be terminated at any time by writing to the Transfer Agent. A reasonable period (approximately 15 days) is required after the Transfer Agent's receipt of such instructions to implement them. The Fund reserves the right to amend, suspend, or discontinue offering such plans at any time without prior notice. Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account registered in that investor's name, or the Fund or the Distributor may seek other redress. Check Writing. When a check is presented to the Bank for clearance, the Bank will ask the Fund to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. This enables the shareholder to continue receiving dividends on those shares until the check is presented to the Fund. Checks may not be presented for payment at the offices of the Bank or the Fund's Custodian. This limitation does not affect the use of checks for the payment of bills or to obtain cash at other banks. The Fund reserves the right to amend, suspend or discontinue offering checkwriting privileges at any time without prior notice. How to Sell Shares Information on how to sell shares of the Fund is stated in the Prospectus. The information below supplements the terms and conditions for redemptions set forth in the Prospectus. - Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any account if the aggregate net asset value of those shares is less than $200 or such lesser amount as the Board may fix. The Board of Trustees will not cause the involuntary redemption of shares in an account if the aggregate net asset value of the shares has fallen below the stated minimum solely as a result of market fluctuations. Should the Board elect to exercise this right, it may also fix, in accordance with the Investment Company Act, the requirements for any notice to be given to the shareholders in question (not less than 30 days), or the Board may set requirements for granting permission to the Shareholder to increase the investment, and set other terms and conditions so that the shares would not be involuntarily redeemed. - Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However, the Board of Trustees of the Fund may determine that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case the Fund may pay the redemption proceeds in whole or in part by a distribution "in kind" of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the Securities and Exchange Commission. The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. The method of valuing securities used to make redemptions in kind will be the same as the method the Fund uses to value its portfolio securities described above under the "Determination of Net Asset Values Per Share" and that valuation will be made as of the time the redemption price is determined. Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of (i) Class A shares, or (ii) Class B shares that were subject to the Class B contingent deferred sales charge when redeemed. The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other OppenheimerFunds into which shares of the Fund are exchangeable as described below, at the net asset value next computed after the Transfer Agent receives the reinvestment order. The shareholder must ask the Distributor for that privilege at the time of reinvestment. Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the OppenheimerFunds within 90 days of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds. The Fund may amend, suspend or cease offering this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation. Transfers of Shares. Shares are not subject to the payment of a contingent deferred sales charge of either class at the time of transfer to the name of another person or entity (whether the transfer occurs by absolute assignment, gift or bequest, not involving, directly or indirectly, a public sale). The transferred shares will remain subject to the contingent deferred sales charge, calculated as if the transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder. If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy Shares" for the imposition of the Class B contingent deferred sales charge will be followed in determining the order in which shares are transferred. Distributions From Retirement Plans. Requests for distributions from OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed in "How To Sell Shares" in the Prospectus or on the back cover of this Statement of Additional Information. The request must: (i) state the reason for the distribution; (ii) state the owner's awareness of tax penalties if the distribution is premature; and (iii) conform to the requirements of the plan and the Fund's other redemption requirements. Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing plans may not directly request redemption of their accounts. The employer or plan administrator must sign the request. Distributions from pension and profit sharing plans are subject to special requirements under the Internal Revenue Code and certain documents (available from the Transfer Agent) must be completed before the distribution may be made. Distributions from retirement plans are subject to withholding requirements under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be submitted to the Transfer Agent with the distribution request, or the distribution may be delayed. Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the Internal Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld. The Fund, the Manager, the Distributor, the Trustee and the Transfer Agent assume no responsibility to determine whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any tax penalties assessed in connection with a distribution. Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares from authorized dealers or brokers. The repurchase price per share will be the net asset value next computed after the Distributor receives the order placed by the dealer or broker, except that if the Distributor receives a repurchase order from a dealer or broker after the close of the NYSE on a regular business day, it will be processed at the day's net asset value if the order was received by the dealer or broker from its customer prior to the time the Exchange closes (normally, that is 4:00 P.M., but may be earlier on some days) and the order was transmitted to and received by the Distributor prior to its close of business that day (normally 5:00 P.M.) Payment ordinarily will be made within seven days after the Distributor's receipt of the required redemption documents, with signature(s) guaranteed as described in the Prospectus. Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer Agent to redeem shares (minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check payable to all shareholders of record and sent to the address of record for the account (and if the address has not been changed within the prior 30 days). Required minimum distributions from OppenheimerFunds- sponsored retirement plans may not be arranged on this basis. Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan payments transferred to the bank account designated on the OppenheimerFunds New Account Application or signature-guaranteed instructions. The Fund cannot guarantee receipt of a payment on the date requested and reserves the right to amend, suspend or discontinue offering such plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases, shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B shareholders should not establish withdrawal plans that would require the redemption of shares purchased subject to a contingent deferred sales charge and held less than 6 years, because of the imposition of the Class B contingent deferred sales charge on such withdrawals (except where the Class B contingent deferred sales charge is waived as described in the Prospectus under "Class B Contingent Deferred Sales Charge"). By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions applicable to such plans, as stated below and in the provisions of the OppenheimerFunds Application relating to such Plans, as well as the Prospectus. These provisions may be amended from time to time by the Fund and/or the Distributor. When adopted, such amendments will automatically apply to existing Plans. - Automatic Exchange Plans. Shareholders can authorize the Transfer Agent (on the OppenheimerFunds Application or signature-guaranteed instructions) to exchange a pre-determined amount of shares of the Fund for shares (of the same class) of other OppenheimerFunds automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $25. Exchanges made under these plans are subject to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this Statement of Additional Information. - Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired without a sales charge will be redeemed first and shares acquired with reinvested dividends and capital gains distributions will be redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon the amount withdrawn, the investor's principal may be depleted. Payments made under withdrawal plans should not be considered as a yield or income on your investment. The Transfer Agent will administer the investor's Automatic Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. The Transfer Agent shall incur no liability to the Planholder for any action taken or omitted by the Transfer Agent in good faith to administer the Plan. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Transfer Agent will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder may be surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the certificate may be held under the Plan. For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or reinvested. Redemptions of shares needed to make withdrawal payments will be made at the net asset value per share determined on the redemption date. Checks or AccountLink payments of the proceeds of Plan withdrawals will normally be transmitted three business days prior to the date selected for receipt of the payment (receipt of payment on the date selected cannot be guaranteed), according to the choice specified in writing by the Planholder. The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow at least two weeks' time in mailing such notification for the requested change to be put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice (in proper form in accordance with the requirements of the then-current Prospectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In that case, the Transfer Agent will redeem the number of shares requested at the net asset value per share in effect in accordance with the Fund's usual redemption procedures and will mail a check for the proceeds to the Planholder. The Plan may be terminated at any time by the Planholder by writing to the Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent upon receiving directions to that effect from the Fund. The Transfer Agent will also terminate a Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of a Plan by the Transfer Agent or the Fund, shares that have not been redeemed from the account will be held in uncertificated form in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder or his or her executor or guardian, or other authorized person. To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a portion of the shares in certificated form. Upon written request from the Planholder, the Transfer Agent will determine the number of shares for which a certificate may be issued without causing the withdrawal checks to stop because of exhaustion of uncertificated shares needed to continue payments. However, should such uncertificated shares become exhausted, Plan withdrawals will terminate. If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as agent in administering the Plan. How To Exchange Shares As stated in the Prospectus, shares of a particular class of OppenheimerFunds having more than one class of shares may be exchanged only for shares of the same class of other OppenheimerFunds. Shares of the OppenheimerFunds that have a single class without a class designation are deemed "Class A" shares for this purpose. All OppenheimerFunds offer Class A shares (except for Oppenheimer Strategic Diversified Income Fund), but only the following other OppenheimerFunds currently offer Class B shares: Oppenheimer Main Street Income & Growth Fund Oppenheimer Strategic Income Fund Oppenheimer Strategic Income & Growth Fund Oppenheimer Strategic Investment Grade Bond Fund Oppenheimer Strategic Short-Term Income Fund Oppenheimer New York Tax-Exempt Fund Oppenheimer Tax-Free Bond Fund Oppenheimer California Tax-Exempt Fund Oppenheimer Pennsylvania Tax-Exempt Fund Oppenheimer Florida Tax-Exempt Fund Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Insured Tax-Exempt Bond Fund Oppenheimer Main Street California Tax-Exempt Fund Oppenheimer Total Return Fund, Inc. Oppenheimer Investment Grade Bond Fund Oppenheimer Value Stock Fund Oppenheimer Limited-Term Government Fund Oppenheimer High Yield Fund Oppenheimer Mortgage Income Fund Oppenheimer Cash Reserves (Class B shares are only available by exchange) Oppenheimer Growth Fund Oppenheimer Global Fund Oppenheimer Discovery Fund Class A shares of OppenheimerFunds may be exchanged at net asset value for shares of any Money Market Fund. Shares of any Money Market Fund purchased without a sales charge may be exchanged for shares of OppenheimerFunds offered with a sales charge upon payment of the sales charge (or, if applicable, may be used to purchase shares of OppenheimerFunds subject to a contingent deferred sales charge). Shares of this Fund acquired by reinvestment of dividends or distributions from any other of the OppenheimerFunds or from any unit investment trust for which reinvestment arrangements have been made with the Distributor may be exchanged at net asset value for shares of any of the OppenheimerFunds. No contingent deferred sales charge is imposed on exchanges of shares of either class purchased subject to a contingent deferred sales charge. However, when Class A shares acquired by exchange of Class A shares of other OppenheimerFunds purchased subject to a Class A contingent deferred sales charge are redeemed within 18 months of the end of the calendar month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred sales charge is imposed on the redeemed shares (see "Class A Contingent Deferred Sales Charge" in the Prospectus). The Class B contingent deferred sales charge is imposed on Class B shares acquired by exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. When Class B shares are redeemed to effect an exchange, the priorities described in "How To Buy Shares" in the Prospectus for the imposition of the Class B contingent deferred sales charge will be followed in determining the order in which the shares are exchanged. Shareholders should take into account the effect of any exchange on the applicability and rate of any contingent deferred sales charge that might be imposed in the subsequent redemption of remaining shares. Shareholders owning shares of both classes must specify whether they intend to exchange Class A or Class B shares. The Fund reserves the right to reject telephone or written exchange requests submitted in bulk by anyone on behalf of 10 or more accounts. The Fund may accept requests for exchanges of up to 50 accounts per day from representatives of authorized dealers that qualify for this privilege. In connection with any exchange request, the number of shares exchanged may be less than the number requested if the exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this Statement of Additional Information or would include shares covered by a share certificate that is not tendered with the request. In those cases, only the shares available for exchange without restriction will be exchanged. When exchanging shares by telephone, a shareholder must either have an existing account in, or obtain and acknowledge receipt of a prospectus of, the fund to which the exchange is to be made. For full or partial exchanges of an account made by telephone, any special account features such as Asset Builder Plans, Automatic Withdrawal Plans and retirement plan contributions will be switched to the new account unless the Transfer Agent is instructed otherwise. If all telephone lines are busy (which might occur, for example, during periods of substantial market fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage it (for example, if the receipt of multiple exchange requests from a dealer might require the disposition of portfolio securities at a time or at a price that might be disadvantageous to the Fund). The different OppenheimerFunds available for exchange have different investment objectives, policies and risks, and a shareholder should assure that the Fund selected is appropriate for his or her investment and should be aware of the tax consequences of an exchange. For federal income tax purposes, an exchange transaction is treated as a redemption of shares of one fund and a purchase of shares of another. "Reinvestment Privilege," above, discusses some of the tax consequences of reinvestment of redemption proceeds in such cases. The Fund, the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a shareholder in connection with an exchange request or any other investment transaction. Dividends, Capital Gains and Taxes Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment of the Fund's dividends and capital gains distributions is explained in the Prospectus under the caption "Dividends, Capital Gains and Taxes." Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the 70% dividends-received deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. In addition, the amount of dividends paid by the Fund which may qualify for the deduction is limited to the aggregate amount of qualifying dividends that the Fund derives from its portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will not be eligible for the deduction on dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are derived from gross income from option premiums, interest income or short-term gains from the sale of securities or dividends from foreign corporations, those dividends will not qualify for the deduction. None of the dividends paid by the Fund during the fiscal year ended September 30, 1994 are eligible for the corporate dividend-received deduction. Dividends, distributions and the proceeds of the redemption of Fund shares represented by checks returned to the Transfer Agent by the Postal Service as undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc., as promptly as possible after the return of such checks to the Transfer Agent, to enable the investor to earn a return on otherwise idle funds. Under the Internal Revenue Code, by December 31 each year, the Fund must distribute 98% of its taxable investment income earned from January 1 through December 31 of that year and 98% of its capital gains realized in the period from November 1 of the prior year through October 31 of the current year, or else the Fund must pay an excise tax on the amounts not distributed. While it is presently anticipated that the Fund will meet those requirements, the Fund's Board of Trustees and the Manager might determine in a particular year that it would be in the best interest of shareholders for the Fund not to make such distributions at the required levels and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains available for distribution to shareholders. The Internal Revenue Code requires that a holder (such as the Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though the Fund receives no interest payment in cash on the security during the year. As an investment company, the Fund must pay out substantially all of its net investment income each year. Accordingly, the Fund may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest the Fund actually received. Such distributions will be made from the cash assets of the Fund or by liquidation of portfolio securities, if necessary. If a distribution of cash necessitates the liquidation of portfolio securities, the Manager will select which securities to sell. The Fund may realize a gain or loss from such sales. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution than they would have had in the absence of such transactions. Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains distributions in shares of the same class of any of the other OppenheimerFunds listed in "Reduced Sales Charges," above, at net asset value without sales charge. Class B shareholders should be aware that as of the date of this Statement of Additional Information, not all of the OppenheimerFunds offer Class B shares. To elect this option, a shareholder must notify the Transfer Agent in writing and either have an existing account in the fund selected for reinvestment or must obtain a prospectus for that fund and an application from the Distributor to establish an account. The investment will be made at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. Dividends and/or distributions from shares of other OppenheimerFunds may be invested in shares of this Fund on the same basis. Additional Information About the Fund The Custodian. The Bank of New York is the Custodian of the Fund's assets. The Custodian's responsibilities include safeguarding and controlling the Fund's portfolio securities, collecting income on the portfolio securities and handling the delivery of such securities to and from the Fund. The Manager has represented to the Fund that the banking relationships between the Manager and the Custodian have been and will continue to be unrelated to and unaffected by the relationship between the Fund and the Custodian. It will be the practice of the Fund to deal with the Custodian in a manner uninfluenced by any banking relationship the Custodian may have with the Manager and its affiliates. Independent Auditors. The independent auditors of the Fund audit the Fund's financial statements and perform other related audit services. They also act as auditors for the Manager and certain other funds advised by the Manager and its affiliates. Appendix Industry Classifications Aerospace/Defense Air Transportation Auto Parts Distribution Automotive Bank Holding Companies Banks Beverages Broadcasting Broker-Dealers Building Materials Cable Television Chemicals Commercial Finance Computer Hardware Computer Software Conglomerates Consumer Finance Containers Convenience Stores Department Stores Diversified Financial Diversified Media Drug Stores Drug Wholesalers Durable Household Goods Education Electric Utilities Electrical Equipment Electronics Energy Services & Producers Entertainment/Film Environmental Food Gas Utilities Gold Health Care/Drugs Health Care/Supplies & Services Homebuilders/Real Estate Hotel/Gaming Industrial Services Insurance Leasing & Factoring Leisure Manufacturing Metals/Mining Nondurable Household Goods Oil - Integrated Paper Publishing/Printing Railroads Restaurants Savings & Loans Shipping Special Purpose Financial Specialty Retailing Steel Supermarkets Telecommunications - Technology Telephone - Utility Textile/Apparel Tobacco Toys Trucking * For purposes of the Fund's investment policy not to concentrate in securities of issuers in the same industry, utilities are divided into "industries" according to their services (e.g. gas utilities, gas transmission utilities, electric utilities and telephone utilities each will be considered a separate industry). Investment Adviser Oppenheimer Management Corporation Two World Trade Center New York, New York 10048-0203 Distributor Oppenheimer Funds Distributor, Inc. Two World Trade Center New York, New York 10048-0203 Transfer and Shareholder Servicing Agent Oppenheimer Shareholder Services P.O. Box 5270 Denver, Colorado 80217 1-800-525-7048 Custodian of Portfolio Securities The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche LLP 1560 Broadway Denver, Colorado 80202 Legal Counsel Myer, Swanson, Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202 [Logo] OPPENHEIMERFUNDS OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND ANNUAL REPORT SEPTEMBER 30, 1994 FUND FACTS IN THIS REPORT: ANSWERS TO TIMELY QUESTIONS YOU SHOULD ASK YOUR FUND'S MANAGERS. - - HOW DID THE FUND RESPOND TO RISING INTEREST RATES IN THE U.S. AND OVERSEAS? - - WHAT'S THE OUTLOOK FOR INVESTMENT-GRADE CORPORATE BONDS? - - WHERE ARE YOU FINDING ATTRACTIVE INVESTMENT OPPORTUNITIES TODAY? FACTS EVERY SHAREHOLDER SHOULD KNOW ABOUT OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- 1 The Fund seeks high current income, consistent with stability of principal from investment-grade debt securities. Assets are allocated among U.S. government bonds, foreign fixed income securities, and investment-grade corporate bonds. - -------------------------------------------------------------------------------- 2 Standardized yield for the 30 days ended September 30, 1994 was 6.64% for Class A shares and 6.35% for Class B shares.(1) - -------------------------------------------------------------------------------- 3 Total return at net asset value for the 12 months ended September 30, 1994 was -1.76% for Class A shares and -2.45% for Class B shares.(2) - -------------------------------------------------------------------------------- 4 Average annual total returns for Class A shares for the 1-year period ended September 30, 1994 and since inception of the Fund on April 22, 1992 were -6.43% and 2.83%, respectively. For Class B shares, average annual total returns for the 1-year period ended September 30, 1994 and since inception of the Class on November 30, 1992 were -7.32% and 1.67%, respectively.(3) - -------------------------------------------------------------------------------- 5 "The Fund's flexibility to shift assets strategically among bond-market sectors is a major plus for shareholders in the current investment environment. It has allowed us to capitalize on changing opportunities in the world's bond markets, capturing attractive yields while limiting the portfolio's exposure to rising interest rates worldwide." PORTFOLIO MANAGERS DAVID NEGRI AND ART STEINMETZ, SEPTEMBER 30, 1994 (1) Standardized yield is net investment income calculated on a yield-to-maturity basis for the 30-day period ended 9/30/94, divided by the maximum offering price at the end of the period, compounded semi-annually and then annualized. Falling net asset values will tend to artificially raise yields. (2) Based on the changes in net asset value per share from 9/30/93 to 9/30/94, without deducting any sales charges. Such performance would have been lower if sales charges were taken into account. (3) Average annual total returns are based on hypothetical investments held until 9/30/94, after deducting the current maximum initial sales charge of 4.75% for Class A shares and the contingent deferred sales charge of 5% (1-year) and 4% (since inception) for Class B shares. The Fund's portfolio is subject to change. All figures assume reinvestment of dividends and capital gains distributions. Past performance is not indicative of future results. Investment and principal value on 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. 2 Oppenheimer Strategic Investment Grade Bond Fund REPORT TO SHAREHOLDERS Oppenheimer Strategic Investment Grade Bond Fund continued to provide shareholders with an attractive yield for the 12 months ended September 30, 1994. At that date, the Fund's standardized 30-day yield was 6.64% for Class A shares and 6.35% for Class B shares.(4) Your managers' ability to shift assets strategically among three sectors--U.S. government securities, investment-grade corporate bonds, and foreign fixed income securities played an important role in the Fund's performance over the past year. As the Federal Reserve and central banks worldwide moved aggressively to raise short-term interest rates to fend off inflation, your managers were able to capture rising yields while limiting the portfolio's price erosion. As the economic cycle in the U.S. advanced and interest rates began to rise, your managers reduced the Fund's overall exposure to Treasury securities, which tend to lag investment-grade corporate bonds in the mid-to-late stages of economic expansion. Your managers also adjusted the Fund's holdings within the investment-grade corporate bond sector. Bonds issued by consumer-durable and financial services companies, whose earnings are sensitive to interest-rate changes, were de-emphasized, while more attention was focused on bonds issued by larger industrial companies. In addition to increasing positions in the chemicals, mining, metals, forest products, and telecommunications industries, your managers also re-established a position in utilities, a sector that offers attractive investment opportunities. As interest rates rose offshore and the dollar weakened against major currencies, your managers emphasized investments in Europe. In addition to increasing the portfolio's holdings of foreign government bonds, which made up 13% of the portfolio on September 30, your managers focused more attention on large European industrial companies positioned to benefit from economic growth. Looking ahead, your managers don't anticipate major changes in the portfolio's composition in the near term. The Fund's allocations will, of course, be adjusted should the economic expansion appear to be ending, but all signs are currently pointing to continued gradual growth--and your Fund is well-positioned to provide attractive returns. We appreciate the confidence you have placed in Oppenheimer Strategic Investment Grade Bond Fund, and we look forward to continuing to help you reach your investment goals. James C. Swain Chairman Oppenheimer Strategic Investment Grade Bond Fund October 21, 1994 Jon S. Fossel President Oppenheimer Strategic Investment Grade Bond Fund October 21, 1994 (4) See footnote 1, page 2. 3 Oppenheimer Strategic Investment Grade Bond Fund ------------------------------------------------------------ ------------------------------------------------------------ STATEMENT OF INVESTMENTS September 30, 1994
FACE MARKET VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- GOVERNMENT OBLIGATIONS--36.5% - ------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM--1.5% - ------------------------------------------------------------------------------------------------------------------------------- Bonos de la Tesoreria la Federacion: 0%, 12/8/94 $ 125,000 $ 123,404 0%, 1/12/95 500,000 490,089 ----------- 613,493 - ------------------------------------------------------------------------------------------------------------------------------- LONG-TERM--35.0% - ------------------------------------------------------------------------------------------------------------------------------- Czechoslovakia National Bank Bonds, 7%, 4/6/96(2) 1,000,000 997,500 ------------------------------------------------------------------------------------------------- Denmark (Kingdom Of) Bonds, 9%, 11/15/98 4,500,000(1) 745,895 ------------------------------------------------------------------------------------------------- Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(2) 750,000 718,613 ------------------------------------------------------------------------------------------------- First Australia National Mortgage Acceptance Corp. Ltd. Bonds, Series 22, 11.40% 12/15/01 283,680(1) 213,477 ------------------------------------------------------------------------------------------------- Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95 2,000,000,000(1) 843,111 ------------------------------------------------------------------------------------------------- Italy (Republic of) Treasury Bonds: 12%, 9/1/97 300,000,000(1) 195,077 Buoni Poliennali del Tes: 12%, 1/1/96 15,000,000(1) 9,736 12%, 5/1/97 500,000,000(1) 324,840 12.50%, 6/16/97 250,000,000(1) 164,119 12.50%, 3/19/98 50,000,000(1) 33,077 12%, 1/17/99 50,000,000(1) 32,381 ------------------------------------------------------------------------------------------------- New Zealand (Government of), 10%, 7/15/97 390,000(1) 240,946 ------------------------------------------------------------------------------------------------- South Australia Government Finance Authority Bonds, 10%, 1/15/03 250,000(1) 177,500 ------------------------------------------------------------------------------------------------- Spain (Kingdom of) Bonds, 11.45%, 8/30/98 122,500,000(1) 964,660 ------------------------------------------------------------------------------------------------- Treasury Corp. of Victoria Gtd. Bonds: 12%, 10/22/98 250,000(1) 198,688 8.25%, 10/15/03 620,000(1) 394,827 ------------------------------------------------------------------------------------------------- United Kingdom Treasury Nts., 12.25%, 3/26/99 391,000(1) 693,105 ------------------------------------------------------------------------------------------------- U.S. Treasury Bonds, 7.125%, 2/15/23(5) 1,000,000 909,062 ------------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 4.625%, 8/15/95 900,000 890,438 4.375%, 8/15/96 3,000,000 2,888,436 5.125%, 2/28/98 1,000,000 943,437 8.875%, 11/15/19 1,130,000 1,190,738 ------------------------------------------------------------------------------------------------- Western Australia Treasury Corp. Gtd. Bonds, 12.50%, 4/1/98 225,000 180,759 ----------- 13,950,422 ------------------------------------------------------------------------------------------------- Total Government Obligations (Cost $15,147,238) $14,563,915 4 Oppenheimer Strategic Investment Grade Bond Fund FACE MARKET VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------------------------------- MORTGAGE/ASSET-BACKED OBLIGATIONS--29.0% - ------------------------------------------------------------------------------------------------------------------------------- CMC Security Corp. I, 10% Collateralized Mtg. Obligation, Series 1993-D, Cl. D-3, 7/25/23(2) $ 768,431 $ 806,637 ------------------------------------------------------------------------------------------------- FDIC Trust, 1994-C1, Class 2-D, 8.70%, 9/25/25(2) 1,000,000 959,531 ------------------------------------------------------------------------------------------------- FDIC Trust, 1994-C1, Class 2-E, 8.70%, 09/25/25(2) 1,000,000 924,844 ------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., 7%, Series 1548, Cl. C, 4/15/21 4,000,000 3,501,240 ------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. Interest-Only Stripped Mtg.- Backed Security, Trust 240, Class 2, 7%, 9/25/23(4) 2,731,263 1,032,759 ------------------------------------------------------------------------------------------------- First Boston Corp. Mtg. Securities, 7.06%, Series 1993-AFC-1, 10/25/02 741,071 682,944 ------------------------------------------------------------------------------------------------- Government National Mortgage Assn.: 10.50%, 12/15/17 324,386 353,789 10.50%, 7/15/19 253,438 276,534 10.50%, 5/15/21 71,268 77,794 ------------------------------------------------------------------------------------------------- Residential Funding Corp. Mtg. Pass-Through Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23 905,079 896,708 ------------------------------------------------------------------------------------------------- Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: 9%, Series 1991-M5, Cl. A, 3/25/17 746,768 750,269 8.75% Series 1993-C1, Cl. B, 5/25/24 700,000 693,000 10.638%, Series 1992-16, Cl. B3, 5/25/24(3) 600,000 607,875 ------------------------------------------------------------------------------------------------- Total Mortgage/Asset-Backed Obligations (Cost $12,130,633) 11,563,924 - ------------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS AND NOTES--0.5% - ------------------------------------------------------------------------------------------------------------------------------- New York State Environmental Facilities Corp. State Service Contract Taxable Revenue Bonds, Series B, 8.15%, 3/15/02 200,000 199,878 ------------------------------------------------------------------------------------------------- Total Municipal Bonds and Notes (Cost $197,611) 199,878 - ------------------------------------------------------------------------------------------------------------------------------- LONG-TERM CORPORATE BONDS AND NOTES--30.6% - ------------------------------------------------------------------------------------------------------------------------------- BASIC MATERIALS--4.6% - ------------------------------------------------------------------------------------------------------------------------------- CHEMICALS--2.4% Hook-Superx, Inc., 10.125%, 6/1/02 400,000 418,000 ------------------------------------------------------------------------------------------------- Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 500,000 554,828 ----------- 972,828 - ------------------------------------------------------------------------------------------------------------------------------- PAPER AND FOREST R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04 500,000 445,000 PRODUCTS--2.2% ------------------------------------------------------------------------------------------------- Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 472,481 434,915 ----------- 879,915 - ------------------------------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS--2.9% - ------------------------------------------------------------------------------------------------------------------------------- AUTOMOTIVE--0.6% - ------------------------------------------------------------------------------------------------------------------------------- Chrysler Corp., 10.95% Nts., 8/1/17 200,000 222,175 - ------------------------------------------------------------------------------------------------------------------------------- CONSUMER GOODS AND Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 415,000 SERVICES--1.0% - ------------------------------------------------------------------------------------------------------------------------------- ENTERTAINMENT--0.3% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 150,000 131,604 - ------------------------------------------------------------------------------------------------------------------------------- RETAIL--1.0% Sears Canada, Inc., 11.70% Debs., 7/10/00 500,000(1) 403,513 - ------------------------------------------------------------------------------------------------------------------------------- CONSUMER NON-CYCLICALS--3.3% - ------------------------------------------------------------------------------------------------------------------------------- FOOD--3.3% ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 232,922 ------------------------------------------------------------------------------------------------- RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98 1,000,000 1,058,428 ----------- 1,291,350 5 Oppenheimer Strategic Investment Grade Bond Fund ------------------------------------------------------------ ------------------------------------------------------------ STATEMENT OF INVESTMENTS (Continued) FACE MARKET VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------------------------------- ENERGY--2.2% McDermott, Inc., 9.375% Nts., 3/15/02 $ 100,000 $ 103,757 ------------------------------------------------------------------------------------------------- Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 400,000 415,619 ------------------------------------------------------------------------------------------------- Tenneco, Inc.: 7.875% Nts., 10/1/02 250,000 244,622 10% Debs., 3/15/08 100,000 110,090 ----------- 874,088 - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL--7.7% American Car Line Co., 8.25% Equipment Trust Ctfs., Series 1993-A, 4/15/08 270,000 261,900 ------------------------------------------------------------------------------------------------- BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 201,612 ------------------------------------------------------------------------------------------------- Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 300,000 322,226 ------------------------------------------------------------------------------------------------- First Chicago, 9% Sub. Cap. Nts., 6/15/99 100,000 104,402 ------------------------------------------------------------------------------------------------- General Motors Acceptance Corp.: 8% Nts., 10/1/96 100,000 101,332 7.75% Nts., 4/15/97 300,000 300,328 5.50% Nts., 12/15/01 100,000 85,232 ------------------------------------------------------------------------------------------------- Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000 303,421 ------------------------------------------------------------------------------------------------- International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 800,000(1) 520,608 ------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 303,039 ------------------------------------------------------------------------------------------------- NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 250,000 233,662 ------------------------------------------------------------------------------------------------- PaineWebber Group, Inc.: 7% Nts., 3/1/00 160,000 149,590 7.75% Sub. Nts., 9/1/02 200,000 187,020 ----------- 3,074,372 - ------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL--0.3% - ------------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION--0.3% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 107,371 - ------------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--5.6% - ------------------------------------------------------------------------------------------------------------------------------- AEROSPACE/DEFENSE--0.5% AMR Corp., 10% Nts., 4/15/21 200,000 195,822 - ------------------------------------------------------------------------------------------------------------------------------- CABLE TELEVISION--5.1% TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,300,000 1,412,125 ------------------------------------------------------------------------------------------------- Time Warner, Inc./Time Warner Entertainment LP, 8.375% Nts., 3/15/23 700,000 613,676 ----------- 2,025,801 - ------------------------------------------------------------------------------------------------------------------------------- UTILITIES--4.0% Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 548,750 ------------------------------------------------------------------------------------------------- Commonwealth Edison Co.: 6.50% Nts., 7/15/97 225,000 217,551 6.40% Nts., 10/15/05 75,000 60,573 ------------------------------------------------------------------------------------------------- Consumers Power Co., 6.375% Nts., 9/15/03 110,000 94,720 ------------------------------------------------------------------------------------------------- Long Island Lighting Co., 7% Nts., 3/1/04 200,000 160,242 ------------------------------------------------------------------------------------------------- Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds, 3/1/22 250,000 243,826 ------------------------------------------------------------------------------------------------- Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 288,996 ----------- 1,614,658 ------------------------------------------------------------------------------------------------- Total Long-Term Corporate Bonds and Notes (Cost $12,983,493) $12,208,497
6 Oppenheimer Strategic Investment Grade Bond Fund
FACE MARKET VALUE DATE/PRICE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- PUT OPTIONS PURCHASED --0.0% European OTC Deutsche Mark/U.S. Dollar Put Nov.2/1.60 DEM $2,579,158(1) $5,319 ------------------------------------------------------------------------------------------------- European OTC Deutsche Mark/U.S. Dollar Put Nov.4/1.60 DEM 1,289,579(1) 2,909 ------------------------------------------------------------------------------------------------- European OTC Deutsche Mark/U.S. Dollar Put Nov.8/1.60 DEM 1,289,579(1) 3,388 ------------------------------------------------------------------------------------------------- Total Put Options Purchased (Cost $56,204) 11,616 - ------------------------------------------------------------------------------------------------------------------------------- STRUCTURED INSTRUMENTS--3.4% Citibank, 10.50%--16% CD, 3/17/95--8/17/95 167,876,833(1) 856,102 ------------------------------------------------------------------------------------------------- Goldman Sachs International Limited, 5.10%, 2/28/95 80,000 77,808 ------------------------------------------------------------------------------------------------- Swiss Bank Corporation Investment Banking, Inc., 10% CD Sterling Rate Linked Nts., 7/3/95 410,000 404,424 ------------------------------------------------------------------------------------------------- Total Structured Instruments (Cost $1,340,894) 1,338,334 ------------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $41,856,073) 100.0% 39,886,164 ------------------------------------------------------------------------------------------------- Other Assets Net of Liabilities 0.0% 8,902 ------------------------------------------------------------------------------------------------- Net Assets 100.00% $39,895,066 ------ ----------- ------ ----------- 1. Face amount is reported in foreign currency. 2. Restricted security--See Note 6 of Notes to Financial Statements. 3. Represents the current interest rate for a variable rate security. 4. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed-income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage backed securities (for example, GNMA pass-throughs).
5. Securities with an aggregate market value of $139,996 are held in escrow to cover outstanding call options as follows:
FACE EXPIRATION EXERCISE PREMIUM MARKET VALUE SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1 - ------------------------------------------------------------------------------------------------------------------------------- European OTC Deutsche Mark/U.S. Dollar 1,125,584 11/2/94 1.50 DEM $ 5,229 $ 2,968 European OTC Deutsche Mark/U.S. Dollar 505,697 11/2/94 1.60 DEM 13,188 16,854 European OTC Deutsche Mark/U.S. Dollar 582,792 11/4/94 1.50 DEM 2,709 1,662 European OTC Deutsche Mark/U.S. Dollar 252,848 11/4/94 1.60 DEM 6,644 8,351 European OTC Deutsche Mark/U.S. Dollar 562,792 11/8/94 1.54 DEM 6,715 6,919 European OTC Deutsche Mark/U.S. Dollar 252,848 11/8/94 1.60 DEM 6,876 8,651 ------- ------- $41,361 $45,405
See accompanying Notes to Financial Statements. 7 Oppenheimer Strategic Investment Grade Bond Fund
------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES September 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $41,856,073)--see accompanying statement $39,886,164 ------------------------------------------------------------------------------------------------- Receivables: Interest 763,532 Shares of beneficial interest sold 76,063 Investments sold 20,920 ------------------------------------------------------------------------------------------------- Deferred organization costs 5,700 ------------------------------------------------------------------------------------------------- Other 7,625 ----------- Total assets 40,760,004 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Bank overdraft 353,543 ------------------------------------------------------------------------------------------------- Options written, at value (premium received $41,361) see accompanying statement--Note 4 45,405 ------------------------------------------------------------------------------------------------- Payables and other liabilities: Shares of beneficial interest redeemed 242,246 Investments purchased 63,418 Distribution and service plan fees--Note 5 24,782 Dividends 59,937 Other 75,607 ----------- Total liabilities 864,938 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS $39,895,066 ----------- ----------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- COMPOSITION OF Paid-in capital $42,589,149 NET ASSETS ------------------------------------------------------------------------------------------------- Overdistributed net investment income (360,167) ------------------------------------------------------------------------------------------------- Accumulated net realized loss from investment, written option and foreign currency transactions (360,871) ------------------------------------------------------------------------------------------------- Net unrealized depreciation on investments, options written and translation of assets and liabilities denominated in foreign currencies (1,973,045) ----------- Net assets $39,895,066 ----------- ----------- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE Class A Shares: PER SHARE Net asset value and redemption price per share (based on net assets of $24,955,906 and 5,296,079 shares of beneficial interest outstanding) $4.71 Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $4.94 ------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price and offering price per share (based on net assets of $14,939,160 and 3,173,620 shares of beneficial interest outstanding) $4.71
See accompanying Notes to Financial Statements. 8 Oppenheimer Strategic Investment Grade Bond Fund
------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Year Ended September 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest (net of withholding taxes of $15,989) $ 3,458,069 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- EXPENSES Management fees--Note 5 319,025 ------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A--Note 5 67,190 Class B--Note 5 142,407 ------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees--Note 5 82,169 ------------------------------------------------------------------------------------------------- Shareholder reports 34,016 ------------------------------------------------------------------------------------------------- Custodian fees and expenses 23,204 ------------------------------------------------------------------------------------------------- Legal and auditing fees 11,880 ------------------------------------------------------------------------------------------------- Trustees' fees and expenses 381 ------------------------------------------------------------------------------------------------- Other 17,899 --------- Total expenses 698,171 ------------------------------------------------------------------------------------------------- Less reimbursement from Oppenheimer Management Corporation--Note 5 (19,540) ------------------------------------------------------------------------------------------------- Net expenses 678,631 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 2,779,438 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED Net realized loss from: GAIN (LOSS) ON INVESTMENTS, Investments and options written (689,604) OPTIONS WRITTEN AND Expiration and closing of option contracts written--Note 4 (10,859) FOREIGN CURRENCY Foreign currency transactions (215,015) TRANSACTIONS ----------- Net realized loss (915,478) ----------- Net change in unrealized appreciation or depreciation on: Investments and options written (3,112,420) Translation of assets and liabilities denominated in foreign currencies 383,409 ------------------------------------------------------------------------------------------------- Net change (2,729,011) ------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments, options written and foreign currency transactions (3,644,489) - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(865,051) ------------- -------------
See accompanying Notes to Financial Statements. 9 Oppenheimer Strategic Investment Grade Bond Fund
------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED SEPTEMBER 30, 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $2,779,438 $2,142,329 ------------------------------------------------------------------------------------------------- Net realized loss on investments, options written and foreign currency transactions (915,478) (368,788) ------------------------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation on investments, options written and translation of assets and liabilities denominated in foreign currencies (2,729,011) 659,287 ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (865,051) 2,432,828 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND Dividends from net investment income: DISTRIBUTIONS Class A ($.240 and $.372 per share, respectively) (1,253,403) (1,890,652) TO SHAREHOLDERS Class B ($.205 and $.270 per share, respectively) (750,521) (278,604) ------------------------------------------------------------------------------------------------- Dividends in excess of net investment income: Class A ($.010 per share) (27,359) -- Class B ($.010 per share) (16,382) -- ------------------------------------------------------------------------------------------------- Distributions from net realized gain on investments, options written and foreign currency transactions: Class A ($.003 per share) -- (13,770) Class B ($.003 per share) -- (654) ------------------------------------------------------------------------------------------------- Distributions in excess of net realized gain on investments, options written and foreign currency transactions: Class A ($.016 per share) (83,250) -- Class B ($.016 per share) (49,849) -- ------------------------------------------------------------------------------------------------- Tax return of capital: Class A ($.079 per share) (420,265) -- Class B ($.079 per share) (251,649) -- - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from TRANSACTIONS Class A beneficial interest transactions--Note 2 (3,401,990) 14,546,029 ------------------------------------------------------------------------------------------------- Net increase in net assets resulting from Class B beneficial interest transactions--Note 2 5,432,516 10,687,971 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS Total increase (decrease) (1,687,203) 25,483,148 ------------------------------------------------------------------------------------------------- Beginning of year 41,582,269 16,099,121 ----------- ----------- End of year (including overdistributed net investment income of $360,167 in 1994) $39,895,066 $41,582,269 ----------- ----------- ----------- -----------
See accompanying Notes to Financial Statements. 10 Oppenheimer Strategic Investment Grade Bond Fund
------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS CLASS A CLASS B - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPT. 30, 1994 1993 1992(2) 1994 1993(1) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING DATA: Net asset value, beginning of period $5.14 $5.16 $5.00 $5.14 $4.95 ------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .34 .36 .14 .34 .27 Net realized and unrealized gain (loss) on investments, options written and foreign currency transactions (.43) (.01) .19 (.46) .19 ------------------------------------------------------------------------------------------------ Total income (loss) from investment operations (.09) .35 .33 (.12) .46 ------------------------------------------------------------------------------------------------ Dividends and distributions to shareholders: Dividends from net investment income (.24) (.37) (.14) (.21) (.27) Dividends in excess of net investment income (.01) -- -- (.01) -- Distributions from net realized gain on investments, options written and foreign currency transactions -- -- (.03) -- -- ------------------------------------------------------------------------------------------------ Distributions in excess of net realized gain on investments, options written and foreign currency transactions (.01) -- -- (.01) -- Tax return of capital (.08) -- -- (.08) -- Total dividends and distributions to shareholders (.34) (.37) (.17) (.31) (.27) ------------------------------------------------------------------------------------------------- Net asset value, end of period $4.71 $5.14 $5.16 $4.71 $5.14 ----- ----- ----- ----- ------ ----- ----- ----- ----- ------ TOTAL RETURN, AT NET ASSET VALUE (3) (1.76)% 7.24% 6.67% (2.45)% 9.54% -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $24,956 $30,783 $16,099 $14,939 $10,800 -------------------------------------------------------------------------------------------------- Average net assets (in thousands) $28,294 $25,972 $4,939 $14,232 $5,310 -------------------------------------------------------------------------------------------------- Number of shares outstanding at end of period (in thousands) 5,296 5,989 3,117 3,174 2,103 -------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income 6.80% 7.18% 7.28%(4) 6.01% 6.28%(4) Expenses, before voluntary reimbursement by the Manager 1.38% 1.46% 2.00%(4) 2.16% 2.20%(4) Expenses, net of voluntary reimbursement by the Manager 1.33% 1.12% .29%(4) 2.12% 1.84%(4) -------------------------------------------------------------------------------------------------- Portfolio turnover rate(5) 68.6% 90.3% 30.6% 68.6% 90.3% 1. For the period from November 30, 1992 (inception of offering) to September 30, 1993. 2. For the period from April 22, 1992 (commencement of operations) to September 30, 1992. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the year ended September 30, 1994 were $33,753,825 and $26,698,460, respectively.
See accompanying Notes to Financial Statements. 11 Oppenheimer Strategic Investment Grade Bond Fund --------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. SIGNIFICANT Oppenheimer Strategic Investment Grade Bond Fund (the ACCOUNTING POLICIES Fund) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's investment advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class A and Class B shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge. Both classes of shares have identical rights to earnings, assets and voting privileges, except that each class has its own distribution and/or service plan, expenses directly attributable to a particular class and exclusive voting rights with respect to matters affecting a single class. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. ------------------------------------------------------- INVESTMENT VALUATION. Portfolio securities are valued at 4:00 p.m. (New York time) on each trading day. Listed and unlisted securities for which such information is regularly reported are valued at the last sale price of the day or, in the absence of sales, at values based on the closing bid or asked price or the last sale price on the prior trading day. Long-term debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Long-term debt securities which cannot be valued by the approved portfolio pricing service are valued by averaging the mean between the bid and asked prices obtained from two active market makers in such securities. Short-term debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Securities for which market quotes are not readily available are valued under procedures established by the Board of Trustees to determine fair value in good faith. An option is valued based upon the last sales price on the principal exchange on which the option is traded or, in the absence of any transactions that day, the value is based upon the last sale on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. Forward foreign currency contracts are valued at the forward rate on a daily basis. ------------------------------------------------------- FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. The Fund generally enters into forward foreign currency exchange contracts as a hedge, upon the purchase or sale of a security denominated in a foreign currency. In addition, the Fund may enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio positions. A forward exchange contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. Risks may arise from the potential inability of the counterparty to meet the terms of the contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the fund's results of operations. ------------------------------------------------------- REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. If the seller of the agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the value of the collateral by the Fund may be delayed or limited. ------------------------------------------------------- OPTIONS WRITTEN. The Fund may write covered call and put options. When an option is written, the Fund receives a premium and becomes obligated to sell the underlying security at a fixed price, upon exercise of the option. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or purchasing a security at a price different from the current market value. All securities covering call options written are held in escrow by the custodian bank and the Fund maintains liquid assets sufficient to cover written put options in the event of exercise by the holder. ------------------------------------------------------- ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES. Income, expenses (other than those attributable to a specific class) and gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 12 Oppenheimer Strategic Investment Grade Bond Fund 1. SIGNIFICANT FEDERAL INCOME TAXES. The Fund intends to continue to ACCOUNTING POLICIES comply with provisions of the Internal Revenue Code (CONTINUED) applicable to regulated investment companies and to distribute all of its taxable income, including any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income tax provision is required. At September 30, 1994, the Fund had available for federal income tax purposes an unused capital loss carryover of approximately $24,000 expiring in 2002. ------------------------------------------------------- ORGANIZATION COSTS. The Manager advanced $15,264 for organization and start-up costs of the Fund. Such expenses are being amortized over a five-year period from the date operations commenced. In the event that all or part of the Manager's initial investment in shares of the Fund is withdrawn during the amortization period, the redemption proceeds will be reduced to reimburse the Fund for any unamortized expenses, in the same ratio as the number of shares redeemed bears to the number of initial shares outstanding at the time of such redemption. ------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately for Class A and Class B shares from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. Distributions from net realized gains on investments, if any, will be declared at least once each year. ------------------------------------------------------- CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October 1, 1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the Fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, subsequent to September 30, 1993, amounts have been reclassified to reflect a decrease in undistributed net investment income of $510,955, and a decrease in undistributed capital loss on investments of $510,955. During the year ended September 30, 1994, in accordance with Statement of Position 93-2, paid-in capital was decreased by $671,914, undistributed net investment income was increased by $86,885 and undistributed capital loss was decreased by $585,029. ------------------------------------------------------- OTHER. Investment transactions are accounted for on the date the investments are purchased or sold (trade date). Discount on securities purchased is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and options written and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. - -------------------------------------------------------------------------------- 2. SHARES OF The Fund has authorized an unlimited number of no par BENEFICIAL INTEREST value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED SEPTEMBER 30, 1994 PERIOD ENDED SEPTEMBER 30, 1993(1) ------------------------------ ----------------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------------------- Class A: Sold 1,541,101 $7,739,640 5,266,098 $27,442,371 Dividends and distributions reinvested 284,805 1,388,625 248,836 1,263,984 Redeemed (2,518,406) (12,530,255) (2,643,764) (14,160,326) ---------- ------------ ---------- ----------- Net decrease (692,500) $(3,401,990) 2,871,170 $14,546,029 ---------- ------------ ---------- ----------- ---------- ------------ ---------- ----------- ------------------------------------------------------------------------------------------------------------------- Class B: Sold 1,732,642 $8,472,995 2,252,666 $11,452,295 Dividends and distributions reinvested 74,300 587,645 33,869 173,117 Redeemed (736,073) (3,628,124) (183,784) (937,441) ---------- ------------ ---------- ----------- Net increase 1,070,869 $5,432,516 2,102,751 $10,687,971 ---------- ------------ ---------- ----------- ---------- ------------ ---------- ----------- 1. For the year ended September 30, 1993 for Class A shares and for the period from November 30, 1992 (inception of offering) to September 30, 1993 for Class B shares.
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3. Unrealized Gains and At September 30, 1994, net unrealized depreciation Losses on Investments on investments and options written of $1,973,953 was composed of gross appreciation of $295,626, and gross depreciation of $2,269,579. 13 Oppenheimer Strategic Investment Grade Bond Fund - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) - ------------------------------------------------------------------------------- 4. OPTION ACTIVITY Option activity for the year ended September 30, 1994 was as follows:
CALL OPTIONS PUT OPTIONS ------------ ----------- NUMBER AMOUNT NUMBER AMOUNT OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS ---------- ----------- ---------- ----------- Options outstanding at September 30, 1993 100 $14,219 -- $-- ------------------------------------------------------------------------------------------------------------------------ Options written 3,262,561 41,361 860 3,359 ------------------------------------------------------------------------------------------------------------------------ Options expired prior to exercise (100) (14,219) (860) (3,359) ------------------------------------------------------------------------------------------------------------------------ Options exercised -- -- -- -- ------------------------------------------------------------------------------------------------------------------------ Options outstanding at September 30, 1994 3,262,561 $41,361 -- $-- --------- --------- --------- --------- --------- --------- --------- ---------
5. MANAGEMENT FEES Management fees paid to the Manager were in accordance AND OTHER TRANSACTIONS with the investment advisory agreement with the Fund WITH AFFILIATES which provides for an annual fee of .75% on the first $200 million of net assets with a reduction of .03% on each $200 million thereafter to $800 million, .60% on the next $200 million and .50% on net assets in excess of $1 billion. The Manager has agreed to reimburse the Fund if aggregate expenses (with specified exceptions) exceed the most stringent applicable regulatory limit on Fund expenses. A voluntary undertaking to reimburse Fund expenses to the level needed to maintain a stable dividend was terminated November 24, 1993. For the year ended September 30, 1994, commissions (sales charges paid by investors) on sales of Class A shares totaled $212,013, of which $77,763 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor, and by an affiliated broker/dealer. During the period ended September 30, 1994, OFDI received contingent deferred sales charges of $40,567 upon redemption of Class B shares, as reimbursement for sales commissions advanced by OFDI at the time of sale of such shares. Oppenheimer Shareholder Services (OSS), a division of the Manager, is the transfer and shareholder servicing agent for the Fund, and for other registered investment companies. OSS's total costs of providing such services are allocated ratably to these companies. Under separate approved plans, each class may expend up to .25% of its net assets annually to reimburse OFDI for costs incurred in connection with the personal service and maintenance of accounts that hold shares of the Fund, including amounts paid to brokers, dealers, banks and other financial institutions. In addition, Class B shares are subject to an asset-based sales charge of .75% of net assets annually, to reimburse OFDI for sales commissions paid from its own resources at the time of sale and associated financing costs. In the event of termination or discontinuance of the Class B plan, the Board of Trustees may allow the Fund to continue payment of the asset-based sales charge to OFDI for distribution expenses incurred on Class B shares sold prior to termination or discontinuance of the plan. During the year ended September 30, 1994, OFDI paid $11,485 and $1,220, respectively, to an affiliated broker/dealer as reimbursement for Class A and Class B personal service and maintenance expense and retained $132,607 as reimbursement for Class B sales commissions and service fee advances, as well as financing costs. 14 Oppenheimer Strategic Investment Grade Bond Fund - ------------------------------------------------------------------------------- 6. RESTRICTED SECURITIES The Fund owns securities purchased in private placement transactions, without registration under the Securities Act of 1933 (the Act). The securities are valued under methods approved by the Board of Trustees as reflecting fair value. The Fund intends to invest no more than 10% of its net assets (determined at the time of purchase) in restricted and illiquid securities, excluding securities eligible for resale pursuant to Rule 144A of the Act that are determined to be liquid by the Board of Trustees or by the Manager under Board-approved guidelines. Restricted and illiquid securities, excluding securities eligible for resale pursuant to Rule 144A of the Act amount to $1,884,375 or 4.72% of the Fund's net assets, at September 30, 1994. Illiquid and/or restricted securities, including those restricted securities that are transferable under Rule 144A of the Act are listed below.
VALUATION PER UNIT AS OF SECURITY ACQUISITION DATE COST PER UNIT SEPTEMBER 30, 1994 ------------------------------------------------------------------------------------------------------------------- CMC Security Corp. I, 10% Collateralized Mtg. Obligation, Series 1993-D, Cl. D-3, 7/25/23(1) 5/17/93 $108.27 $104.97 ------------------------------------------------------------------------------------------------------------------- Czechoslovakia National Bank Bonds, 7%, 4/6/96(1) 3/11/93-5/17/93 $100.05 $99.75 ------------------------------------------------------------------------------------------------------------------- Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(1) 6/24/93 $99.63 $95.82 ------------------------------------------------------------------------------------------------------------------- FDIC Trust, 1994--C1, Class 2-D, 8.70%, 9/25/25 8/10/94 $98.00 $95.95 ------------------------------------------------------------------------------------------------------------------- FDIC Trust, 1994--C1, Class 2-E, 8.70%, 9/25/25 8/10/94 $94.88 $92.48 1. Transferable under Rule 144A of the Act.
15 Oppenheimer Strategic Investment Grade Bond Fund ----------------------------------------- Independent Auditors' Report ----------------------------------------- The Board of Trustees and Shareholders of Oppenheimer Strategic Investment Grade Bond Fund: We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Oppenheimer Strategic Investment Grade Bond Fund as of September 30, 1994, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended September 30, 1994 and 1993 and the financial highlights for the period April 22, 1992 (commencement of operations) to September 30, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Oppenheimer Strategic Investment Grade Bond Fund at September 30, 1994, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Denver, Colorado October 21, 1994 16 Oppenheimer Strategic Investment Grade Bond Fund ------------------------------------------- FEDERAL INCOME TAX INFORMATION (Unaudited) In early 1995, shareholders will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 1994. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. None of the dividends paid by the Fund during the fiscal year ended September 30, 1994 are eligible for the corporate dividend-received deduction. 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. 17 Oppenheimer Strategic Investment Grade Bond Fund ----------------------------------------------- ----------------------------------------------- OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND - ------------------------------------------------------------------------------- OFFICERS AND TRUSTEES James C. Swain, Chairman and Chief Executive Officer Robert G. Avis, Trustee William A. Baker, Trustee Charles Conrad, Jr., Trustee Jon S. Fossel, Trustee and President Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Ned M. Steel, Trustee Andrew J. Donohue, Vice President David P. Negri, Vice President Arthur P. Steinmetz, Vice President George C. Bowen, Vice President, Secretary and Treasurer Robert J. Bishop, Assistant Treasurer Scott Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary - ------------------------------------------------------------------------------- INVESTMENT ADVISOR Oppenheimer Management Corporation - ------------------------------------------------------------------------------- DISTRIBUTOR Oppenheimer Funds Distributor, Inc. - ------------------------------------------------------------------------------- TRANSFER AND SHAREHOLDER Oppenheimer Shareholder Services SERVICING AGENT - ------------------------------------------------------------------------------- CUSTODIAN OF The Bank of New York PORTFOLIO SECURITIES - ------------------------------------------------------------------------------- INDEPENDENT AUDITORS Deloitte & Touche LLP - ------------------------------------------------------------------------------- LEGAL COUNSEL Myer, Swanson & Adams, P.C. This is a copy of a report to shareholders of Oppenheimer Strategic Investment Grade Bond Fund. This report must be preceded or accompanied by a Prospectus of Oppenheimer Strategic Investment Grade Bond Fund. For material information concerning the Fund, see the Prospectus. 18 Oppenheimer Strategic Investment Grade Bond Fund - ------------------------------------------------------------------------------ OPPENHEIMERFUNDS FAMILY OppenheimerFunds offers over 35 funds designed to fit virtually every investment goal. Whether you're investing for retirement, your children's education or tax-free income, we have the funds to help you seek your objective. When you invest with OppenheimerFunds, you can feel comfortable knowing that you are investing with a respected financial institution with over 30 years of experience in helping people just like you reach their financial goals. And you're investing with a leader in global, growth stock and flexible fixed-income investments--with over 1.8 million shareholder accounts and more than $26 billion under Oppenheimer's management and that of our affiliates. As an OppenheimerFunds shareholder, you can easily exchange shares of eligible funds of the same class by mail or by telephone for a small administrative fee.(1) For more information on OppenheimerFunds, please contact your financial advisor or call us at 1-800-525-7048 for a prospectus. You may also write us at the address shown on the back cover. As always, please read the prospectus carefully before you invest. - ------------------------------------------------------------------------------- Stock Funds Discovery Fund Global Fund Global Emerging Growth Fund(2) Oppenheimer Fund Time Fund Value Stock Fund Target Fund Gold & Special Minerals Fund Growth Fund(3) - ------------------------------------------------------------------------------- Stock & Bond Funds Main Street Income & Growth Fund Total Return Fund Global Growth & Income Fund Equity Income Fund Asset Allocation Fund - ------------------------------------------------------------------------------- Bond Funds High Yield Fund Champion High Yield Fund Strategic Income & Growth Fund Strategic Income Fund Strategic Diversified Income Fund Strategic Investment Grade Bond Fund Strategic Short-Term Income Fund Investment Grade Bond Fund Mortgage Income Fund U.S. Government Trust Limited-Term Government - ------------------------------------------------------------------------------- Tax-Exempt Funds New York Tax-Exempt Fund(4) California Tax-Exempt Fund(4) Pennsylvania Tax-Exempt Fund(4) Florida Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4) Tax-Free Bond Fund Insured Tax-Exempt Bond Fund Intermediate Tax-Exempt Bond Fund - ------------------------------------------------------------------------------- Money Market Funds Money Market Fund Cash Reserves 1. The fee is waived for PhoneLink exchanges between existing accounts. Exchange privileges are subject to change or termination. 2. Formerly Oppenheimer Global Bio-Tech Fund and Oppenheimer Global Environment Fund. 3. Formerly Special Fund. 4. Available only to residents of those states. OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two World Trade Center, New York, NY 10048-0203. (C) Copyright 1994 Oppenheimer Management Corporation. All rights reserved. 19 Oppenheimer Strategic Investment Grade Bond Fund "HOW MAY I HELP YOU?" GENERAL INFORMATION 1-800-525-7048 Talk to a Customer Service Representative. Monday through Friday from 8:30 a.m. to 8:00 p.m., and Saturday from 10:00 a.m. to 2:00 p.m. ET. TELEPHONE TRANSACTIONS 1-800-852-8457 Make account transactions with a Customer Service Representative. Monday through Friday from 8:30 a.m. to 8:00 p.m. ET. PHONELINK 1-800-533-3310 Get automated information or make automated transactions. 24 hours a day, 7 days a week. TELECOMMUNICATION PHOTO B. HENNIGAR DEVICE FOR THE DEAF 1-800-843-4461 ICSA LOGO Service for the hearing impaired. Monday through Friday from 8:30 a.m. to 8:00 p.m. ET. OPPENHEIMERFUNDS INFORMATION HOTLINE 1-800-835-3104 Hear timely and insightful messages on the economy and issues that affect your finances. 24 hours a day, 7 days a week. "Just as OppenheimerFunds offers over 35 different mutual funds designed to help meet virtually every investment need, Oppenheimer Shareholder Services offers a variety of services to satisfy your individual needs. Whenever you require help, we're only a toll-free phone call away. "For personalized assistance and account information, call our General Information number to speak with our knowledgeable Customer Service Representatives and get the help you need. "When you want to make account transactions, it's easy for you to redeem shares, exchange shares, or conduct AccountLink transactions, simply by calling our Telephone Transactions number. "And for added convenience, OppenheimerFunds' PhoneLink, an automated voice response system is available 24 hours a day, 7 days a week. PhoneLink gives you access to a variety of fund, account, and market information. You can even make purchases, exchanges and redemptions using your touch-tone phone. Of course, PhoneLink will always give you the option to speak with a Customer Service Representative during the hours shown to the left. "When you invest in OppenheimerFunds, you know you'll receive a high level of customer service. The International Customer Service Association knows it, too, as it awarded Oppenheimer Shareholder Services a 1993 Award of Excellence for consistently demonstrating superior customer service. "Whatever your needs, we're ready to assist you." RA245.1194.N [Logo] OPPENHEIMERFUNDS Oppenheimer Funds Distributor, Inc. P.O. Box 5270 Denver, CO 80217-5270 Bulk Rate U.S. Postage PAID Permit No. 469 Denver, CO Oppenheimer Strategic Investment Grade Bond Fund Semiannual Report March 31, 1995 - -------------------------------------------------------------------------------- "We want our money to photo work hard, but we're concerned about risk." [Logo] OppenheimerFunds Yield - --------------------------------- Standardized Yield - --------------------------------- For the 30 Days Ended 3/31/95:(1) Class A - --------------------------------- 6.95% - --------------------------------- Class B - --------------------------------- 6.55% - --------------------------------- This Fund is for people who want high income from an investment that's strategically designed to lower risk. - -------------------------------------------------------------------------------- How Your Fund Is Managed - -------------------------------------------------------------------------------- Oppenheimer Strategic Investment Grade Bond Fund seeks high current income by strategically allocating its assets among three sectors: U.S. government issues, foreign fixed income securities and investment grade corporate bonds. Strategic investing gives the Fund's managers the flexibility to shift assets among three fixed income sectors to capitalize on worldwide investment opportunities. At the same time, allocating the Fund's assets among three distinct fixed income sectors provides the diversification necessary to lower risk. - -------------------------------------------------------------------------------- Performance - -------------------------------------------------------------------------------- Total returns at net asset value for the 6 months ended 3/31/95 for Class A and B shares were 3.93% and 3.31%, respectively.(2) Your Fund's average annual total returns at maximum offering price for Class A shares for the 1-year period ended 3/31/95 and since inception of the Class on 4/22/92 were -1.61% and 3.71%, respectively. For Class B shares, average annual total returns for the 1-year period ended 3/31/95 and since inception of the Class on 11/30/92 were -2.47% and 3.26%, respectively.(3) - -------------------------------------------------------------------------------- Outlook - -------------------------------------------------------------------------------- "The outlook for the bond market is more positive today than it has been in some time, both in terms of income and potential total returns. The Fund's ability to shift assets strategically among bond market sectors worldwide remains a major advantage for shareholders in the current environment. It has allowed us to seek high yields, while seeking to keep portfolio risks under careful control." David Negri and Art Steinmetz, Portfolio Managers March 31, 1995 All figures assume reinvestment of dividends and capital gains distributions. Past performance is not indicative of future results. Investment and principal value on 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. 1. Standardized yield is net investment income calculated on a yield-to-maturity basis for the 30-day period ended 3/31/95, divided by the maximum offering price at the end of the period, compounded semiannually and then annualized. Falling net asset values will tend to artificially raise yields. 2. Based on the change in net asset value per share from 9/30/94 to 3/31/95, without deducting any sales charges. Such performance would have been lower if sales charges were taken into account. 3. Class A returns show results of hypothetical investments on 4/1/94 and 4/22/92 (inception of class), after deducting the current maximum initial sales charge of 4.75%. Class B returns show results of hypothetical investments on 4/1/94 and 11/30/92 (inception of class), and the deduction of the applicable contingent deferred sales charge of 5% (1-year) and 4% (since inception). An explanation of the different total returns is in the Fund's prospectus. 2 Oppenheimer Strategic Investment Grade Bond Fund [PHOTOGRAPH] James C. Swain Chairman Oppenheimer Strategic Investment Grade Bond Fund [PHOTOGRAPH] Jon S. Fossel President Oppenheimer Strategic Investment Grade Bond Fund Dear OppenheimerFunds Shareholder, 1994 was marked by one of the greatest tests the bond markets faced in more than six decades. As the U.S. Federal Reserve undertook the most aggressive moves in its history to raise interest rates, bond prices and bond mutual funds declined across the board. Changing interest rates are a fact of life and they affect the short-term performance of all bond markets. That is why we believe the best measure of any fixed income mutual fund is its performance over the long term. And we believe the long-term outlook for the bond markets is very positive. To see how greatly the U.S. bond market has improved since last fall, we need look no further than the market's reaction to the Fed's most recent short-term rate increase in February. While the markets had already anticipated this move, unlike previous rate increases, long-term interest rates continued to decline and bonds rallied further. Although the Fed could raise rates again, we believe that this positive environment will prove more than momentary as a result of several factors. First, concerns about the effects of inflation on bond prices are fading fast. By most indicators, economic growth is slowing to a pace that can be sustained without reigniting inflation or causing a recession. Second, at current prices, intermediate and long-term bonds are producing some of the best inflation-adjusted returns in years. With the actual inflation rate running just over 3 percent today, many fixed income investors are clearly being rewarded. Attracted by the strong, real returns intermediate and long-term bonds offer, investors are returning to bonds in a significant way. This rising demand is providing solid support for bond prices. Third, as the Fed concludes its tightening efforts--and recent reports suggest that point is near--long-term interest rates will likely stay within their current range, and could decline further. Of course, rates could rise later this year if future reports indicate that the economy isn't slowing as quickly as it seems to be today; however, we believe that over the longer term, the downward trend of rates will continue. Two uncertainties affecting the fixed income markets are foreign investors' attitudes toward U.S. debt and the weakness of the U.S. dollar abroad relative to other major currencies. But investors' attitudes overseas and the dollar's decline, in our view, should prove temporary. Both have been driven by the government's moves to support the Mexican peso, a widening trade deficit, and Congress's apparent inability to limit the Federal budget deficit. We believe the trade deficit will narrow with increasing U.S. exports as European economies come out of recession and emerging world markets stabilize. Additionally, the need to support the peso has begun to decline as Mexico's tough domestic economic policy has gained credibility. Finally, we are confident that Congress will be able to get the budget deficit issue dealt with because Americans are demanding it. Of course, no one can predict the future with perfect clarity. The bond markets are always subject to fluctuations and, as we saw in 1994, the shifts can sometimes be sharp. Overall, however, we believe the outlook for the bond markets today appears positive. Your portfolio manager discusses the outlook for your Fund on the following pages. We appreciate your trust, and we'll continue to do our best to help you meet your long-term investment objectives. /s/ James C. Swain /s/ Jon S. Fossel James C. Swain Jon S. Fossel April 24, 1995 3 Oppenheimer Strategic Investment Grade Bond Fund David Negri and Art Steinmetz Portfolio Managers Q+A An interview with your Fund's managers. Last year was a difficult period for bond investors. Have changes in interest rates and the economy affected your allocations? While where we allocate the Fund's assets among fixed income sectors is critical to producing good returns, how we allocate assets within each sector is just as important to meeting the Fund's objectives. For example, last year, when interest rates were rising and the economy was gaining strength, our strategy was to avoid interest-rate risk by shortening Treasury maturities. That strategy worked well for us, but today, as the economic expansion and interest rates approach what we believe will be their peak, we're reversing that strategy. With interest rates poised to fall and the economy slowing, we're extending Treasury maturities. There are signs of political and economic uncertainty in some established markets in Europe. How have these developments affected your approach? We've taken several steps to adjust our European holdings. For example, we've redirected our assets in Spain and Italy, which are running large deficits, to the United Kingdom. Bonds in these countries are beginning to benefit from strengthening economies, which are pushing up yields, as well as from the weakness of the U.S. dollar.(1) Has the recent weakness of the dollar affected the Fund? It has to some extent. The dollar's decline was driven largely by the U.S. government's attempt to support Mexico by buying peso-denominated securities. As our government pumped U.S. dollars into the system, and as the supply of dollars rose, their value fell. But as investors sought stability, other markets and currencies, notably Germany and the mark, benefitted--thus, currency declines affecting one sector of the Fund were largely offset by currency gains in Europe. These developments demonstrate the benefit of investing in a geographically diverse portfolio. While foreign investments are subject to adverse market changes as a result of currency fluctuations, each sector of the bond market is affected differently by economic events, and setbacks in one area often are offset by higher performance in others. The dollar's recent weakness is a good example of that dynamic. What's your outlook for the Fund? The Fund's flexibility and diversification should continue to help us manage risk and seek solid returns. And now that the prospects for the bond markets in general are positive, we believe that the Fund is positioned for good performance in 1995. / / (1) The Fund's portfolio is subject to change. 4 Oppenheimer Strategic Investment Grade Bond Fund
---------------------------------------------------------------------------------------------------------- Statement of Investments March 31, 1995 (Unaudited) ---------------------------------------------------------------------------------------------------------- Face Market Value Amount(1) See Note 1 ========================================================== ========================================================== =============== Certificates of Deposit -- 4.3% - ----------------------------------------------------------------------------------------------------------------------------------- Citibank CD: 10.50%, 7/14/95 (2) ARA $ 450,000 $ 450,111 16%, 5/3/95 (2) CLP 43,000,000 106,554 16%, 8/17/95 (2) CLP 83,003,140 205,682 ---------------------------------------------------------------------------------------------------------- Indonesia (Republic of) CD, Bank Negara, Zero Coupon, 4/24/95 IDR 2,000,000,000 884,495 ------------ Total Certificates of Deposit (Cost $1,700,121) 1,646,842 ========================================================== ========================================================== =============== Mortgage-Backed Obligations -- 26.4% - ----------------------------------------------------------------------------------------------------------------------------------- Government Agency -- 13.4% - ----------------------------------------------------------------------------------------------------------------------------------- FHLMC/FNMA/ Federal Home Loan Mortgage Corp., Collateralized Mtg Sponsored -- 11.9% Obligations, Series 1548, Cl. C, 7%, 4/15/21 4,000,000 3,637,640 ---------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl. 2, 7%, 9/25/23 (3) 2,673,358 968,257 ------------ 4,605,897 - ----------------------------------------------------------------------------------------------------------------------------------- GNMA/ Government National Mortgage Assn.: Guaranteed -- 1.5% 10.50%, 12/15/17-5/15/21 512,414 565,387 - ----------------------------------------------------------------------------------------------------------------------------------- Private -- 13.0% - ----------------------------------------------------------------------------------------------------------------------------------- Commercial -- 8.8% CMC Security Corp. I, Collateralized Mtg Obligation, Series 1993-D, Cl. D-3, 10%, 7/25/23 (4) 736,140 774,779 ---------------------------------------------------------------------------------------------------------- FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25 (5) 1,000,000 980,938 Cl. 2-E, 8.70%, 9/25/25 (5) 1,000,000 946,563 ---------------------------------------------------------------------------------------------------------- Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates, Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 699,344 ------------ 3,401,624 - ----------------------------------------------------------------------------------------------------------------------------------- Multi-Family -- 1.9% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1991-M5, Cl. A, 9%, 3/25/17 645,065 657,563 Series 1991-M6, Cl. B4, 6.450%, 6/25/21 (6) 89,052 85,907 ------------ 743,470 - ----------------------------------------------------------------------------------------------------------------------------------- Residential -- 2.3% Residential Funding Corp., Mtg. Pass-Through Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23 879,004 876,701 ------------ Total Mortgage-Backed Obligations (Cost $10,494,915) 10,193,079 ========================================================== ========================================================== =============== U.S. Government Obligations -- 29.3% - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds: 11.625%, 11/15/02 5,000,000 6,287,500 8.75%, 8/15/00 2,700,000 2,896,592 ---------------------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 5.125%, 2/28/98 1,000,000 952,812 8.875%, 11/15/97 1,130,000 1,182,968 ------------ Total U.S. Government Obligations (Cost $11,217,967) 11,319,872
5 Oppenheimer Strategic Investment Grade Bond Fund
---------------------------------------------------------------------------------------------------------- Statement of Investments (Unaudited)(Continued) ---------------------------------------------------------------------------------------------------------- Face Market Value Amount(1) See Note 1 ========================================================== ========================================================== =============== Foreign Government Corporacion Andina de Fomento Sr. Unsec. Debs., 7.25%, 4/30/98 $ 100,000 $ 92,500 Obligations -- 11.0% ---------------------------------------------------------------------------------------------------------- First Australia National Mortgage Acceptance Corp. Ltd. Bonds, Series 22, 11.40%, 12/15/01 AUD 254,160 196,678 ---------------------------------------------------------------------------------------------------------- International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 NZD 800,000 568,308 ---------------------------------------------------------------------------------------------------------- New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 AUD 240,000 193,268 ---------------------------------------------------------------------------------------------------------- New Zealand (Republic of) Bonds: 10%, 7/15/97 NZD 390,000 263,609 8%, 11/15/95 NZD 750,000 487,148 ---------------------------------------------------------------------------------------------------------- Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 1,045,000 695,412 ---------------------------------------------------------------------------------------------------------- Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, 10.25%, 11/30/98 ESP 66,000,000 497,881 ---------------------------------------------------------------------------------------------------------- United Kingdom Treasury Nts.: 12.25%, 3/26/99 GBP 391,000 717,861 13%, 7/14/00 GBP 276,000 532,996 ------------ Total Foreign Government Obligations (Cost $4,146,559) 4,245,661 ========================================================== ========================================================== =============== Municipal Bonds and New York State Environmental Facilities Corp. State Service Contract Notes -- 0.5% Taxable Revenue Bonds, Series B, 8.15%, 3/15/02 (Cost $197,771) 200,000 197,187 ========================================================== ========================================================== =============== Corporate Bonds and Notes -- 27.4% - ----------------------------------------------------------------------------------------------------------------------------------- Basic Industry -- 2.5% - ----------------------------------------------------------------------------------------------------------------------------------- Chemical -- 1.4% Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 500,000 552,686 - ----------------------------------------------------------------------------------------------------------------------------------- Paper -- 1.1% Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts , 7/20/15 461,786 437,292 - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Related -- 4.3% - ----------------------------------------------------------------------------------------------------------------------------------- Food/Beverages ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 241,592 /Tobacco -- 1.7% ---------------------------------------------------------------------------------------------------------- Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02(7) 500,000 435,000 ----------- 676,592 - ----------------------------------------------------------------------------------------------------------------------------------- Healthcare -- 1.1% R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04 500,000 442,500 - ----------------------------------------------------------------------------------------------------------------------------------- Hotel/Gaming -- 0.4% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 150,000 135,619 - ----------------------------------------------------------------------------------------------------------------------------------- Textile/Apparel -- 1.1% Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 437,551 - ----------------------------------------------------------------------------------------------------------------------------------- Energy -- 4.5% - ----------------------------------------------------------------------------------------------------------------------------------- Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 540,571 ---------------------------------------------------------------------------------------------------------- McDermott, Inc., 9.375% Nts., 3/15/02 100,000 106,561 ---------------------------------------------------------------------------------------------------------- Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 400,000 423,724 ---------------------------------------------------------------------------------------------------------- Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 296,511 ---------------------------------------------------------------------------------------------------------- Tenneco, Inc.: 10% Debs., 3/15/08 100,000 113,491 7.875% Nts., 10/1/02 250,000 249,517 ------------ 1,730,375 - ----------------------------------------------------------------------------------------------------------------------------------- Financial Services -- 5.6% - ----------------------------------------------------------------------------------------------------------------------------------- Banks and Thrifts--2.2% BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 200,505 ---------------------------------------------------------------------------------------------------------- Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 300,000 321,094 ---------------------------------------------------------------------------------------------------------- First Chicago Corp., 9% Sub. Nts., 6/15/99 100,000 104,741 ---------------------------------------------------------------------------------------------------------- NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 250,000 238,731 ------------ 865,071
6 Oppenheimer Strategic Investment Grade Bond Fund
---------------------------------------------------------------------------------------------------------- Statement of Investments (Unaudited) (Continued) ---------------------------------------------------------------------------------------------------------- Face Market Value Amount(1) See Note 1 - ----------------------------------------------------------------------------------------------------------------------------------- Diversified American Car Line Co., 8.25% Equipment Trust Certificates, Financial -- 3.4% Series 1993-A, 4/15/08 $ 270,000 $ 262,620 ---------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp., 8% Nts., 10/1/96 100,000 100,981 ---------------------------------------------------------------------------------------------------------- Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000 302,464 ---------------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 299,264 ---------------------------------------------------------------------------------------------------------- PaineWebber Group, Inc.: 7% Nts., 3/1/00 160,000 150,324 7.75% Sub. Nts., 9/1/02 200,000 188,079 ------------ 1,303,732 - ----------------------------------------------------------------------------------------------------------------------------------- Manufacturing -- 1.6% - ----------------------------------------------------------------------------------------------------------------------------------- Automotive -- 1.6% Chrysler Corp., 10.95% Debs., 8/1/17 200,000 222,037 ---------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp.: 5.50% Nts., 12/15/01 100,000 87,519 7.75% Nts., 4/15/97 300,000 299,384 ------------ 608,940 - ----------------------------------------------------------------------------------------------------------------------------------- Media -- 3.9% - ----------------------------------------------------------------------------------------------------------------------------------- Cable Time Warner, Inc., 9.15% Debs., 2/1/23 100,000 95,211 Television -- 3.9% ---------------------------------------------------------------------------------------------------------- Time Warner, Inc./Time Warner Entertainment LP, 8.375% Sr. Debs., 3/15/23 400,000 359,905 ---------------------------------------------------------------------------------------------------------- TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,065,000 ------------ 1,520,116 - ----------------------------------------------------------------------------------------------------------------------------------- Retail -- 2.1% - ----------------------------------------------------------------------------------------------------------------------------------- Department Sears Canada, Inc., 11.70% Debs., 7/10/00 CAD 500,000 391,196 Stores -- 1.0% - ----------------------------------------------------------------------------------------------------------------------------------- Drug Stores -- 1.1% Hook-Superx Inc., 10.125% Sr. Nts., 6/1/02 400,000 421,000 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation -- 0.8% - ----------------------------------------------------------------------------------------------------------------------------------- Air AMR Corp., 10% Nts., 4/15/21 200,000 205,680 Transportation -- 0.5% - ----------------------------------------------------------------------------------------------------------------------------------- Railroads -- 0.3% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 108,308 - ----------------------------------------------------------------------------------------------------------------------------------- Utilities -- 2.1% - ----------------------------------------------------------------------------------------------------------------------------------- Electric Commonwealth Edison Co.: Utilities -- 2.1% 6.40% Nts., 10/15/05 75,000 62,910 6.50% Nts., 7/15/97 225,000 218,817 ---------------------------------------------------------------------------------------------------------- Consumers Power Co., 6.375% Nts., 9/15/03 110,000 97,694 ---------------------------------------------------------------------------------------------------------- Long Island Lighting Co., 7% Nts., 3/1/04 200,000 166,615 ---------------------------------------------------------------------------------------------------------- Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds, 3/1/22 250,000 253,389 ------------ 799,425 ------------ Total Corporate Bonds and Notes (Cost $11,206,004) $ 10,636,083
7 Oppenheimer Strategic Investment Grade Bond Fund
---------------------------------------------------------------------------------------------------------- Statement of Investments (Unaudited) (Continued) ---------------------------------------------------------------------------------------------------------- Face Market Value Amount(1) See Note 1 ========================================================== ========================================================== =============== Structured Instruments -- 1.0% - ----------------------------------------------------------------------------------------------------------------------------------- Swiss Bank Corp. Investment Banking, Inc., 10% CD Sterling Rate Linked Nts., 7/3/95 (Cost $410,000)(2) $ 410,000 $ 403,440 ========================================================== ========================================================== =============== Total Investments, at Value (Cost $39,373,337) 99.9% $ 38,642,164 - ----------------------------------------------------------------------------------------------------------------------------------- Other Assets Net of Liabilities 0.1 28,273 ------------- ------------ Net Assets 100.00% $ 38,670,437 ============= ============ 1. Face amount is reported in local currency. Foreign currency abbreviations are as follows: ARA -- Argentine Austral ESP -- Spanish Peseta AUD -- Australian Dollar GBP -- British Pound Sterling CAD -- Canadian Dollar IDR -- Indonesian Rupiah CLP -- Chilean Peso NZD -- New Zealand Dollar DEM -- German Deutsche Mark USD -- U.S. Dollar 2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign currency. 3. 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). 4. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $774,779 or 2% of the Fund's net assets, at March 31, 1995. 5. Identifies issues considered to be illiquid--See Note 7 of Notes to Financial Statements. 6. Represents the current interest rate for a variable rate security. 7. Represents a zero coupon bond that converts to a fixed rate of interest at a designated future date. 8. A sufficient amount of securities is segregated to collateralize outstanding forward foreign currency exchange contracts. See Note 5 of Notes to Financial Statements. 9. A sufficient amount of liquid assets has been designated to cover outstanding call and put options, as follows:
Face Subject Expiration Exercise Premium Market Value to Call/Put Date Price Received See Note 1 ----------------------------------------------------------------------------------------------------------- Call Option on Australian Dollar 368 AUD 4/20/95 0.74 USD/AUD $ 637 $1,089 Call Option on New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 50 AUD 4/28/95 109.06 AUD 339 440 Call Option on Spanish Peseta/Deutsche Mark 16,000 ESP 5/4/95 89.00 ESP/DEM 892 526 Put Option on Deutsche Mark 150,000 DEM 6/6/95 1.46 DEM/USD 1,062 750 ------ ------ $2,930 $2,805 ====== ======
See accompanying Notes to Financial Statements. 8 Oppenheimer Strategic Investment Grade Bond Fund
----------------------------------------------------------------------------------------------------------- Statement of Assets and Liabilities March 31, 1995 (Unaudited) ----------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ Assets Investments, at value (cost $39,373,337)--see accompanying statement $ 38,642,164 ----------------------------------------------------------------------------------------------------------- Receivables: Interest 790,651 Shares of beneficial interest sold 44,378 ----------------------------------------------------------------------------------------------------------- Other 8,745 ------------ Total assets 39,485,938 ========================================================== ========================================================== ================ Liabilities Bank overdraft 504,780 ----------------------------------------------------------------------------------------------------------- Options written, at value (premiums received $2,930) -- see accompanying statement -- Note 4 2,805 ----------------------------------------------------------------------------------------------------------- Unrealized depreciation on forward foreign currency exchange contracts -- Note 5 627 ----------------------------------------------------------------------------------------------------------- Payables and other liabilities: Shares of beneficial interest redeemed 119,306 Dividends 81,395 Distribution and service plan fees -- Note 6 23,349 Transfer and shareholder servicing agent fees -- Note 6 4,571 Trustees' fees 3,421 Other 75,247 ------------ Total liabilities 815,501 ========================================================== ========================================================== ================ Net Assets $ 38,670,437 ============ ========================================================== ========================================================== ================ Composition of Paid-in capital 41,261,601 Net Assets ----------------------------------------------------------------------------------------------------------- Overdistributed net investment income (301,654) ----------------------------------------------------------------------------------------------------------- Accumulated net realized loss from investment and written option transactions (1,560,198) ----------------------------------------------------------------------------------------------------------- Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies (729,312) ------------ Net assets $ 38,670,437 ============ ========================================================== ========================================================== ================ Net Asset Value Class A Shares: Per Share Net asset value and redemption price per share (based on net assets of $23,190,699 and 4,906,735 shares of beneficial interest outstanding) $4.73 Maximum offering price per share (net asset value plus sales charge of 4.75% of offering $4.97 price) ----------------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price and offering price per share (based on net assets of $15,479,738 and 3,278,697 shares of beneficial interest outstanding) $4.72
See accompanying Notes to Financial Statements. 9 Oppenheimer Strategic Investment Grade Bond Fund
----------------------------------------------------------------------------------------------------------- Statement of Operations For the Six Months Ended March 31, 1995 (Unaudited) ----------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ Investment Income Interest (net of foreign withholding taxes of $3,709) $1,663,843 ========================================================== ========================================================== ================ Expenses Management fees -- Note 6 144,908 ----------------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A -- Note 6 28,682 Class B -- Note 6 74,856 ----------------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees -- Note 6 24,800 ----------------------------------------------------------------------------------------------------------- Shareholder reports 24,303 ----------------------------------------------------------------------------------------------------------- Custodian fees and expenses 16,757 ----------------------------------------------------------------------------------------------------------- Legal and auditing fees 9,866 ----------------------------------------------------------------------------------------------------------- Trustees' fees and expenses 5,559 ----------------------------------------------------------------------------------------------------------- Registration and filing fees -- Class B 408 ----------------------------------------------------------------------------------------------------------- Other 2,319 ---------- Total expenses 332,458 ========================================================== ========================================================== ================ Net Investment Income 1,331,385 ========================================================== ========================================================== ================ Realized and Unrealized Net realized loss on: Gain (Loss) on Investments (939,617) Investments, Options Expiration of option contracts written -- Note 4 (62,173) Written and Foreign Foreign currency transactions (197,537) Currency Transactions ---------- Net realized loss (1,199,327) ----------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation on: Investments and options written 1,316,562 Translation of assets and liabilities denominated in foreign currencies (72,829) ---------- Net change 1,243,733 ---------- Net realized and unrealized gain on investments, options written and foreign currency transactions 44,406 ========================================================== ========================================================== ================ Net Increase in Net Assets Resulting From Operations $1,375,791 ==========
See accompanying Notes to Financial Statements. 10 Oppenheimer Strategic Investment Grade Bond Fund
----------------------------------------------------------------------------------------------------------- Statements of Changes in Net Assets ----------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended March 31, 1995 Sept. 30, 1994 (Unaudited) ========================================================== ========================================================== ================ Operations Net investment income $ 1,331,385 $ 2,779,438 ----------------------------------------------------------------------------------------------------------- Net realized loss on investments, options written and foreign currency transactions (1,199,327) (915,478) ----------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation on investments and translation of assets and liabilities denominated in foreign currencies 1,243,733 (2,729,011) ----------- ----------- Net increase (decrease) in net assets resulting from operations 1,375,791 (865,051) ========================================================== ========================================================== ================ Dividends and Dividends from net investment income: Distributions Class A ($.160 and $.240 per share, respectively) (815,734) (1,253,403) To Shareholders Class B ($.142 and $.205 per share, respectively) (457,138) (750,521) ----------------------------------------------------------------------------------------------------------- Dividends in excess of net investment income: Class A ($.01 per share) -- (27,359) Class B ($.01 per share) -- (16,382) ----------------------------------------------------------------------------------------------------------- Distributions in excess of gain on investments, options written and foreign currency transactions: Class A ($.016 per share) -- (83,250) Class B ($.016 per share) -- (49,849) ----------------------------------------------------------------------------------------------------------- Tax return of capital: Class A ($.079 per share) -- (420,265) Class B ($.079 per share) -- (251,649) ========================================================== ========================================================== ================ Beneficial Net decrease in net assets resulting from Class A Interest beneficial interest transactions--Note 2 (1,816,295) (3,401,990) Transactions ----------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from Class B beneficial interest transactions--Note 2 488,747 5,432,516 ========================================================== ========================================================== ================ Net Assets Total decrease (1,224,629) (1,687,203) ----------------------------------------------------------------------------------------------------------- Beginning of period 39,895,066 41,582,269 ----------- ----------- End of period (including overdistributed net investment income of $301,654 and $360,167, respectively) $38,670,437 $39,895,066 =========== ===========
See accompanying Notes to Financial Statements. 11 Oppenheimer Strategic Investment Grade Bond Fund
----------------------------------------------------------------------------------------------------------- Financial Highlights ----------------------------------------------------------------------------------------------------------- Class A Class B ----------------------------------------------------------------------------------------- Six Months Ended Six Months Ended Year Ended March 31, 1995 Year Ended September 30, March 31, 1995 September 30, (Unaudited) 1994 1993 1992(2) (Unaudited) 1994 1993(1) ========================================================== ================================ Per Share Operating Data: Net asset value, beginning of period $ 4.71 $ 5.14 $ 5.16 $ 5.00 $ 4.71 $ 5.14 $ 4.95 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .16 .34 .36 .14 .14 .34 .27 Net realized and unrealized gain (loss) on investments, options written and foreign currency transactions .01 (.43) (.01) .19 .01 (.46) .19 ------- ------- ------- ------- ------- ------- ------- Total income (loss) from investment operations .17 (.09) .35 .33 .15 (.12) .46 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends and distributions to shareholders: Dividends from net investment income (.15) (.24) (.37) (.14) (.14) (.21) (.27) Dividends in excess of net investment income -- (.01) -- -- -- (.01) -- Distributions from net realized gain on investments, options written and foreign currency transactions -- -- -- (.03) -- -- -- Distributions in excess of net realized gain on investments, options written and foreign currency transactions -- (.01) -- -- -- (.01) -- Tax return of capital -- (.08) -- -- -- (.08) -- ------- ------- ------- ------- ------- ------- ------- Total dividends and distributions to shareholders (.15) (.34) (.37) (.17) (.14) (.31) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 4.73 $ 4.71 $ 5.14 $ 5.16 $ 4.72 $ 4.71 $ 5.14 ======= ======= ======= ======= ======= ======= ======= ========================================================== ========================================================== ================ Total Return, at Net Asset Value(3) 3.93% (1.76)% 7.24% 6.67% 3.31% (2.45)% 9.54% ========================================================== ========================================================== ================ Ratios/Supplemental Data: Net assets, end of period (in thousands) $23,191 $24,956 $30,783 $16,099 $15,480 $14,939 $10,800 - ------------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $23,726 $28,294 $25,972 $4,939 $15,018 $14,232 $5,310 - ------------------------------------------------------------------------------------------------------------------------------------ Number of shares outstanding at end of period (in thousands) 4,907 5,296 5,989 3,117 3,279 3,174 2,103 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net investment income 7.18%(4) 6.80% 7.18% 7.28%(4) 6.44%(4) 6.01% 6.28%(4) Expenses, before voluntary reimbursement by the Manager 1.43%(4) 1.38% 1.46% 2.00%(4) 2.18%(4) 2.16% 2.20%(4) Expenses, net of voluntary reimbursement by the Manager N/A 1.33% 1.12% .29%(4) N/A 2.12% 1.84%(4) - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate(5) 42.6% 68.6% 90.3% 30.6% 42.6% 68.6% 90.3%
1. For the period from November 30, 1992 (inception of offering) to September 30, 1993. 2. For the period from April 22, 1992 (commencement of operations) to September 30, 1992. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the six months ended March 31, 1995 were $15,559,339 and $14,921,706, respectively. See accompanying Notes to Financial Statements. 12 Oppenheimer Strategic Investment Grade Bond Fund -------------------------------------------------------------------------------------------------------- Notes to Financial Statements (Unaudited) -------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ 1. Significant Oppenheimer Strategic Investment Grade Bond Fund (the Fund) is registered under the Investment Company Accounting Policies Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's investment advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class A and Class B shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge. Both classes of shares have identical rights to earnings, assets and voting privileges, except that each class has its own distribution and/or service plan, expenses directly attributable to a particular class and exclusive voting rights with respect to matters affecting a single class. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. -------------------------------------------------------------------------------------------------------- Investment Valuation. Portfolio securities are valued at the close of the New York Stock Exchange on each trading day. Listed and unlisted securities for which such information is regularly reported are valued at the last sale price of the day or, in the absence of sales, at values based on the closing bid or asked price or the last sale price on the prior trading day. Long-term and short-term "non-money market" debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Such securities which cannot be valued by the approved portfolio pricing service are valued using dealer-supplied valuations provided the Manager is satisfied that the firm rendering the quotes is reliable and that the quotes reflect current market value, or under consistently applied procedures established by the Board of Trustees to determine fair value in good faith. Short-term "money market type" debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Forward contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Options are valued based upon the last sale price on the principal exchange on which the option is traded or, in the absence of any transactions that day, the value is based upon the last sale price on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. -------------------------------------------------------------------------------------------------------- Foreign Currency Translation. The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the funds results of operations. -------------------------------------------------------------------------------------------------------- Repurchase Agreements. The Fund requires the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. 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 and Gains and Losses. Income, expenses (other than those attributable to a specific class) and gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class.
13 Oppenheimer Strategic Investment Grade Bond Fund -------------------------------------------------------------------------------------------------------- Notes to Financial Statements (Unaudited) (Continued) -------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ 1. Significant Federal Taxes. The Fund intends to continue to comply with provisions of the Internal Revenue Code Accounting Policies applicable to regulated investment companies and to distribute all of its taxable income, including (continued) any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income or excise tax provision is required. -------------------------------------------------------------------------------------------------------- Organization Costs. The Manager advanced $15,264 for organization and start-up costs of the Fund. Such expenses are being amortized over a five-year period from the date operations commenced. In the event that all or part of the Manager's initial investment in shares of the Fund is withdrawn during the amortization period, the redemption proceeds will be reduced to reimburse the Fund for any unamortized expenses, in the same ratio as the number of shares redeemed bears to the number of initial shares outstanding at the time of such redemption. -------------------------------------------------------------------------------------------------------- Distributions to Shareholders. The Fund intends to declare dividends separately for Class A and Class B shares from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. Distributions from net realized gains on investments, if any, will be declared at least once each year. -------------------------------------------------------------------------------------------------------- Classification of Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of premium amortization, paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of the distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (loss) was recorded by the Fund. Effective October 1, 1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the Fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. -------------------------------------------------------------------------------------------------------- Other. Investment transactions are accounted for on the date the investments are purchased or sold (trade date). Discount on securities purchased is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and options written and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. - ----------------------------------------------------------------------------------------------------------------------------------- 2. Shares of The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class. Beneficial Interest Transactions in shares of beneficial interest were as follows:
Six Months Ended Year Ended March 31, 1995 September 30, 1994 ------------------------ ---------------------------- Shares Amount Shares Amount ------------------------------------------------------------------------------------------------------- Class A: Sold 216,930 $ 1,010,227 1,541,101 $ 7,739,640 Dividends and distributions reinvested 113,935 529,812 284,805 1,388,625 Redeemed (720,209) (3,356,334) (2,518,406) (12,530,255) -------- ----------- ---------- ------------ Net decrease (389,344) $(1,816,295) (692,500) $ (3,401,990) ======== =========== ========== ============ ------------------------------------------------------------------------------------------------------- Class B: Sold 261,377 $ 1,214,760 1,732,642 $ 8,472,995 Dividends and distributions reinvested 61,471 285,714 74,300 587,645 Redeemed (217,771) (1,011,727) (736,073) (3,628,124) -------- ----------- ---------- ------------ Net increase 105,077 $ 488,747 1,070,869 $ 5,432,516 ======== =========== ========== ============
14 Oppenheimer Strategic Investment Grade Bond Fund ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ 3. Unrealized Gains and At March 31, 1995, net unrealized depreciation on investments of $731,048 was composed of gross Losses on Investments appreciation of $595,457, and gross depreciation of $1,326,505. ========================================================== ========================================================== ================ 4. Option Activity The Fund may buy and sell put and call options, or write 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 by the amount of premium received or paid. In this report, securities designated to cover outstanding call options are noted in the Statement of Investments. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a footnote to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Written option activity for the six months ended March 31, 1995 was as follows:
Call Options Put Options ------------------------ ------------------------- Number Amount Number Amount of Options of Premiums of Options of Premiums -------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 1994 3,262,561 $41,361 -- $ -- -------------------------------------------------------------------------------------------------------- Options written 1,007 3,874 102,740 1,062 -------------------------------------------------------------------------------------------------------- Options canceled in closing transactions (3,263,128) (43,367) -- -- -------------------------------------------------------------------------------------------------------- Options outstanding at March 31, 1995 440 $ 1,868 102,740 $ 1,062 ========= ======= ======== ======= ========================================================== ========================================================== ================ 5. Forward Contracts A forward foreign currency exchange contract (forward contract) is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund uses forward contracts to seek to manage foreign currency risks. They may also be used to tactically shift portfolio currency risk. The Fund generally enters into forward contracts as a hedge upon the purchase or sale of a security denominated in a foreign currency. In addition, the Fund may enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio positions. Forward contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The Fund will realize a gain or loss upon the closing or settlement of the forward transaction.
15 Oppenheimer Strategic Investment Grade Bond Fund ------------------------------------------------------------------------------------------------------- Notes to Financial Statements (Unaudited) (Continued) ------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ 5. Forward Contracts In this report, securities held in segregated accounts to cover net exposure on outstanding forward (continued) contracts are noted in the Statement of Investments where applicable. Gains and losses on outstanding contracts (unrealized appreciation or depreciation on forward contracts) are reported in the Statement of Assets and Liabilities. Realized gains and losses are reported with all other foreign currency gains and losses in the Fund's Statement of Operations. Risks include the potential inability of the counterparty to meet the terms of the contract and unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At March 31, 1995, the Fund had outstanding forward contracts to purchase and sell foreign currencies as follows:
Contract Valuation Unrealized Expiration Amount as of Appreciation Contracts to Purchase Date (000s) March 31, 1995 (Depreciation) --------------------- ----------------- ----------- -------------- -------------- Deutsche Mark 4/10/95-5/16/95 606 $ 442,964 $10,942 New Zealand Dollar 5/4/95 206 135,028 156 ---------- ------- $577,992 $11,098 ========== ======= Contracts to Sell --------------------------------------------------------------------------------------------------------- Australian Dollar 5/4/95 184 $ 135,067 $ (195) Spanish Peseta 4/10/95-5/16/95 56,000 443,552 (11,530) ---------- -------- $ 578,619 $(11,725) ========== ========
========================================================== ========================================================== ================ 6. Management Fees Management fees paid to the Manager were in accordance with the investment advisory agreement with And Other the Fund which provides for an annual fee of .75% on the first $200 million of net assets with a Transactions With reduction of .03% on each $200 million thereafter to $800 million, .60% on the next $200 Affiliates million and .50% on net assets in excess of $1 billion. The Manager has agreed to reimburse the Fund if aggregate expenses (with specified exceptions) exceed the most stringent state regulatory limit on Fund expenses. For the six months ended March 31, 1995, commissions (sales charges paid by investors) on sales of Class A shares totaled $25,282, of which $10,165 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor, and by an affiliated broker/dealer. Sales charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares totaled $38,451, of which $19,488 was paid to an affiliated broker/dealer. During the six months ended March 31, 1995, OFDI received contingent deferred sales charges of $21,115 upon redemption of Class B shares, as reimbursement for sales commissions advanced by OFDI at the time of sale of such shares. Oppenheimer Shareholder Services (OSS), a division of the Manager, is the transfer and shareholder servicing agent for the Fund, and for other registered investment companies. OSS's total costs of providing such services are allocated ratably to these companies. Under separate approved plans, each class may expend up to .25% of its net assets annually to reimburse OFDI for costs incurred in connection with the personal service and maintenance of accounts that hold shares of the Fund, including amounts paid to brokers, dealers, banks and other financial institutions. In addition, Class B shares are subject to an asset-based sales charge of .75% of net assets annually, to reimburse OFDI for sales commissions paid from its own resources at the time of sale and associated financing costs. In the event of termination or discontinuance of the Class B plan, the Board of Trustees may allow the Fund to continue payment of the asset-based sales charge to OFDI for distribution expenses incurred on Class B shares sold prior to termination or discontinuance of the plan. During the six months ended March 31, 1995, OFDI paid $5,099 and $1,924, respectively, to an affiliated broker/dealer as reimbursement for Class A and Class B personal service and maintenance expenses and retained $61,344 as reimbursement for Class B sales commissions and service fee advances, as well as financing costs.
16 Oppenheimer Strategic Investment Grade Bond Fund --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ 7. Illiquid Securities At March 31, 1995, investments in securities included issues that are illiquid or restricted. The securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. The Fund intends to invest no more than 10% of its net assets (determined at the time of purchase) in illiquid or restricted securities. The aggregate value of these securities subject to this limitation at March 31, 1995 was $1,927,500 which represents 4.98% of the Fund's net assets. Information concerning these securities is as follows:
Valuation Cost Per Per Unit as of Security Acquisition Date Unit March 31, 1995 --------------------------------------------------------------------------------------------------------- FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1994--C1, Cl. 2-D, 8.70%, 9/25/25 8/10/94 $98.00 $98.09 --------------------------------------------------------------------------------------------------------- FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1994-C1, Cl. 2-E, 8.70%, 9/25/25 8/10/94 $94.87 $94.66 Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above.
17 Oppenheimer Strategic Investment Grade Bond Fund ---------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Investment Grade Bond Fund ---------------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ Officers and Trustees James C. Swain, Chairman and Chief Executive Officer Robert G. Avis, Trustee William A. Baker, Trustee Charles Conrad, Jr., Trustee Jon S. Fossel, Trustee and President Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Ned M. Steel, Trustee Andrew J. Donohue, Vice President David P. Negri, Vice President Arthur P.Steinmetz, Vice President George C. Bowen, Vice President, Secretary and Treasurer Robert J. Bishop, Assistant Treasurer Scott Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary ========================================================== ========================================================== ================ Investment Advisor Oppenheimer Management Corporation ========================================================== ========================================================== ================ Distributor Oppenheimer Funds Distributor, Inc. ========================================================== ========================================================== ================ Transfer and Shareholder Oppenheimer Shareholder Services Servicing Agent ========================================================== ========================================================== ================ Custodian of The Bank of New York Portfolio Securities ========================================================== ========================================================== ================ Independent Auditors Deloitte & Touche LLP ========================================================== ========================================================== ================ Legal Counsel Myer, Swanson, Adams & Wolf, P.C. The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors. This is a copy of a report to shareholders of Oppenheimer Strategic Investment Grade Bond Fund. This report must be preceded or accompanied by a Prospectus of Oppenheimer Strategic Investment Grade Bond Fund. For material information concerning the Fund, see the Prospectus.
18 Oppenheimer Strategic Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- OppenheimerFunds Family ----------------------------------------------------------------------------------------------------- ========================================================== ========================================================== ================ OppenheimerFunds offers over 35 funds designed to fit virtually every investment goal. Whether you're investing for retirement, your children's education or tax-free income, we have the funds to help you seek your objective. When you invest with OppenheimerFunds, you can feel comfortable knowing that you are investing with a respected financial institution with over 30 years of experience in helping people just like you reach their financial goals. And you're investing with a leader in global, growth stock and flexible fixed income investments--with over 2.4 million shareholder accounts and more than $30 billion under Oppenheimer's management and that of our affiliates. At OppenheimerFunds, we don't charge a fee to exchange shares of eligible funds of the same class. And you can exchange shares easily by mail or by telephone.1 For more information on OppenheimerFunds, please contact your financial advisor or call us at 1-800-525-7048 for a prospectus. You may also write us at the address shown on the back cover. As always, please read the prospectus carefully before you invest. ========================================================== ========================================================== ================ Stock Funds Discovery Fund Global Fund Global Emerging Growth Fund(2) Oppenheimer Fund Time Fund Value Stock Fund Target Fund Gold & Special Minerals Fund Growth Fund(3) ========================================================== ========================================================== ================ Stock & Bond Funds Main Street Income & Growth Fund Equity Income Fund Total Return Fund Asset Allocation Fund Global Growth & Income Fund ========================================================== ========================================================== ================ Bond Funds High Yield Fund Strategic Short-Term Income Fund Champion High Yield Fund Investment Grade Bond Fund Strategic Income & Growth Fund Mortgage Income Fund Strategic Income Fund U.S. Government Trust Strategic Diversified Income Fund Limited-Term Government Fund Strategic Investment Grade Bond Fund ========================================================== ========================================================== ================ Tax-Exempt Funds New York Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4) California Tax-Exempt Fund(4) Tax-Free Bond Fund Pennsylvania Tax-Exempt Fund(4) Insured Tax-Exempt Bond Fund Florida Tax-Exempt Fund(4) Intermediate Tax-Exempt Bond Fund ========================================================== ========================================================== ================ Money Market Funds Money Market Fund Cash Reserves 1. Exchange privileges are subject to change or termination. 2. Formerly Oppenheimer Global Bio-Tech Fund. 3. Formerly Special Fund. 4. Available only to residents of certain states. OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two World Trade Center, New York, NY10048-0203. (C) Copyright 1995 Oppenheimer Management Corporation. All rights reserved. 19 Oppenheimer Strategic Investment Grade Bond Fund
Information General Information Monday-Friday 8:30 a.m.-8 p.m. ET Saturday 10 a.m.-2 p.m. ET - ------------------------------------- 1-800-525-7048 - ------------------------------------- Telephone Transactions Monday-Friday 8:30 a.m.-8 p.m. ET - ------------------------------------- 1-800-852-8457 - ------------------------------------- PhoneLink 24 hours a day, automated information and transactions - ------------------------------------- 1-800-533-3310 - ------------------------------------- Telecommunications Device for the Deaf (TDD) Monday-Friday 8:30 a.m.-8 p.m. ET - ------------------------------------- 1-800-843-4461 - ------------------------------------- OppenheimerFunds Information Hotline 24 hours a day, timely and insightful messages on the economy and issues that affect your investments - ------------------------------------- 1-800-835-3104 - ------------------------------------- RS0245.001.0595 May 31, 1995 [PHOTOGRAPH] Jennifer Leonard, Customer Service Representative Oppenheimer Shareholder Services "How may I help you?" As an OppenheimerFunds shareholder, you have some special privileges. Whether it's automatic investment plans, informative newsletters and hotlines, or ready account access, you can benefit from services designed to make investing simple. And when you need help, our Customer Service Representatives are only a toll-free phone call away. They can provide information about your account and handle administrative requests. You can reach them at our General Information number. When you want to make a transaction, you can do it easily by calling our toll-free Telephone Transactions number. And, by enrolling in AccountLink, a convenient service that "links" your OppenheimerFunds accounts and your bank checking or savings account, you can use the Telephone Transactions number to make investments. For added convenience, you can get automated information with OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week. PhoneLink gives you access to a variety of fund, account, and market information. Of course, you can always speak with a Customer Service Representative during the General Information hours shown at the left. You can count on us whenever you need assistance. That's why the International Customer Service Association, an independent, nonprofit organization made up of over 3,200 customer service management professionals from around the country, honored the OppenheimerFunds' transfer agent, Oppenheimer Shareholder Services, with their Award of Excellence in 1993. So call us today--we're here to help. - -------------------------------------------------------------------------------- [LOGO] Oppenheimer Funds(R) --------------- Oppenheimer Funds Distributor, Inc. Bulk Rate P.O. Box 5270 U.S. Postage Denver, CO 80217-5270 PAID Permit No. 469 Denver, Co. Oppenheimer Investment Grade Bond Fund Annual Report December 31, 1994 [photo depicting woman and girl shopping] "To help pay for extras, I count on the money I get from my investments." [logo] OppenheimerFunds This Fund is for people who want solid income and feel most comfortable getting it from quality investments. How Your Fund Is Managed Oppenheimer Investment Grade Bond Fund's portfolio is made up of investment grade corporate bonds, U.S. government securities, and high-quality money market instruments. Of these three types of investments, corporate bonds often offer the highest yields, but can come in all different levels of quality. That's why your Fund allocates assets to investment grade corporate bonds only--so it can seek high yields with less risk. And investing in U.S. government securities and high-quality money market instruments helps to further provide income with relative stability. Yield Standardized Yield For the 30 Days Ended 12/31/94:(1) Class A 6.76% Class B 6.34% Performance Total return at net asset value for the 12 months ended 12/31/94 was -3.87% for Class A shares and -4.53% for Class B shares.(2) The financial markets had a difficult year and, like many mutual funds, your Fund felt the effects. While difficult years are hard to accept, they're an inevitable part of investing. That's why keeping a long-term perspective is crucial to getting the most from your investment and helping you through short-term market fluctuations. Your Fund's average annual total returns at maximum offering price for Class A shares for the 1- and 5-year periods ended 12/31/94 and since inception of the Class on 4/15/88 were -8.43%, 5.97% and 6.79%, respectively. For Class B shares, average annual total returns for the 1-year period ended 12/31/94 and since inception of the Class on 5/1/93 were -9.03% and -2.67%, respectively.(3) Outlook "The past year was a challenging one for the bond market, but our outlook as we enter 1995 is very constructive. The Federal Reserve's efforts to fend off inflation, while temporarily disconcerting, have had their desired effect. Inflation remains under control, and with our ability to invest across the investment-grade spectrum--in corporate, asset-backed, mortgage-backed and U.S. government bonds--the Fund is positioned to deliver attractive real, inflation-adjusted returns." Mary Wilson, Portfolio Manager Massachusetts Mutual Life Insurance Co., The Fund's Sub-Advisor December 31, 1994 1. Standardized yield is net investment income calculated on a yield-to-maturity basis for the 30-day period ended 12/31/94, divided by the maximum offering price at the end of the period, compounded semi-annually and then annualized. Falling net asset values will tend to artificially raise yields. 2. Based on the change in net asset value per share from 12/31/93 to 12/31/94, without deducting any sales charges. Such performance would have been lower if sales charges were taken into account. 3. Average annual total returns are based on a hypothetical investment held until 12/31/94, after deducting the current maximum initial sales charge of 4.75% for Class A shares and the contingent deferred sales charge of 5% (1 year) and 4% (since inception) for Class B shares. The Fund's maximum sales charge rate for Class A shares was lower during a portion of some of the periods shown, and actual investment results will be different as a result of the change. Class A and Class B shares were first publicly offered on 4/15/88 and 5/1/93, respectively. All figures assume reinvestment of dividends and capital gains distributions. Past performance is not indicative of future results. Investment and principal value on 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. 2 Oppenheimer Investment Grade Bond Fund Dear OppenheimerFunds Shareholder, The past year was marked by one of the greatest tests the bond markets faced in more than six decades. As the U.S. Federal Reserve undertook one of the most aggressive series of moves to raise interest rates in its history, bond prices declined across the board, leaving many investors to wonder what the future holds for interest rates and the fixed income markets. Changing interest rates and fluctuating bond prices are facts of life affecting all bond markets, and it's a bond market basic principle that when interest rates rise, bond prices generally decline. That is why we believe the best measure for any fixed income investment is its performance over the long term. And we believe the long-term outlook for the bond markets is excellent. We expect the Fed's attempt to preempt possible inflation, while temporarily disconcerting, to have its desired effect in 1995. The economy should start to slow, and although short-term rates may move up modestly from their present levels, long-term interest rates should stabilize in their current range. Long-term rates may even begin to decline as overblown concerns about inflation abate. Those concerns are, in fact, already fading. While the prices of some commodities have risen over the past year and U.S. manufacturing capacity utilization and employment rose to their highest levels in years, in today's globally competitive environment, price increases are difficult to pass on to either consumers or businesses. The inflation rate--as measured by the Consumer Price Index--continues to run at less than 3% a year, and there's nothing on the horizon to suggest to us that it will increase substantially anytime soon. As a result, bonds today offer some of the highest real, inflation-adjusted returns we have seen in years. At the same time, the changing political landscape reflected in results of the mid-term election bode well for the bond market over time. In addition to limiting the expectation that Congress will pass potentially inflationary government spending proposals, the realignment in Washington has raised the possibility of tax relief in the form of an expanded deduction for individual retirement savings or possibly a reduction in the capital gains tax rate. What specific action, if any, Congress will take on these proposals remains to be seen. But any action to reduce the federal deficit, cut spending, and reduce taxes should be good news for the investment markets overall. Together, these factors suggest to us that 1995 will be a rewarding time for bond market investors. We expect that as short-term rates rise and inflation holds at its current level, short-term investments should provide more attractive real, inflation-adjusted yields. Longer-term bonds in all sectors--corporate, municipal, and U.S. government--may also provide very attractive total return opportunities. Along with strong yields, longer-term bonds offer the prospect of modest price appreciation during 1995 as well. Your portfolio manager discusses your Fund's outlook on the following pages. We appreciate your confidence in OppenheimerFunds and we look forward to helping you continue to reach your investment goals. James C. Swain Chairman Oppenheimer Investment Grade Bond Fund Jon S. Fossel President Oppenheimer Investment Grade Bond Fund James C. Swain Jon S. Fossel January 23, 1995 3 Oppenheimer Investment Grade Bond Fund Q + A An interview with the Fund's managers. The Fund delivered an attractive yield over the last 12 months, but its performance was off for the year on a total return basis. What factors affected the Fund's results? One factor stands out: the Federal Reserve's aggressive moves to raise short-term interest rates to control inflation. Rising interest rates took a toll on all bonds and bond funds, and the bonds on which this Fund concentrated--those in the intermediate-maturity sector--were particularly affected. How did you respond to rising interest rates? We made a number of adjustments. As the corporate yield advantage over Treasury securities narrowed during the year, we reduced our corporate holdings somewhat, selling bonds that had performed well, including Marriott and Comdisco, and reinvesting the proceeds in asset-backed issues from issuers like Ford and Daimler-Benz. These issues, which are secured by short-term and medium-term receivables, combine very attractive yields with high credit quality. We also modestly increased our holdings of mortgage-backed bonds.(1) What made mortgage-backed securities so attractive in the past six months? As interest rates rose, the major risk in the mortgage market--that of pre-payments and refinancing by mortgage- holders--was reduced significantly. With interest rates at their current levels, the mortgage-backed market is much more stable and predictable than it was a year ago, while offering attractive yields. Of course, to keep potential price fluctuations to a minimum, we continue to invest in well-seasoned, well-structured mortgage-backed securities. How about Treasuries? Have you made any adjustments to that portion of the portfolio in the past six months? We have. Given the outlook for rising interest rates, we reduced the Fund's relative exposure to Treasuries, which tend to lag investment-grade corporate bonds in the mid-to-late stages of economic expansion. We also modestly reduced our Treasury durations--a technical measure of a bond portfolio's sensitivity to interest rate changes. At year end, our portfolio's duration was about half a year shorter than that of the Lehman Brothers Corporate/Government Bond Index. All in all, it sounds like you've positioned the portfolio somewhat conservatively. That's true. In addition to the adjustments we've made in our bond holdings, we've also increased our position in short-term money market securities somewhat, in an effort to "keep our powder dry" until the bond market stabilizes. What's your outlook for the Fund? Do you expect the markets to stabilize any time soon? We do; in fact, we're seeing signs of it today. Investors are beginning to recognize that there are no signs of runaway inflation or double-digit interest rates on the horizon. They're also recognizing that bonds offer some of the most attractive real, inflation-adjusted returns available in years. As a result, money is beginning to come back to the bond market, providing solid sup-port for bond prices. Mary Wilson Portfolio Manager 1. The Fund's portfolio is subject to change. 4 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statement of Investments December 31, 1994 ------------------------------------------------------------------------------------------------------ Face Market Value Amount See Note 1 ========================================================== ========================================================== =============== Short-Term Notes--14.9% - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Non-Cyclicals--2.4% - ----------------------------------------------------------------------------------------------------------------------------------- Food Wholesalers--2.4% Tyson Foods, Inc., 6.10%, 1/4/95 $2,410,000 $ 2,408,775 - ----------------------------------------------------------------------------------------------------------------------------------- Energy--2.5% - ----------------------------------------------------------------------------------------------------------------------------------- Oil: Integrated Domestic--2.5% Burlington Resources, Inc., 6.30%, 1/17/95 2,500,000 2,493,000 - ----------------------------------------------------------------------------------------------------------------------------------- Financial--3.2% - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Finance--0.7% Ford Motor Credit Co., 5.80%, 1/9/95 555,000 555,000 ------------------------------------------------------------------------------------------------------ General Motors Acceptance Corp., 6.05%, 1/9/95 120,000 119,839 ------------ 674,839 - ----------------------------------------------------------------------------------------------------------------------------------- Financial Services: Miscellaneous--2.5% Countrywide Funding Corp., 6.30%, 1/6/95 2,500,000 2,497,812 - ----------------------------------------------------------------------------------------------------------------------------------- Utilities--6.8% - ----------------------------------------------------------------------------------------------------------------------------------- Electric Companies--4.5% Indiana & Michigan Power Co., 6.05%, 1/3/95 2,040,000 2,039,314 ------------------------------------------------------------------------------------------------------ Texas Electric Services Co., 6.20%, 1/5/95 2,500,000 2,498,278 ------------ 4,537,592 - ----------------------------------------------------------------------------------------------------------------------------------- Telephone--2.3% GTE Norwest, Inc., 5.88%, 1/13/95 2,340,000 2,335,414 ------------ Total Short-Term Notes (Cost $14,947,432) 14,947,432 ========================================================== ========================================================== =============== Asset-Backed Securities--7.1% - ----------------------------------------------------------------------------------------------------------------------------------- Auto Loan--7.1% Daimler-Benz Vehicle Trust, Series 1994-A, Cl. A, 5.95%, 12/15/00 827,697 814,537 ------------------------------------------------------------------------------------------------------ Ford Credit Grantor Trust, Series 1994-B, Cl. A, 7.30%, 10/15/99 1,458,742 1,447,933 ------------------------------------------------------------------------------------------------------ General Motors Acceptance Corp., Grantor Trust, Series 1992-E, Cl. A, 4.75%, 8/15/97 454,750 445,615 ------------------------------------------------------------------------------------------------------ Nissan Auto Receivables Grantor Trust, Series 1994-A, Cl. A, 6.45%, 9/15/99 2,241,045 2,202,567 ------------------------------------------------------------------------------------------------------ Select Auto Receivable Trust, Series 1991-2 Asset-Backed Certificates, Cl. A, 7.65%, 7/15/96 194,180 193,881 ------------------------------------------------------------------------------------------------------ World Omni Automobile Lease Securitization Trust, Series 1994-A, Cl. A, 6.45%, 9/25/00 2,000,000 1,967,360 ------------ Total Asset-Backed Securities (Cost $7,163,638) 7,071,893 ========================================================== ========================================================== =============== Mortgage-Backed Obligations--13.3% - ----------------------------------------------------------------------------------------------------------------------------------- Government Agency--11.3% - ----------------------------------------------------------------------------------------------------------------------------------- FHLMC/FNMA/Sponsored--7.1% Federal Home Loan Mortgage Corp., Certificates of Participation, 9%, 3/1/17 770,177 772,234 ------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp., Certificates of Participation, Series 17-039, 13.50%, 11/1/10 91,657 101,813 ------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp., Certificates of Participation, Series 17-094, 12.50%, 4/1/14 50,645 55,629 ------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp., Collateralized Mortgage Obligation Gtd. Multiclass Certificates of Participation, 7.50%, 2/15/07 2,000,000 1,898,120 ------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, Series 1460, Cl. 1460-H, 7%, 5/15/07 1,500,000 1,374,090 ------------------------------------------------------------------------------------------------------ Federal National Mortgage Assn., Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 1,116,105 1,097,712 ------------------------------------------------------------------------------------------------------ Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1993-191, Cl. PD, 5.40%, 4/25/04 1,500,000 1,365,300
5 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statement of Investments (Continued) ------------------------------------------------------------------------------------------------------ Face Market Value Amount See Note 1 - ----------------------------------------------------------------------------------------------------------------------------------- FHLMC/FNMA/Sponsored (continued) Federal National Mortgage Assn., Interest-Only Collateralized Mortgage Obligation Gtd. Real Estate Mortgage Investment Conduit Pass-Through Certificates, Trust 1992 G-57, Cl. SA, 44.60%, 10/25/22(1) $ 568,843 $ 443,698 ------------ 7,108,596 - ----------------------------------------------------------------------------------------------------------------------------------- GNMA/Guaranteed:--4.2% Government National Mortgage Assn.: 10%, 11/15/09 595,139 622,481 12%, 1/15/99 24,402 25,944 12%, 1/15/99 66,980 71,210 12%, 5/15/14 2,184 2,423 12.75%, 6/15/15 44,137 49,704 15%, 2/15/12 26,167 30,505 8%, 10/15/05 243,215 239,689 8%, 10/15/06 377,529 371,447 8%, 6/15/05 125,505 123,686 8%, 6/15/05 97,196 95,787 8%, 6/15/05 132,000 130,087 8%, 7/15/05 222,830 219,600 8%, 7/15/05 326,463 321,730 8%, 7/15/05 109,149 107,567 8%, 7/15/06 167,313 164,618 8%, 7/15/06 216,029 212,549 8%, 8/15/05 135,305 133,344 8%, 8/15/05 146,311 144,190 8%, 9/15/05 309,653 305,163 8%, 9/15/05 158,612 156,312 9%, 2/15/09 22,973 23,335 9%, 2/15/09 234,544 238,238 9%, 3/15/09 167,088 169,720 9%, 3/15/09 25,494 25,896 9%, 5/15/09 28,368 28,815 9%, 6/15/09 159,386 161,897 ------------ 4,175,937 - ----------------------------------------------------------------------------------------------------------------------------------- Other--2.0% JHM Acceptance Corp., 8.96% Collateralized Mortgage Obligation Bonds, Series E, Cl. E-6, 4/1/19 2,000,000 2,008,900 ------------ Total Mortgage-Backed Obligations (Cost $14,177,957) 13,293,433 ========================================================== ========================================================== =============== U.S. Government Obligations--43.8% - ----------------------------------------------------------------------------------------------------------------------------------- Agency--3.8% - ----------------------------------------------------------------------------------------------------------------------------------- Government Agency/ Full Faith--3.8% Allentown, Pennsylvania, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 65,000 66,092 ------------------------------------------------------------------------------------------------------ Babylon, New York, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 115,000 104,767 ------------------------------------------------------------------------------------------------------ Bakersfield, California, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 255,000 232,311 ------------------------------------------------------------------------------------------------------ Boston, Massachusetts, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 795,000 724,262 ------------------------------------------------------------------------------------------------------ Buena Vista Township, New Jersey, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 270,000 245,976
6 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ Face Market Value Amount See Note 1 - ----------------------------------------------------------------------------------------------------------------------------------- Government Agency/ Full Faith (continued) Buffalo, New York, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 $ 400,000 $ 364,409 ------------------------------------------------------------------------------------------------------ Detroit, Michigan, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 405,000 368,964 ------------------------------------------------------------------------------------------------------ Fajardo, Puerto Rico, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 300,000 305,042 ------------------------------------------------------------------------------------------------------ New Haven, Connecticut, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 400,000 406,722 ------------------------------------------------------------------------------------------------------ Roanoke, Virginia, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 220,000 200,425 ------------------------------------------------------------------------------------------------------ Sacramento County, California Redevelopment Agency U.S. Government Gtd. Nts., Series 94A, 5.93%, 8/1/99 240,000 218,390 ------------------------------------------------------------------------------------------------------ Tacoma, Washington, U.S. Government Gtd. Nts., Series 94A, 5.93%, 8/1/99 165,000 150,319 ------------------------------------------------------------------------------------------------------ Trenton, New Jersey, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 135,000 122,988 ------------------------------------------------------------------------------------------------------ Tujillo Alto, Puerto Rico, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 235,000 238,949 ------------ 3,749,616 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury--40.0% U.S. Treasury Bonds: 7.125%, 2/15/23 4,000,000 3,638,748 7.25%, 8/15/22 4,900,000 4,521,778 7.875%, 2/15/21 900,000 888,188 8%, 11/15/21 2,000,000 2,006,874 ------------------------------------------------------------------------------------------------------ U.S. Treasury Notes: 6.375%, 8/15/02 2,750,000 2,519,687 7%, 4/15/99 10,700,000 10,372,312 7.25%, 8/15/04 10,000,000 9,600,000 8.50%, 7/15/97 6,400,000 6,504,000 ------------ 40,051,587 ------------ Total U.S. Government Obligations (Cost $47,152,705) 43,801,203 ========================================================== ========================================================== =============== Foreign Government Obligations--0.9% Iceland (Republic of) Nts., 6.125%, 2/1/04 (Cost $989,168) 1,000,000 857,030 ========================================================== ========================================================== =============== Corporate Bonds and Notes--29.0% - ----------------------------------------------------------------------------------------------------------------------------------- Basic Materials--5.5% - ----------------------------------------------------------------------------------------------------------------------------------- Chemicals--0.4% Imcera Group, Inc., 6% Nts., 10/15/03 500,000 424,747 - ----------------------------------------------------------------------------------------------------------------------------------- Metals--3.5% AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,041,957 ------------------------------------------------------------------------------------------------------ Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 985,022 ------------------------------------------------------------------------------------------------------ Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,479,052 ------------ 3,506,031 - ----------------------------------------------------------------------------------------------------------------------------------- Paper and Forest Products--1.6% Georgia-Pacific Corp., 9.95% Debs., 6/15/02 1,500,000 1,600,647 - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Cyclicals--3.0% - ----------------------------------------------------------------------------------------------------------------------------------- Automotive--1.1% Chrysler Corp., 10.40% Nts., 8/1/99 1,000,000 1,048,078 - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Goods and Services--1.0% Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,041,250 - ----------------------------------------------------------------------------------------------------------------------------------- Media--0.9% News America Holdings, Inc., 7.50% Gtd. Sr. Nts., 3/1/00 1,000,000 945,495 - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Non-Cyclicals--2.0% - ----------------------------------------------------------------------------------------------------------------------------------- Food--1.0% Wendy's International, Inc., 12.125% Debs., 4/1/95 1,000,000 1,010,211 - ----------------------------------------------------------------------------------------------------------------------------------- Healthcare--1.0% Baxter International, Inc., 9.25% Nts., 9/15/96 1,000,000 1,018,178
7 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statement of Investments (Continued) ------------------------------------------------------------------------------------------------------ Face Market Value Amount See Note 1 - ----------------------------------------------------------------------------------------------------------------------------------- Energy--4.5% Enron Corp., 8.10% Nts., 12/15/96 $1,500,000 $ 1,499,236 ------------------------------------------------------------------------------------------------------ Union Oil Co. of California, 8.75% Nts., 8/15/01 1,500,000 1,517,873 ------------------------------------------------------------------------------------------------------ Union Oil Co. of California, 9.625% Gtd. Debs., 5/15/95 1,500,000 1,513,434 ------------ 4,530,543 - ----------------------------------------------------------------------------------------------------------------------------------- Financial--5.9% Ford Motor Credit Co., 9.90% Med.-Term Nts., 11/6/97 2,000,000 2,057,252 ------------------------------------------------------------------------------------------------------ Goldman Sachs Group, LP, 6.20% Nts., 2/15/01 1,500,000 1,312,969 ------------------------------------------------------------------------------------------------------ Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 1,757,329 ------------------------------------------------------------------------------------------------------ PaineWebber Group, Inc., 6.50% Nts., 11/1/05 1,000,000 794,856 ------------ 5,922,406 - ----------------------------------------------------------------------------------------------------------------------------------- Industrial--3.8% - ----------------------------------------------------------------------------------------------------------------------------------- General Industrial--1.0% Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 976,858 - ----------------------------------------------------------------------------------------------------------------------------------- Transportation--2.8% AMR Corp., 9% Debs., 8/1/12 1,500,000 1,353,010 ------------------------------------------------------------------------------------------------------ United Air Lines, Inc., 10.11% Equipment Trust Certificates, Series 91B, 2/19/06 1,449,687 1,409,815 ------------ 2,762,825 - ----------------------------------------------------------------------------------------------------------------------------------- Technology--3.3% - ----------------------------------------------------------------------------------------------------------------------------------- Aerospace/Defense--3.3% McDonnell Douglas Corp., 9.25% Nts., 4/1/02 2,750,000 2,812,540 ------------------------------------------------------------------------------------------------------ Textron, Inc., 9.55% Med.-Term Nts., 3/19/01 500,000 525,255 ------------ 3,337,795 - ----------------------------------------------------------------------------------------------------------------------------------- Utilities--1.0% Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(2) 1,000,000 951,846 ------------ Total Corporate Bonds and Notes (Cost $30,473,758) 29,076,910 Shares ========================================================== ========================================================== =============== Common Stocks--0.0% - ----------------------------------------------------------------------------------------------------------------------------------- Consumer Non-Cyclicals--0.0% - ----------------------------------------------------------------------------------------------------------------------------------- Food Processing--0.0% Doskocil Cos., Inc. (Cost $0) 1,761 13,208 - ----------------------------------------------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $114,904,658) 109.0% 109,061,109 - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets (9.0) (8,970,361) ---------- ------------ Net Assets 100.0% $100,090,748 ========== ============ 1. Interest rate resets monthly, inversely related to LIBOR. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities are subject to the risk of accelerated principal paydowns as interest rates decline. The principal amount represents the notional amount on which current interest is calculated. 2. Restricted security--See Note 6 of Notes to Financial Statements. See accompanying Notes to Financial Statements.
8 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statement of Assets and Liabilities December 31, 1994 ------------------------------------------------------------------------------------------------------ ========================================================== ========================================================== =============== Assets Investments, at value (cost $114,904,658)--see accompanying statement $109,061,109 ------------------------------------------------------------------------------------------------------ Receivables: Interest and principal paydowns 1,694,107 Shares of beneficial interest sold 202,489 ------------------------------------------------------------------------------------------------------ Other 55,797 ------------ Total assets 111,013,502 ========================================================== ========================================================== =============== Liabilities Bank overdraft 57,356 ------------------------------------------------------------------------------------------------------ Payables and other liabilities: Investments purchased 9,823,047 Dividends 646,989 Shares of beneficial interest redeemed 258,588 Distribution and service plan fees--Note 4 65,541 Deferred trustee fees--Note 5 18,086 Other 53,147 ------------ Total liabilities 10,922,754 ========================================================== ========================================================== =============== Net Assets $100,090,748 ============ ========================================================== ========================================================== =============== Composition of Net Assets Paid-in capital $110,009,506 ------------------------------------------------------------------------------------------------------ Undistributed (overdistributed) net investment income (204,894) ------------------------------------------------------------------------------------------------------ Accumulated net realized gain (loss) from investment transactions (3,870,315 ------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investments--Note 3 (5,843,549) ------------- Net assets $100,090,748 ============= ========================================================== ========================================================== =============== Net Asset Value Per Share Class A Shares: Net asset value and redemption price per share (based on net assets of $96,639,607 and 9,653,273 shares of beneficial interest outstanding) $10.01 Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $10.51 ------------------------------------------------------------------------------------------------------ Class B Shares: Net asset value, redemption price and offering price per share (based on net assets of $3,451,141 and 344,660 shares of beneficial interest outstanding) $10.01
See accompanying Notes to Financial Statements. 9 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statement of Operations For the Year Ended December 31, 1994 ------------------------------------------------------------------------------------------------------ ========================================================== ========================================================== =============== Investment Income Interest $ 7,667,379 ========================================================== ========================================================== =============== Expenses Management fees--Note 4 522,205 ------------------------------------------------------------------------------------------------------ Distribution and service plan fees: Class A--Note 4 247,136 Class B--Note 4 26,383 ------------------------------------------------------------------------------------------------------ Transfer and shareholder servicing agent fees--Note 4 184,806 ------------------------------------------------------------------------------------------------------ Shareholder reports 80,889 ------------------------------------------------------------------------------------------------------ Legal and auditing fees 13,761 ------------------------------------------------------------------------------------------------------ Trustees' fees and expenses 12,864 ------------------------------------------------------------------------------------------------------ Custodian fees and expenses 12,743 ------------------------------------------------------------------------------------------------------ Registration and filing fees: Class A 162 Class B 603 ------------------------------------------------------------------------------------------------------ Other 28,219 ----------- Total expenses 1,129,771 ========================================================== ========================================================== =============== Net Investment Income (Loss) 6,537,608 ========================================================== ========================================================== =============== Realized and Unrealized Gain (Loss) on Investments Net realized gain (loss) on investments (2,274,518) ------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation or depreciation on investments (8,559,673) ----------- Net realized and unrealized gain (loss) on investments (10,834,191) ========================================================== ========================================================== =============== Net Increase (Decrease) in Net Assets Resulting From Operations $(4,296,583) ===========
See accompanying Notes to Financial Statements. 10 Oppenheimer Investment Grade Bond Fund
------------------------------------------------------------------------------------------------------ Statements of Changes in Net Assets ------------------------------------------------------------------------------------------------------ Year Ended December 31, 1994 1993 ========================================================== ========================================================== =============== Operations Net investment income (loss) $6,537,608 $ 6,955,080 ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments (2,274,518) 3,772,429 ------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation or depreciation on investments (8,559,673) 22,233 ------------ ------------ Net increase (decrease) in net assets resulting from operations (4,296,583) 10,749,742 ========================================================== ========================================================== =============== Dividends and Distributions To Shareholders Dividends from net investment income: Class A ($.6539 and $.707 per share, respectively) (6,381,575) (7,067,709) Class B ($.5754 and $.42 per share, respectively) (156,032) (33,652) ------------------------------------------------------------------------------------------------------ Dividends in excess of net investment income: Class A ($.0306 per share) (298,880) -- Class B ($.027 per share) (7,308) -- ========================================================== ========================================================== =============== Beneficial Interest Transactions Net increase (decrease) in net assets resulting from Class A beneficial interest transactions--Note 2 (3,255,547) 802,199 ------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from Class B beneficial interest transactions--Note 2 1,918,288 1,828,205 ========================================================== ========================================================== =============== Net Assets Total increase (decrease) (12,477,637) 6,278,785 ------------------------------------------------------------------------------------------------------ Beginning of period 112,568,385 106,289,600 ------------ ------------ End of period (including overdistributed net investment income of $204,894 and $56,074, respectively) $100,090,748 $112,568,385 ============ ============
See accompanying Notes to Financial Statements. 11 Oppenheimer Investment Grade Bond Fund
----------------------------------------------------------------------------------- Financial Highlights ----------------------------------------------------------------------------------- Class A ----------------------------------------------------------------------------------- Eleven Months Ended Year Ended December 31, Dec. 31, 1994 1993 1992 1991(3) 1990 1989 1988(2) ========================================================== ========================================================== Per Share Operating Data: Net asset value, beginning of period $11.12 $10.74 $10.80 $ 9.86 $10.29 $10.12 $10.55 - ------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .65 .69 .75 .82 .88(4) .92 .93 Net realized and unrealized gain (loss) on investments (1.08) .40 (.05) .90 (.43) .19 (.36) ------- ------- ------- ------- ------ ------- ------- Total income (loss) from investment operations (.43) 1.09 .70 1.72 .45 1.11 .57 - ------------------------------------------------------------------------------------------------------------------- Dividends to shareholders: Dividends from net investment income (.65) (.71) (.76) (.78) (.88) (.94) (1.00) Dividends in excess of net investment income (.03) -- -- -- -- -- -- ------- ------- ------- ------- ------ ------- ------- Total dividends to shareholders (.68) (.71) (.76) (.78) (.88) (.94) (1.00) - ------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.01 $ 11.12 $ 10.74 $ 10.80 $ 9.86 $ 10.29 $ 10.12 ======= ======= ======= ======= ====== ======= ======= ========================================================== ========================================================== Total Return, at Net Asset Value(5) (3.87)% 10.30% 6.77% 18.28% 4.74% 11.31% 4.48% ========================================================== ========================================================== Ratios/Supplemental Data: Net assets, end of period (in thousands) $96,640 $110,759 $106,290 $90,623 $87,021 $96,380 $102,293 - ------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $102,168 $111,702 $ 98,672 $86,471 $ 90,065 $100,891 $111,264 - ------------------------------------------------------------------------------------------------------------------- Number of shares outstanding at end of period (in thousands) 9,653 9,963 9,899 8,390 8,829 9,369 10,108 - ------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income 6.25% 6.20% 7.00% 8.02% 8.85% 8.85% 8.75% Expenses 1.06% 1.06% 1.10% 1.23% 1.24%(4) 1.14% 1.05% - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(7) 70.3% 110.1% 116.4% 97.1% 80.4% 41.3% 45.0%
------------------------------------------------------------------------ Financial Highlights (continued) ------------------------------------------------------------------------ Class A (continued) Class B -------------------------------------------------------------- -------- Year Period Ended Ended Year Ended January 31, Dec. 31, Dec. 31, 1988(2) 1987(2) 1986(2) 1985(2) 1994 1993(1) ========================================================== ============================================= Per Share Operating Data: Net asset value, beginning of period $ 11.30 $ 11.16 $ 10.91 $ 11.00 $ 11.11 $ 11.10 - ------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 1.09 1.16 1.22 1.27 .58 .40 Net realized and unrealized gain (loss) on investments (.55) .22 .35 (.04) (1.08) .03 ------- ------- ------- ------- ------- ------- Total income (loss) from investment operations .54 1.38 1.57 1.23 (.50) .43 - ------------------------------------------------------------------------------------------------------- Dividends to shareholders: Dividends from net investment income (1.29) (1.24) (1.32) (1.32) (.57) (.42) Dividends in excess of net investment income -- -- -- -- (.03) -- ------- ------- ------- ------- ------- ------- Total dividends to shareholders (1.29) (1.24) (1.32) (1.32) (.60) (.42) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.55 $ 11.30 $ 11.16 $ 10.91 $ 10.01 $ 11.11 ======= ======= ======= ======= ======= ======= ========================================================== ============================================= Total Return, at Net Asset Value(5) N/A N/A N/A N/A (4.53)% 3.91% ========================================================== ============================================= Ratios/Supplemental Data: Net assets, end of period (in thousands) $118,568 $125,513 $121,979 $117,293 $3,451 $1,809 - ------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $118,724 $123,045 $118,253 $111,235 $2,747 $ 922 - ------------------------------------------------------------------------------------------------------- Number of shares outstanding at end of period (in thousands) 11,234 11,103 10,930 10,751 345 163 - ------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income 10.28% 10.45% 11.26% 12.21% 5.53% 4.80%(6) Expenses .98% .93% .97% 1.01% 1.78% 1.90%(6) - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate(7) 19.5% 59.8% 36.5% 76.7% 70.3% 110.1% 1. For the period from May 1, 1993 (inception of offering) to December 31, 1993. 2. Operating results prior to April 15, 1988 were achieved by the Fund's predecessor corporation as a closed-end fund under different investment objectives and policies. Such results are thus not necessarily representative of operating results the Fund may achieve under its current investment objectives and policies. 3. On March 28, 1991, Oppenheimer Management Corporation became the investment advisor to the Fund. 4. Net investment income would have been $.87 absent the voluntary expense limitation, resulting in an expense ratio of 1.26%. 5. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 6. Annualized. 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 year ended December 31, 1994 were $67,852,873 and $67,362,839, respectively. See accompanying Notes to Financial Statements.
12 Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- Notes to Financial Statements ----------------------------------------------------------------------------------------------------- ========================================================== ========================================================== =============== 1. Significant Accounting Policies Oppenheimer Investment Grade Bond Fund (the Fund) is a separate fund of Oppenheimer Integrity Funds, a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund's investment advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class A and Class B shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge. Both classes of shares have identical rights to earnings, assets and voting privileges, except that each class has its own distribution and/or service plan, expenses directly attributable to a particular class and exclusive voting rights with respect to matters affecting a single class. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. ----------------------------------------------------------------------------------------------------- Investment Valuation. Portfolio securities are valued at 4:00 p.m. (New York time) on each trading day. Long-term debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Long-term debt securities which cannot be valued by the approved portfolio pricing service are valued 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 under consistently applied procedures established by the Board of Trustees to determine fair value in good faith. Short-term debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Forward foreign currency contracts are valued at the closing price on the London foreign exchange market on a daily basis. 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 on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. ----------------------------------------------------------------------------------------------------- Allocation of Income, Expenses and Gains and Losses. Income, expenses (other than those attributable to a specific class) and gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. ----------------------------------------------------------------------------------------------------- Federal Income Taxes. The Fund intends to continue to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income, including any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income tax provision is required. At December 31, 1994, the Fund had available for federal income tax purposes an unused capital loss carryover of approximately $3,738,000, $442,000 of which will expire in 1997, $958,000 in 1998 and $2,338,000 in 2002. ----------------------------------------------------------------------------------------------------- Distributions to Shareholders. The Fund intends to declare dividends separately for Class A and Class B shares from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. Distributions from net realized gains on investments, if any, will be declared at least once each year. ----------------------------------------------------------------------------------------------------- Change in Accounting for Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of paydown gains and losses. The character of the distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (loss) was recorded by the Fund. Effective January 1, 1994, the Fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the Fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, subsequent to December 31, 1993, amounts have been reclassified to reflect a decrease in paid-in capital of $29,803, an increase in undistributed net investment income of $42,134, and an increase in undistributed capital loss on investments of $12,331. During the year ended December 31, 1994, in accordance with Statement of Position 93-2, undistributed net investment income was increased by $115,233 and undistributed capital loss on investments was increased by the same amount.
13 Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- Notes to Financial Statements (Continued) ----------------------------------------------------------------------------------------------------- ========================================================== ========================================================== =============== 1. Significant Accounting Policies (continued) Other. Investment transactions are accounted for on the date the investments are purchased or sold (trade date). Discount on securities purchased is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. ========================================================== ========================================================== =============== 2. Shares of Beneficial Interest The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
Year Ended December 31, 1994 Year Ended December 31, 1993(1) ---------------------------- --------------------------------- Shares Amount Shares Amount ----------------------------------------------------------------------------------------------------- Class A: Sold 1,071,379 $ 11,256,317 2,953,788 $ 33,325,053 Dividends reinvested 323,100 3,353,309 259,953 2,897,712 Redeemed (1,704,508) (17,865,173) (3,149,098) (35,420,566) --------- ------------ --------- ------------ Net increase (decrease) (310,029) $ (3,255,547) 64,643 $ 802,199 ========= ============ ========= ============ ----------------------------------------------------------------------------------------------------- Class B: Sold 293,817 $ 3,089,618 195,606 $ 2,198,191 Dividends reinvested 11,974 123,504 2,293 25,726 Redeemed (123,969) (1,294,834) (35,061) (395,712) --------- ------------ --------- ------------ Net increase 181,822 $ 1,918,288 162,838 $ 1,828,205 ========= ============ ========= ============ 1. For the year ended December 31, 1993 for Class A shares and for the period from May 1, 1993 (inception of offering) to December 31, 1993 for Class B shares. ========================================================== ========================================================== =============== 3. Unrealized Gains and Losses on Investments At December 31, 1994, net unrealized depreciation on investments of $5,843,549 was composed of gross appreciation of $404,576, and gross depreciation of $6,248,125. ========================================================== ========================================================== =============== 4. Management Fees And Other Transactions With Affiliates Management fees paid to the Manager were in accordance with the investment advisory agreement with the Fund which provides for an annual fee of .50% on the first $100 million of net assets with a reduction of .05% on each $200 million thereafter, to .35% on net assets in excess of $500 million. The Manager has agreed to reimburse the Fund if aggregate expenses (with specified exceptions) exceed the most stringent applicable regulatory limit on Fund expenses. For the year ended December 31, 1994, commissions (sales charges paid by investors) on sales of Class A shares totaled $143,088, of which $67,090 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor, and by an affiliated broker/dealer. During the year ended December 31, 1994, OFDI received contingent deferred sales charges of $8,916 upon redemption of Class B shares, as reimbursement for sales commissions advanced by OFDI at the time of sale of such shares. Oppenheimer Shareholder Services (OSS), a division of the Manager, is the transfer and shareholder servicing agent for the Fund, and for other registered investment companies. OSS's total costs of providing such services are allocated ratably to these companies. Under separate approved plans, each class may expend up to .25% of its net assets annually to reimburse OFDI for costs incurred in connection with the personal service and maintenance of accounts that hold shares of the Fund, including amounts paid to brokers, dealers, banks and other institutions. In addition, Class B shares are subject to an asset-based sales charge of .75% of net assets annually, to reimburse OFDI for sales commissions paid from its own resources at the time of sale and associated financing costs. In the event of termination or discontinuance of the Class B plan, the Board of Trustees may allow the Fund to continue payment of the asset-based sales charge to OFDI for distribution expenses incurred on Class B shares sold prior to termination or discontinuance of the plan. During the year ended December 31, 1994, OFDI paid $154,100 to an affiliated broker/dealer as reimbursement for Class A personal service and maintenance expenses and retained $27,341 as reimbursement for Class B sales commissions and service fee advances, as well as financing costs.
14 Oppenheimer Investment Grade Bond Fund ========================================================== ========================================================== =============== 5. Deferred Trustee Compensation A former trustee elected to defer receipt of fees earned. These deferred fees earn interest at a rate determined by the current Board of Trustees at the beginning of each calendar year, compounded each quarter-end. As of December 31, 1994, the Fund was incurring interest at a rate of 5.22% per annum. Deferred fees are payable in annual installments, with accrued interest, each April 1 through 1995. ========================================================== ========================================================== =============== 6. Restricted Securities The Fund owns securities purchased in private placement transactions, without registration under the Securities Act of 1933 (the Act). The securities are valued under methods approved by the Board of Trustees as reflecting fair value. The Fund intends to invest no more than 10% of its net assets (determined at the time of purchase) in restricted and illiquid securities, excluding securities eligible for resale pursuant to rule 144A of the Act that are determined to be liquid by the Board of Trustees or by the Manager under Board-approved guidelines. Valuation Per Unit Security Acquisition Date Cost Per Unit of December 31, 1994 ----------------------------------------------------------------------------------------------------- Tenaga Nasional Berhad 7.875% Nts., 6/15/04(1) 9/27/94 $96.79 $95.18 1. Transferable under Rule 144A of the Act.
15 Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- Independent Auditors' Report ----------------------------------------------------------------------------------------------------- ========================================================== ========================================================== =============== The Board of Trustees and Shareholders of Oppenheimer Investment Grade Bond Fund: We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Oppenheimer Investment Grade Bond Fund as of December 31, 1994, the related statement of operations for the year then ended, the statements of changes in net assets for the years ended December 31, 1994 and 1993 and the financial highlights for the period January 1, 1991 to December 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights (except for total return) for the period February 1, 1984 to December 31, 1990 were audited by other auditors whose report dated February 4, 1991, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1994 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Oppenheimer Investment Grade Bond Fund at December 31, 1994, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Denver, Colorado January 23, 1995
16 Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- Federal Income Tax Information (Unaudited) ----------------------------------------------------------------------------------------------------- ========================================================== ========================================================== =============== In early 1995, shareholders will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 1994. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. None of the dividends paid by the Fund during the fiscal year ended December 31, 1994 are eligible for the corporate dividend-received deduction. 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.
17 Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- Oppenheimer Investment Grade Bond Fund ----------------------------------------------------------------------------------------------------- A Series of Oppenheimer Integrity Funds ========================================================== ========================================================== =============== Officers and Trustees James C. Swain, Chairman and Chief Executive Officer Robert G. Avis, Trustee William A. Baker, Trustee Charles Conrad, Jr., Trustee Jon S. Fossel, Trustee and President Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Ned M. Steel, Trustee Andrew J. Donohue, Vice President Mary E. Wilson, Vice President George C. Bowen, Vice President, Secretary and Treasurer Robert J. Bishop, Assistant Treasurer Scott Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary ========================================================== ========================================================== =============== Investment Advisor Oppenheimer Management Corporation ========================================================== ========================================================== =============== Sub-Advisor Massachusetts Mutual Life Insurance Company ========================================================== ========================================================== =============== Distributor Oppenheimer Funds Distributor, Inc. ========================================================== ========================================================== =============== Transfer and Shareholder Servicing Agent Oppenheimer Shareholder Services ========================================================== ========================================================== =============== Custodian of Portfolio Securities The Bank of New York ========================================================== ========================================================== =============== Independent Auditors Deloitte & Touche LLP ========================================================== ========================================================== =============== Legal Counsel Myer, Swanson, Adams & Wolf, P.C. This is a copy of a report to shareholders of Oppenheimer Investment Grade Bond Fund. This report must be preceded by a Prospectus of Oppenheimer Investment Grade Bond Fund. For material information concerning the Fund, see the Prospectus.
18 Oppenheimer Investment Grade Bond Fund OppenheimerFunds Family OppenheimerFunds offers over 35 funds designed to fit virtually every investment goal. Whether you're investing for retirement, your children's education or tax-free income, we have the funds to help you seek your objective. When you invest with OppenheimerFunds, you can feel comfortable knowing that you are investing with a respected financial institution with over 30 years of experience in helping people just like you reach their financial goals. And you're investing with a leader in global, growth stock and flexible fixed income investments--with over 1.8 million shareholder accounts and more than $29 billion under Oppenheimer's management and that of our affiliates. As an OppenheimerFunds shareholder, you can easily exchange shares of eligible funds of the same class by mail or by telephone for a small administrative fee.1 For more information on OppenheimerFunds, please contact your financial advisor or call us at 1-800-525-7048 for a prospectus. You may also write us at the address shown on the back cover. As always, please read the prospectus carefully before you invest. Stock Funds Discovery Fund Global Fund Global Emerging Growth Fund(2) Oppenheimer Fund Time Fund Value Stock Fund Target Fund Gold & Special Minerals Fund Growth Fund(3) Stock & Bond Funds Main Street Income & Growth Fund Equity Income Fund Total Return Fund Asset Allocation Fund Global Growth & Income Fund Bond Funds High Yield Fund Strategic Short-Term Income Fund Champion High Yield Fund Investment Grade Bond Fund Strategic Income & Growth Fund Mortgage Income Fund Strategic Income Fund U.S. Government Trust Strategic Diversified Income Fund Limited-Term Government Fund Strategic Investment Grade Bond Fund Tax-Exempt Funds New York Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4) California Tax-Exempt Fund(4) Tax-Free Bond Fund Pennsylvania Tax-Exempt Fund(4) Insured Tax-Exempt Bond Fund Florida Tax-Exempt Fund(4) Intermediate Tax-Exempt Bond Fund Money Market Funds Money Market Fund Cash Reserves 1. The fee is waived for PhoneLink exchanges between existing accounts. Exchange privileges are subject to change or termination. 2. Formerly Oppenheimer Global Bio-Tech Fund and Oppenheimer Global Environment Fund. 3. Formerly Special Fund. 4. Available only to residents of those states. OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two World Trade Center, New York, NY10048-0203. (C)Copyright 1995 Oppenheimer Management Corporation. All rights reserved. 19 Oppenheimer Investment Grade Bond Fund "How may I help you?" As an OppenheimerFunds shareholder, some special privileges are available to you. Whether it's automatic investment plans, informative newsletters and hotlines, or ready account access, you can benefit from services designed to make investing simple. And when you need help, our Customer Service Representatives are only a toll-free phone call away. They can provide information about your account and handle administrative requests. You can reach them at our General Information number. When you want to make a transaction, you can do it easily by calling our toll-free Telephone Transactions number. And, by enrolling in AccountLink, a convenient service that "links" your OppenheimerFunds accounts and your bank checking or savings account, you can use the Telephone Transactions number to make investments. For added convenience, you can get automated information with OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week. PhoneLink gives you access to a variety of fund, account, and market information. It also gives you the ability to make transactions using your touch-tone phone. Of course, you can always speak with a Customer Service Representative during business hours. You can count on us whenever you need assistance. That's why the International Customer Service Association, an independent, non-profit organization made up of over 3,200 customer service management professionals from around the country, honored the OppenheimerFunds' transfer agent, Oppenheimer Shareholder Services, with their Award of Excellence in 1993. So call us today--we're here to help. Information General Information Monday-Friday 8:30 a.m.-8 p.m. ET Saturday 10 a.m.-2 p.m. ET 1-800-525-7048 Telephone Transactions Monday-Friday 8:30 a.m.-8 p.m. ET 1-800-852-8457 Jennifer Leonard, Customer Service Representative Oppenheimer Shareholder Services PhoneLink 24 hours a day, automated information and transactions 1-800-533-3310 Telecommunications Device for the Deaf (TDD) Monday-Friday 8:30 a.m.-8 p.m. ET 1-800-843-4461 OppenheimerFunds Information Hotline 24 hours a day, timely and insightful messages on the economy and issues that affect your investments 1-800-835-3104 RA0285.001.0295 [logo] OppenheimerFunds(R) Oppenheimer Funds Distributor, Inc. P.O. Box 5270 Denver, CO 80217-5270 Bulk Rate U.S. Postage PAID Permit No. 377 Hackensack, NJ PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES March 31, 1995 (Unaudited) Oppenheimer Bond Fund (formerly Oppenheimer Investment Grade Bond Fund) and Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Oppenheimer Investment Grade Combined Bond Fund Bond Fund(1) Fund Assets Investments, at value* $132,066,406 $38,642,164 $170,708,570 Cash 66,105 -- 66,105 Receivables: Interest and principal paydowns 1,640,795 790,651 2,431,446 Shares of beneficial interest sold 134,067 44,378 178,445 Other 43,181 8,745 51,926 Total assets 133,950,554 39,485,938 173,436,492 Liabilities Bank overdraft -- 504,780 504,780 Options written, at value (premiums received $2,930) -- 2,805 2,805 Unrealized depreciation on forward foreign currency exchange contract -- 627 627 Payables and other liabilities: Investments purchased 17,177,852 -- 17,177,852 Dividends 482,240 81,395 563,635 Shares of beneficial interest redeemed 305,734 119,306 425,040 Distribution and service plan fees 66,701 23,349 90,050 Other 32,153 83,239 115,392 Total liabilities 18,064,680 815,501 18,880,181 Net Assets $115,885,874 $38,670,437 $154,556,311 Net Asset Value and Redemption Price Per Share Class A Shares: Net asset value and redemption price per share (based on net assets of $109,961,008, $23,190,699, and $133,151,707 and 10,644,112, 4,906,735, and 12,889,097 shares of beneficial interest outstanding for Oppenheimer Bond Fund, Oppenheimer Strategic Investment Grade Bond Fund, respectively). $10.33 $ 4.73 $10.33 Class B Shares: Net asset value and redemption price per share (based on net assets of $5,924,866 and 15,479,738 and $21,404,604 and 573,516, 3,278,697, and 2,072,039 shares of beneficial interest outstanding for Oppenheimer Bond Fund, Oppenheimer Strategic Investment Grade Bond Fund, respectively) $10.33 $ 4.72 $10.33 *Cost $134,077,304 $39,373,337 $173,450,641 ________________________ (1) Oppenheimer Strategic Investment Grade Bond Fund Class A shares will be exchanged for Oppenheimer Bond Fund Class A shares. Oppenheimer Strategic Investment Grade Bond Fund Class B shares will be exchanged for Oppenheimer Bond Fund Class B shares.
PRO FORMA COMBINING STATEMENT OF OPERATIONS For The Six Months Ending March 31, 1995 (Unaudited) Oppenheimer Bond Fund (formerly Oppenheimer Investment Grade Bond Fund) and Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Combined Oppenheimer Investment Grade Pro Forma Oppenheimer Bond Fund Bond Fund(1) Adjustments Bond Fund Investment Income: Interest (net of foreign withholding taxes of $3,709) $ 3,998,343 $1,663,843 $5,662,186 Expenses: Management fees 259,096 144,908 131,450(1) 535,454 Distribution and service plan fees: Class A 122,036 28,682 150,718 Class B 19,026 74,856 93,882 Transfer agency 76,886 24,800 (6,000)(2) 95,686 Shareholder reports 47,460 24,303 (5,000)(2) 66,763 Legal and audit 8,784 9,866 (5,000)(2) 13,650 Trustees' fees 9,432 5,559 (5,000)(2) 9,991 Custodian fees 6,240 16,757 (6,000)(2) 16,997 Registration and filing fees: Class A 381 -- 381 Class B 482 408 890 Other 3,679 2,319 5,998 Total expenses 553,502 332,458 104,450 990,410 Net Investment Income 3,444,841 1,331,385 (104,450) 4,671,776 Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on: Investments (893,472) (939,617) (1,833,089) Expiration of option contracts written (62,173) (62,173) Foreign currency transactions (197,537) (197,537) Net realized loss (893,472) (1,199,327) (2,092,799) Net change in unrealized appreciation or depreciation on: Investment and options written 2,801,622 1,316,562 4,118,184 Translation of assets and liabilities denominated in foreign currencies (72,829) (72,829) Net change 2,801,622 1,243,733 4,045,355 Net change in unrealized gain on investments, options written and foreign currency transactions 1,908,150 44,406 1,952,556 Net Increase (Decrease) in Net Assets Resulting from Operations $ 5,352,991 $ 1,375,791 $(104,450) $ 6,624,332 ___________________________ (1) Calculated in accordance with the proposed investment advisory agreement of Oppenheimer Bond Fund (.75% on the first $200 million of net assets with a reduction of .03% on each $200 million thereafter to $800 million, .60% on the next $200 million and .50% on net assets in excess of $1 billion). This assumes that the management fee structure had been in place for the entire period. (2) Estimated fee for similar size Funds. Adjustments reflect expected savings when the two Funds combine.
Pro Forma Combining Statement of Investments March 31, 1995 (Unaudited) Oppenheimer Investment Grade Bond Fund and Oppenheimer Strategic Investment Grade Bond Fund
Face Amount (1) Market Value Investment Strategic Pro Forma Investment Strategic Pro Forma Grade Inv. Grade Combined Grade Inv. Grade Combined Short-Term Notes-- 14.4% Countrywide Funding Corp., 6.20%, 4/11/95 $2,500,000 $ 0 $ 2,500,000 $ 2,495,694 $ 0 $ 2,495,694 Consolidated Natural Gas Co., 6.05%, 4/7/95 1,285,000 0 1,285,000 1,283,704 0 1,283,704 ConAgra, Inc., 6.10%, 4/6/95 2,345,000 0 2,345,000 2,343,013 0 2,343,013 Ford Motor Credit Corp.: 5.82%, 4/5/95 235,000 0 235,000 235,000 0 235,000 5.93%, 4/5/95 860,000 0 860,000 860,000 0 860,000 ITT Financial Corp., 6%, 4/6/95 135,000 0 135,000 135,000 0 135,000 Oklahoma Gas & Electric Co., 5.97%, 4/3/95 2,500,000 0 2,500,000 2,499,170 0 2,499,170 Pennsylvania Power & Light Co., 6.03%, 4/4/95 2,270,000 0 2,270,000 2,268,859 0 2,268,859 Puget Sound Power & Light Co., 6.13%, 4/20/95 1,995,000 0 1,995,000 1,988,546 0 1,988,546 Rite Aid Corp., 6.15%, 4/24/95 2,500,000 0 2,500,000 2,490,177 0 2,490,178 TJX Cos., Inc., 6.15%, 4/10/95 2,500,000 0 2,500,000 2,496,156 0 2,496,156 Union Carbide Corp., 6.25%, 4/7/95 1,210,000 0 1,210,000 1,208,740 0 1,208,740 VF Corp., 6.30%, 4/13/95 2,000,000 0 2,000,000 1,995,800 0 1,995,800 Total Short-Term Notes (Cost $22,299,860) 22,299,860 0 22,299,860 Certificates of Deposit--1.1% Citibank CD: 10.50%, 7/14/95 (2) ARA 0 450,000 450,000 0 450,111 450,111 16%, 5/3/95 (2) CLP 0 43,000,000 43,000,000 0 106,554 106,554 16%, 8/17/95 (2) CLP 0 83,003,140 83,003,140 0 205,682 205,682 Indonesia (Republic of) CD, Bank Negara, Zero Coupon, 4/24/95 IDR 0 2,000,000,000 2,000,000,000 0 884,495 884,495 Total Certificates of Deposit (Cost $1,700,121) 0 1,646,842 1,646,842 Asset-Backed Securities--4.2% Auto Loan--4.2% Daimler-Benz Vehicle Trust, Series 1994-A, Cl. A, 5.95%, 12/15/00 710,457 0 710,457 704,639 0 704,639 Ford Credit Grantor Trust, Series 1994-B, Cl. A, 7.30%, 10/15/99 1,337,280 0 1,337,280 1,343,873 0 1,343,873 General Motors Acceptance Corp., Grantor Trust, Series 1992-E, Cl. A, 4.75%, 8/15/97 381,837 0 381,837 377,332 0 377,332 Nissan Auto Receivables Grantor Trust, Series 1994-A, Cl. A, 6.45%, 9/15/99 2,002,106 0 2,002,106 1,990,435 0 1,990,435 Select Auto Receivable Trust, Series 1991-2 Asset Backed Certificates, Cl. A, 7.65%, 7/15/96 145,471 0 145,471 145,322 0 145,322 World Omni Automobile Lease Securitization Trust, Series 1994-A, Cl. A, 6.45%, 9/25/00 2,000,000 0 2,000,000 1,991,980 0 1,991,980 Total Asset-Backed Securities (Cost $6,566,429) 6,553,581 0 6,553,581 Mortgage-Backed Obligations--16.5% Government Agency--11.9% FHLMC/FNMA/Sponsored--8.9% Federal Home Loan Mortgage Corp.: Certificates of Participation, 9%, 3/1/17 747,658 0 747,658 766,133 0 766,133 Certificates of Participation, Series 17-039, 13.50%, 11/1/10 90,026 0 90,026 101,666 0 101,666 Certificates of Participation, Series 17-094, 12.50%, 4/1/14 49,789 0 49,789 55,736 0 55,736 Collateralized Mortgage Obligation Gtd. Multiclass Certificates of Participation, 7.50%, 2/15/07 2,000,000 0 2,000,000 1,973,280 0 1,973,280 Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%, 4/15/21 0 4,000,000 4,000,000 0 3,637,640 3,637,640 Multiclass Mortgage Participation Certificates, Series 1460, Cl. 1460-H, 7%, 5/15/07 1,500,000 0 1,500,000 1,433,355 0 1,433,355 Federal National Mortgage Assn.: Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 1,050,415 0 1,050,415 1,056,004 0 1,056,004 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1993-175, Cl. PL, 5%, 10/25/02 2,000,000 0 2,000,000 1,913,860 0 1,913,860 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1993-191, Cl. PD, 5.40%, 4/25/04 1,500,000 0 1,500,000 1,414,155 0 1,414,155 Interest-Only Collateralized Mortgage Obligation Gtd. Real Estate Mortgage Investment Conduit Pass-Through Certificates, Trust 1992 G-57, Cl. SA, 36.10%, 10/25/22 (10) 552,331 0 552,331 437,723 0 437,723 Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl. 2, 7%, 9/25/23 (3) 0 2,673,358 2,673,358 0 968,257 968,257 9,151,912 4,605,897 13,757,809 GNMA/Guaranteed--3.0% Government National Mortgage Assn.: 10%, 11/15/09 560,698 0 560,698 600,110 0 600,110 12%, 1/15/99 78,140 0 78,140 83,590 0 83,590 12%, 5/15/14 2,174 0 2,174 2,445 0 2,445 12.75%, 6/15/15 44,008 0 44,008 49,684 0 49,684 8%, 10/15/05 238,626 0 238,626 240,856 0 240,856 8%, 10/15/06 371,461 0 371,461 374,793 0 374,793 8%, 6/15/05 344,502 0 344,502 347,721 0 347,721 8%, 7/15/05 636,119 0 636,119 642,062 0 642,062 8%, 7/15/06 364,791 0 364,791 368,063 0 368,063 8%, 8/15/05 271,443 0 271,443 273,979 0 273,979 8%, 9/15/05 449,991 0 449,991 454,195 0 454,195 9%, 2/15/09 255,297 0 255,297 265,457 0 265,457 9%, 3/15/09 187,582 0 187,582 195,047 0 195,047 9%, 5/15/09 27,913 0 27,913 29,024 0 29,024 9%, 6/15/09 158,065 0 158,065 164,355 0 164,355 10.50%, 12/15/17- 5/15/21 0 512,414 512,414 0 565,387 565,387 4,091,381 565,387 4,656,768 Private--4.6% Commercial--2.2% CMC Security Corp. I, Collateralized Mtg. Obligation, Series 1993-D, Cl. D-3, 10%, 7/25/23 (4) 0 736,140 736,140 0 774,779 774,779 FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass- Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25 (5) 0 1,000,000 1,000,000 0 980,938 980,938 Cl. 2-E, 8.70%, 9/25/25 (5) 0 1,000,000 1,000,000 0 946,563 946,563 Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates, Series 1993-C1, Cl. B, 8.75%, 5/25/24 0 700,000 700,000 0 699,344 699,344 0 3,401,624 3,401,624 Multi-Family--0.5% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1991-M5, Cl. A, 9%, 3/25/17 0 645,065 645,065 0 657,563 657,563 Series 1991-M6, Cl. B4, 6.45%, 6/25/21 (6) 0 89,052 89,052 0 85,907 85,907 0 743,470 743,470 Other--1.3% JHM Acceptance Corp., 8.96% Collateralized Mortgage Obligation Bonds, Series E, Cl. E-6, 4/1/19 1,973,721 0 1,973,721 2,050,914 0 2,050,914 Residential--0.6% Residential Funding Corp., Mtg. Pass- Through Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23 0 879,004 879,004 0 876,701 876,701 Total Mortgage-Backed Obligations (Cost $15,781,838, $10,494,915, Combined $26,276,753) 15,294,207 10,193,079 25,487,286 U.S. Government Obligations--39.8% Agency--2.5% Government Agency/Full Faith--2.5% Allentown, Pennsylvania, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 65,000 0 65,000 68,294 0 68,294 Babylon, New York, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 115,000 0 115,000 108,329 0 108,329 Bakersfield, California, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 255,000 0 255,000 240,208 0 240,208 Boston, Massachusetts, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 795,000 0 795,000 748,885 0 748,885 Buena Vista Township, New Jersey, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 270,000 0 270,000 254,338 0 254,338 Buffalo, New York, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 400,000 0 400,000 376,798 0 376,798 Detroit, Michigan, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 405,000 0 405,000 381,508 0 381,508 Fajardo, Puerto Rico, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 300,000 0 300,000 315,202 0 315,202 New Haven, Connecticut, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 400,000 0 400,000 420,269 0 420,269 Roanoke, Virginia, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 220,000 0 220,000 207,239 0 207,239 Sacramento County, California Redevelopment Agency U.S. Government Gtd. Nts., Series 94A, 5.93%, 8/1/99 240,000 0 240,000 226,079 0 226,079 Tacoma, Washington, U.S. Government Gtd. Nts., Series 94A, 5.93%, 8/1/99 165,000 0 165,000 155,429 0 155,429 Trenton, New Jersey, U.S. Government Gtd. Nts., Series A, 5.93%, 8/1/99 135,000 0 135,000 127,169 0 127,169 Tujillo Alto, Puerto Rico, U.S. Government Gtd. Nts., Series A, 8.74%, 8/1/01 235,000 0 235,000 246,908 0 246,907 3,876,654 0 3,876,654 Treasury--37.3% U.S. Treasury Bonds: 11.125%, 8/15/03 1,000,000 0 1,000,000 1,240,937 0 1,240,937 7.125%, 2/15/23 3,600,000 0 3,600,000 3,443,623 0 3,443,623 7.25%, 8/15/22 3,650,000 0 3,650,000 3,541,638 0 3,541,638 7.875%, 2/15/21 900,000 0 900,000 930,093 0 930,093 8%, 11/15/21 2,000,000 0 2,000,000 2,103,124 0 2,103,124 8.875%, 8/15/17 1,000,000 0 1,000,000 1,138,750 0 1,138,750 11.625%, 11/15/02 0 5,000,000 5,000,000 0 6,287,500 6,287,500 8.75%, 8/15/00 0 2,700,000 2,700,000 0 2,896,592 2,896,592 U.S. Treasury Nts.: 6.375%, 8/15/02 750,000 0 750,000 715,546 0 715,546 7%, 4/15/99 12,200,000 0 12,200,000 12,203,805 0 12,203,805 7.875%, 11/15/04 17,000,000 0 17,000,000 17,743,750 0 17,743,750 8.50%, 7/15/97 3,150,000 0 3,150,000 3,260,250 0 3,260,250 5.125%, 2/28/98 0 1,000,000 1,000,000 0 952,812 952,812 8.875%, 11/15/97 0 1,130,000 1,130,000 0 1,182,968 1,182,968 46,321,516 11,319,872 57,641,388 Total U.S. Government Obligations (Cost $51,244,384, $11,217,967, Combined $62,462,351) 50,198,170 11,319,872 61,518,042 Foreign Government Obligations--2.7% Corporacion Andina de Fomento Sr. Unsec. Debs., 7.25%, 4/30/98 0 100,000 100,000 0 92,500 92,500 First Australia National Mortgage Acceptance Corp. Ltd. Bonds, Series 22, 11.40%, 12/15/01 AUD 0 254,160 254,160 0 196,678 196,678 International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 NZD 0 800,000 800,000 0 568,308 568,308 New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 AUD 0 240,000 240,000 0 193,268 193,268 New Zealand (Republic of) Bonds: 10%, 7/15/97 NZD 0 390,000 390,000 0 263,609 263,609 8%, 11/15/95 NZD 0 750,000 750,000 0 487,148 487,148 Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 0 1,045,000 1,045,000 0 695,412 695,412 Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, 10.25%, 11/30/98 ESP 0 66,000,000 66,000,000 0 497,881 497,881 United Kingdom Treasury Nts.: 12.25%, 3/26/99 GBP 0 391,000 391,000 0 717,861 717,861 13%, 7/14/00 GBP 0 276,000 276,000 0 532,996 532,996 Total Foreign Government Obligations (Cost $4,146,559) 0 4,245,661 4,245,661 Municipal Bonds and Notes--0.1% New York State Environmental Facilities Corp. State Service Contract Taxable Revenue Bonds, Series B, 8.15%, 3/15/02 (Cost $197,771) 0 200,000 200,000 0 197,187 197,187 Corporate Bonds and Notes--31.4% Basic Industry--3.2% Chemicals--0.4% Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 0 500,000 500,000 0 552,686 552,686 Metals/Mining--1.4% AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 0 1,000,000 1,072,263 0 1,072,263 Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 0 1,000,000 1,020,309 0 1,020,309 2,092,572 0 2,092,572 Paper--1.4% Georgia-Pacific Corp., 9.95% Debs., 6/15/02 1,500,000 0 1,500,000 1,657,444 0 1,657,444 Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 0 461,786 461,786 0 437,292 437,292 1,657,444 437,292 2,094,736 Consumer Related--4.6% Consumer Products--0.7% Toro Co. (The), 11% Debs., 8/1/17 1,000,000 0 1,000,000 1,071,068 0 1,071,068 Food/Beverages/ Tobacco--0.4% ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 0 250,000 250,000 0 241,592 241,592 Dr. Pepper/Seven-Up Cos., Inc., 0%/ 11.50% Sr. Sub. Disc. Nts., 11/1/02 L 0 500,000 500,000 0 435,000 435,000 0 676,592 676,592 Healthcare--2.5% Baxter International, Inc., 9.25% Nts., 9/15/96 1,000,000 0 1,000,000 1,030,727 0 1,030,727 Grace (W.R.) & Co., 7.25% Medium-Term Nts., 7/15/97 2,000,000 0 2,000,000 1,986,766 0 1,986,766 Imcera Group, Inc., 6% Nts., 10/15/03 500,000 0 500,000 442,894 0 442,894 R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04 0 500,000 500,000 0 442,500 442,500 3,460,387 442,500 3,902,887 Hotel/Gaming--0.1% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 0 150,000 150,000 0 135,619 135,619 Restaurants--0.6% Wendy's International, Inc., 12.125% Debs., 4/1/95 1,000,000 0 1,000,000 1,000,000 0 1,000,000 Textile/Apparel--0.3% Fruit of the Loom, Inc., 7% Debs., 3/15/11 0 500,000 500,000 0 437,551 437,551 Energy--4.1% Coastal Corp., 11.75% Sr. Debs., 6/15/06 0 500,000 500,000 0 540,571 540,571 Enron Corp., 8.10% Nts., 12/15/96 1,500,000 0 1,500,000 1,520,925 0 1,520,925 McDermott, Inc., 9.375% Nts., 3/15/02 0 100,000 100,000 0 106,561 106,561 Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 0 400,000 400,000 0 423,724 423,724 Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 0 275,000 275,000 0 296,511 296,511 Tenneco, Inc.: 10% Debs., 3/15/08 0 100,000 100,000 0 113,491 113,491 7.875% Nts., 10/1/02 0 250,000 250,000 0 249,517 249,517 Union Oil Co. of California: 8.75% Nts., 8/15/01 1,500,000 0 1,500,000 1,567,276 0 1,567,276 9.625% Gtd. Debs., 5/15/95 1,500,000 0 1,500,000 1,504,843 0 1,504,843 4,593,044 1,730,375 6,323,419 Financial Services--6.1% Banks and Thrifts-- 0.6% BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 0 200,000 200,000 0 200,505 200,505 Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 0 300,000 300,000 0 321,094 321,094 First Chicago Corp., 9% Sub. Nts., 6/15/99 0 100,000 100,000 0 104,741 104,741 NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 0 250,000 250,000 0 238,731 238,731 0 865,071 865,071 Diversified Financial--5.5% American Car Line Co., 8.25% Equipment Trust Certificates, Series 1993-A, 4/15/08 0 270,000 270,000 0 262,620 262,620 ERAC USA Finance Co., 7.875% Nts., 3/15/98 1,500,000 0 1,500,000 1,501,695 0 1,501,695 General Motors Acceptance Corp., 8% Nts., 10/1/96 0 100,000 100,000 0 100,981 100,981 Goldman Sachs Group, LP, 6.20% Nts., 2/15/01 1,500,000 0 1,500,000 1,361,250 0 1,361,250 Heller Financial, Inc., 7.75% Nts., 5/15/97 0 300,000 300,000 0 302,464 302,464 Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 0 300,000 300,000 0 299,264 299,264 Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 0 2,000,000 1,805,128 0 1,805,128 PaineWebber Group, Inc.: 7% Nts., 3/1/00 0 160,000 160,000 0 150,324 150,324 7.75% Sub. Nts., 9/1/02 0 200,000 200,000 0 188,079 188,079 8.875% Sr. Nts., 3/15/05 1,000,000 0 1,000,000 996,250 0 996,250 Penske Truck Leasing Co., L.P., 7.75% Sr. Nts., 5/15/99 1,500,000 0 1,500,000 1,492,378 0 1,492,378 7,156,701 1,303,732 8,460,433 Industrial--0.7% General Industrial-- 0.7% Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 0 1,000,000 1,012,781 0 1,012,781 Manufacturing--5.0% Aerospace/ Electronics/ Computers--2.6% McDonnell Douglas Corp., 9.25% Nts., 4/1/02 1,500,000 0 1,500,000 1,603,818 0 1,603,818 Rolls-Royce Capital, Inc., 7.125% Gtd. Unsec. Unsub. Nts., 7/29/03 2,500,000 0 2,500,000 2,365,625 0 2,365,625 3,969,443 0 3,969,443 Automotive--2.4% Chrysler Corp., 10.95% Debs., 8/1/17 1,000,000 200,000 1,200,000 1,066,280 222,037 1,288,317 Ford Motor Credit Co., 9.90% Medium-Term Nts., 11/6/97 2,000,000 0 2,000,000 2,074,818 0 2,074,818 General Motors Acceptance Corp.: 5.50% Nts., 12/15/01 0 100,000 100,000 0 87,519 87,519 7.75% Nts., 4/15/97 0 300,000 300,000 0 299,384 299,384 3,141,098 608,940 3,750,038 Media--2.6% Cable Television-- 1.0% Time Warner, Inc., 9.15% Debs., 2/1/23 0 100,000 100,000 0 95,211 95,211 Time Warner, Inc./ Time Warner Entertainment LP, 8.375% Sr. Debs., 3/15/23 0 400,000 400,000 0 359,905 359,905 TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 0 1,000,000 1,000,000 0 1,065,000 1,065,000 0 1,520,116 1,520,116 Diversified Media-- 0.6% News America Holdings, Inc., 7.50% Gtd. Sr. Nts., 3/1/00 1,000,000 0 1,000,000 972,640 0 972,640 Publishing/Printing-- 1.0% Valassis Communications, Inc., 9.55% Sr. Nts., 12/1/03 1,500,000 0 1,500,000 1,562,182 0 1,562,182 Other--1.3% Conglomerates--0.3% Textron, Inc., 9.55% Medium-Term Nts., 3/19/01 500,000 0 500,000 543,200 0 543,200 Services--1.0% Teck Corp., 8.70% Debs., 5/1/02 1,500,000 0 1,500,000 1,531,445 0 1,531,445 Retail--0.5% Department Stores-- 0.2% Sears Canada, Inc., 11.70% Debs., 7/10/00 CAD 0 500,000 500,000 0 391,196 391,196 Drug Stores--0.3% Hook-Superx Inc., 10.125% Sr. Nts., 6/1/02 0 400,000 400,000 0 421,000 421,000 Transportation--2.1% Air Transportation-- 2.0% AMR Corp.: 9% Debs., 8/1/12 1,500,000 0 1,500,000 1,424,560 0 1,424,560 10% Nts., 4/15/21 0 200,000 200,000 0 205,680 205,680 United Air Lines, Inc., 10.11% Equipment Trust Certificates, Series 91B, 2/19/06 1,430,581 0 1,430,581 1,520,917 0 1,520,917 2,945,477 205,680 3,151,157 Railroads--0.1% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 0 100,000 100,000 0 108,308 108,308 Utilities--1.2% Electric Utilities-- 1.2% Commonwealth Edison Co.: 6.40% Nts., 10/15/05 0 75,000 75,000 0 62,910 62,910 6.50% Nts., 7/15/97 0 225,000 225,000 0 218,817 218,817 Consumers Power Co., 6.375% Nts., 9/15/03 0 110,000 110,000 0 97,694 97,694 Long Island Lighting Co., 7% Nts., 3/1/04 0 200,000 200,000 0 166,615 166,615 Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds, 3/1/22 0 250,000 250,000 0 253,389 253,389 Tenaga Nasional Berhad, 7.875% Nts., 6/15/04 (4) 1,000,000 0 1,000,000 994,994 0 994,994 994,994 799,425 1,794,419 Total Corporate Bonds and Notes (Cost $38,184,793, $11,206,004, Combined $49,390,797) 37,704,476 10,636,083 48,340,559 Common Stocks--0.0% Shares Foodbrands America, Inc. (Cost $0) 2,113 0 2,113 16,112 0 16,112 Face Amount(1) Structured Instruments--0.3% Swiss Bank Corp. Investment Banking, Inc., 10% CD Sterling Rate Linked Nts., 7/3/95 (Cost $410,000) (2) 0 410,000 410,000 0 403,440 403,440 Total Investments, at Value (Cost $134,077,304, $39,373,337, Combined $173,450,641) 114.0% 99.9% 110.5% 132,066,406 38,642,164 170,708,570 Liabilities in Excess of Other Assets/Other Assets Net of Liabilities (14.0) 0.1 (10.5) (16,180,532) 28,273 (16,152,259) Net Assets 100.0% 100.0% 100.0% $115,885,874 $38,670,437 $154,556,311
1. Face amount is reported in local currency. Foreign currency abbreviations are as follows: ARA-- Argentine Austral ESP--Spanish Peseta AUD--Australian Dollar GBP--British Pound Sterling CAD--Canadian Dollar IDR--Indonesian Rupiah CLP--Chilean Peso NZD--New Zealand Dollar DEM--German Deutsche Mark USD--U.S. Dollar 2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign currency. 3. 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). 4. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $1,769,773 or 1.1% of combined net assets, at March 31, 1995. 5. Identifies issues considered to be illiquid. 6. Represents the current interest rate for a variable rate security. 7. Represents a zero coupon bond that converts to a fixed rate of interest at a designated future date. 8. A sufficient amount of securities are segregated to collateralize outstanding forward foreign currency exchange contracts. 9. A sufficient amount of liquid assets have been designated to cover outstanding call and put options, as follows:
Face Subject Expiration Exercise Premium Market Value to Call/Put Date Price Received See Note 1 Call Option on Australian Dollar 368 AUD 4/20/95 0.74 USD/AUD $ 637 $1,089 Call Option on New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 50 AUD 4/28/95 109.056 AUD 339 440 Call Option on Spanish Peseta/Deutsche Mark 16,000 ESP 5/4/95 89.00 ESP/DEM 892 526 Put Option on Deutsche Mark 150,000 DEM 6/6/95 1.46 DEM/USD 1,062 750 $2,930 $2,805
10. Interest rate resets monthly, inversely related to LIBOR. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities are subject to the risk of accelerated principal paydowns as interest rates decline. The principal amount represents the notional amount on which current interest is calculated. OPPENHEIMER INTEGRITY FUNDS FORM N-14 PART C OTHER INFORMATION Item 15. Indemnification Reference is made to Article IV of Registrant's Declaration of Trust filed as Exhibit 24(b)(1) to Registrant's 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 dated April 30, 1993: Filed with Registrant's Post-Effective Amendment No. 18, 4/30/93, and refiled with Registrant's Post-Effective Amendment No. 23, 4/28/95, pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (2) Registrant's By-Laws dated 6/25/91: Filed with Registrant's Post-Effective Amendment No. 16, 5/1/92, and refiled pursuant to Item 102 of Regulation S-T with Registrant's Post-Effective Amendment No. 23, 4/28/95, and incorporated herein by reference. (3) Not applicable. (4) Agreement and Plan of Reorganization: See Annex A to Part A of this Registration Statement. (5) (i) Specimen Class A Share Certificate for Oppenheimer Investment Grade Bond Fund: Filed with Registrant's Post-Effective Amendment No. 20, 4/29/94, and incorporated herein by reference. (ii) Specimen Class B Share Certificate for Oppenheimer Investment Grade Bond Fund: Filed with Registrant's Post-Effective Amendment No. 20, 4/29/94, and incorporated herein by reference. (6) Investment Advisory Agreement dated 3/28/91 for Oppenheimer Investment Grade Bond Fund: Filed as Exhibit 5(i) of Registrant's Post- Effective Amendment No. 15, 3/29/91, and refiled pursuant to Item 102 of Regulation S-T as Exhibit 5(i) of Registrant's Post-Effective Amendment No. 23, 4/28/95, and incorporated herein by reference. (7) (i) General Distributor's Agreement dated 10/13/92: Filed with Registrant's Post-Effective Amendment No. 17, 2/26/93, and refiled pursuant to Item 102 of Regulation S-T with Registrant's Post-Effective Amendment No. 23, 4/28/95, and incorporated herein by reference. (ii) Form of Oppenheimer Funds Distributor, Inc. Dealer Agreement: Filed with Post-Effective Amendment No. 14 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, and incorporated herein by reference. (iii) Form of Oppenheimer Funds Distributor, Inc. Broker Agreement: Filed with Post-Effective Amendment No. 14 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, and incorporated herein by reference. (iv) Form of Oppenheimer Funds Distributor, Inc. Agency Agreement: Filed with Post-Effective Amendment No. 14 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, and incorporated herein by reference. (v) Broker Agreement between Oppenheimer Funds Distributor, Inc. and Newbridge Securities, Inc. dated 10/1/86: Filed with Post- Effective Amendment No. 25 to the Registration Statement of Oppenheimer Growth Fund (Reg. No. 2-45272), 11/1/86, and refiled with Post-Effective Amendment No. 45 to the Registration Statement of Oppenheimer Growth Fund (Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (8) 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. (9) Custody Agreement dated 11/12/92, between the Registrant and The Bank of New York: Filed with Registrant's Post-Effective Amendment No. 17, 2/26/93, and refiled with Post-Effective Amendment No. 23, 4/28/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (10) (i) Service Plan and Agreement under Rule 12b-1 of the Investment Company Act of 1940 for Class A shares of Oppenheimer Investment Grade Bond Fund dated 6/22/93: Filed with Registrant's Post- Effective Amendment No. 19, 3/1/94, and incorporated herein by reference. (ii) Distribution and Service Plan and Agreement under Rule 12b-1 of the Investment Company Act of 1940 for Class B shares of Oppenheimer Investment Grade Bond Fund dated 7/10/95: Filed with Registrant's Post-Effective Amendment No. 25, 7/10/95, and incorporated herein by reference. (iii) Distribution and Service Plan and Agreement under Rule 12b-1 of the Investment Company Act of 1940 for Class C shares of Oppenheimer Investment Grade Bond Fund dated 7/10/95: Filed with Registrant's Post-Effective Amendment No. 25, 7/10/95, and incorporated herein by reference. (11) Opinion and Consent of Counsel dated 2/11/91: Incorporated herein by reference to Registrant's Rule 24f-2 Notice filed on 2/19/91. (12) Tax Opinion Relating to the Reorganization: Draft Opinion filed herewith. (13) Not applicable. (14) Consent of Deloitte & Touche LLP: Filed herewith. (15) Not applicable. (16) Not applicable (17) Declaration of Registrant under Rule 24f-2: Filed herewith. (18) Powers of Attorney and Certified Board Resolution: Filed with Registrant's Post-Effective Amendment No. 19, 3/1/94, and incorporated herein by reference.Powers of Attorney (including certified Board Resolutions): Filed with Registrant's Post- Effective Amendment No. 15, 12/3/93, and incorporated herein by reference. Item 17. Undertakings (1) Not applicable. (2) Not applicable. 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 Denver and State of Colorado on the 20th day of July, 1995. OPPENHEIMER BOND FUND By: /s/ James C. Swain ---------------------------------- James C. Swain, Chairman Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities on the dates indicated: Signatures Title Date /s/ James C. Swain Chairman of the - ------------------ Board of Trustees July 20, 1995 James C. Swain /s/ Jon S. Fossel Chief Executive - -------------------- Officer and July 20, 1995 Jon S. Fossel Trustee /s/ George C. Bowen Chief Financial - ------------------- and Accounting July 20, 1995 George C. Bowen Officer /s/ Robert G. Avis Trustee July 20, 1995 - ------------------ Robert G. Avis /s/ William A. Baker Trustee July 20, 1995 - -------------------- William A. Baker /s/ Charles Conrad, Jr. Trustee July 20, 1995 - ----------------------- Charles Conrad, Jr. /s/ Raymond J. Kalinowski Trustee July 20, 1995 - ------------------------- Raymond J. Kalinowski /s/ C. Howard Kast Trustee July 20, 1995 - ------------------ C. Howard Kast /s/ Robert M. Kirchner Trustee July 20, 1995 - ---------------------- Robert M. Kirchner /s/ Ned M. Steel Trustee July 20, 1995 - ---------------- Ned M. Steel OPPENHEIMER INTEGRITY FUNDS EXHIBIT INDEX Exhibit Description - ------- ----------- 16(12) Tax Opinion in Draft Form 16(14) Independent Auditors' Consent 16(17) Declaration of the Registrant under Rule 24f-2 EX-23 2 Independents Auditors' Consent We consent to the incorporation by reference in this Registration Statement No. 2-76547 on Form N-14 of Oppenheimer Integrity Funds of our report dated October 21, 1994, appearing in the Annual Report of Oppenheimer Strategic Investment Grade Bond Fund for the year ended September 30, 1994 and our report dated January 23, 1995, appearing in the Annual Report of Oppenheimer Investment Grade Bond Fund for the year ended December 31, 1994 and to the references to us under the headings "Tax Consequences of the Reorganization" and "Tax Aspects of the Reorganization" appearing in the Prospectus, which is part of this Registration Statement. /s/ Deloitte & Touche LLP - ------------------------- DELOITTE & TOUCHE, LLP Denver, Colorado July 19, 1995 merge\285con EX-8 3 DRAFT [Letterhead of Deloitte & Touche LLP] ______________, 1995 Oppenheimer Bond Fund Two World Trade Center 34th floor New York, New York 10048-0203 Oppenheimer Strategic Investment Grade Bond Fund Two World Trade Center 34th floor New York, New York 10048-0203 Dear Sirs: We have reviewed the Agreement and Plan of Reorganization between Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") and Oppenheimer Bond Fund ("Bond Fund") which is attached as Annex A to the Proxy Statement and Prospectus of the Fund included as part of Oppenheimer Integrity Fund's Registration Statement on Form N-14 filed under the Securities Act of 1933, as amended, on behalf of Oppenheimer Bond Fund with the Securities and Exchange Commission on July 20, 1995 (the "Agreement"), concerning the acquisition by Bond Fund of substantially all of the assets of the Fund solely for voting Class A and Class B shares of beneficial interest in Bond Fund, followed by the distribution of Bond Fund Class A and Class B shares to the shareholders of the Fund in complete liquidation of the Fund. In connection with the rendering of this opinion, we have reviewed the Agreement, the most recent audited financial statements and related documents and other materials as we deemed relevant to the rendering of this opinion. Based upon all of the foregoing and the representations made by the Fund and Bond Fund, attached hereto, in our opinion, the federal tax consequences of the transaction 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 Internal Revenue Code of 1986, as amended (the "Code"). 2. The Fund and 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 the Fund upon the distribution of Class A and Class B shares of beneficial interest in Bond Fund to the shareholders of the Fund, pursuant to Section 354 of the Code. 4. Under Section 361(a) of the Code no gain or loss will be recognized by the Fund by reason of the transfer of its assets solely in exchange for Class A and Class B shares of Bond Fund. 5. Under Section 1032 of the Code no gain or loss will be recognized by Bond Fund by reason of the transfer of the Fund's assets solely in exchange for Class A and Class B shares of Bond Fund. 6. The stockholders of the Fund will have the same tax basis and holding period for the Class A and Class B shares of beneficial interest in Bond Fund that they receive as they had for the stock of the Fund that they previously held, pursuant to Sections 358(a) and 1223(1), respectively, of the Code. 7. The securities transferred by the Fund to Bond Fund will have the same tax basis and holding period in the hands of Bond Fund as they had for the Fund, pursuant to Sections 362(b) and 1223(1), respectively, of the Code. Very truly yours DELOITTE & TOUCHE LLP MERGE\285OPIN EX-5 4 February 28, 1995 Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Attn.: Mr. Frank Donaty, Jr. Mrs. Patricia P. Williams Re: Oppenheimer Integrity Funds/Reg. No. 2-76547, File No. 811-3420 To the Securities and Exchange Commission: Enclosed for your information and files is a copy of an electronic ("EDGAR") filing made pursuant to Rule 24f-2 of the Investment Company Act of 1940 (the "1940 Act") on February 27, 1995 on behalf of Oppenheimer Investment Grade Bond Fund and Oppenheimer Value Stock Fund, the two series of Oppenheimer Integrity Funds (the "Fund"), accompanied by an opinion of counsel for the registration of additional shares of each such series. The filing fees of $619 and $1,917, respectively, calculated at the rate of 1/29 of 1% of the value of the Fund's shares sold in excess of the shares redeemed for the fiscal year ended December 31, 1994, were wired to the SEC's account at Mellon Bank on February 21, 1995 (Fed Wire Nos. 2733 and 2735) and referenced this filing. The Fund has previously registered an indefinite number of shares pursuant to Rule 24f-2. The purpose of the Notice is to make definite the registration of shares in reliance on Rule 24f-2 as follows:
Oppenheimer Investment Grade Bond Fund Oppenheimer Value Stock Fund Class A: 1,071,379 Class A: 1,880,960 Class B: 293,817 Class B: 499,617
Very truly yours, Katherine P. Feld Vice President & Associate Counsel (212) 323-0252 KPF/gl Enclosures cc: Allan B. Adams, Esq. Lynn Coluccy Gloria LaFond SEC/285325.24F Rule 24f-2 Notice for Oppenheimer Integrity Funds for the account of Oppenheimer Investment Grade Bond Fund 3410 South Galena Street, Denver, Colorado 80231 (Registration No. 2-76547, File No. 811-3240) NOTICE IS HEREBY GIVEN that Oppenheimer Integrity Funds for the account of Oppenheimer Investment Grade Bond Fund having previously filed by post- effective amendment to its registration statement a declaration that an indefinite number of its shares of beneficial interest were being registered pursuant to Rule 24f-2 of the Investment Company Act of 1940, now elects to continue such indefinite registration. (i) This Notice is being filed for the fiscal year ended December 31, 1994. (ii) Shares registered other than pursuant to this Rule that remained unsold at the beginning of the above fiscal year were as follows: Class A: 0 Class B: 0 (iii) Shares registered other than pursuant to this Rule during the above fiscal year were as follows: Class A: 221,891 Class B: 0 (iv) The number of shares sold during the above fiscal year were as follows: (1) Class A: 1,071,379 Class B: 293,817 (v) Shares sold during the above fiscal year in reliance upon registration pursuant to this Rule were as follows: Class A: 1,071,379 Class B: 293,817 Pursuant to the requirements of the Investment Company Act of 1940, the undersigned registrant has caused this notice to be signed on its behalf this 22nd day of February, 1995. Oppenheimer Integrity Funds for the account of Oppenheimer Investment Grade Bond Fund By /s/ Robert G. Zack ----------------------------------- Robert G. Zack, Assistant Secretary __________________ (1) The calculation of the aggregate sales price is made pursuant to Rule 24f-2 of the Investment Company Act of 1940. Based upon an actual aggregate sales price and redemption price for the respective class during the previous fiscal year as shown below, the total filing fee (calculated at the rate of 1/29 of 1%) is as given below. Class A shares to be re- registered pursuant to Rule 24e-2 total 633,129.
Difference Value of Between Value Value of Shares Sold & Value Filing Shares Sold Redeemed Redeemed Fee Class A $11,399,405 ($17,865,173) ($6,465,768) $-0- Class B $ 3,089,618 ($ 1,294,834) $1,794,784 $619 Total $619
SEC/285325.24F Rule 24f-2 Notice for Oppenheimer Integrity Funds for the account of Oppenheimer Value Stock Fund 3410 South Galena Street, Denver, Colorado 80231 (Registration No. 2-76547, File No. 811-3420) NOTICE IS HEREBY GIVEN that Oppenheimer Integrity Funds for the account of Oppenheimer Value Stock Fund having previously filed by post-effective amendment to its registration statement a declaration that an indefinite number of its shares of beneficial interest were being registered pursuant to Rule 24f-2 of the Investment Company Act of 1940, now elects to continue such indefinite registration. (i) This Notice is being filed for the fiscal year ended December 31, 1994. (ii) Shares registered other than pursuant to this Rule that remained unsold at the beginning of the above fiscal year were as follows: Class A: 0 Class B: 0 (iii) Shares registered other than pursuant to this Rule during the above fiscal year were as follows: Class A: 0 Class B: 0 (iv) The number of shares sold during the above fiscal year were as follows: (1) Class A: 1,880,960 Class B: 499,617 (v) Shares sold during the above fiscal year in reliance upon registration pursuant to this Rule were as follows: Class A: 1,880,960 Class B: 499,617 Pursuant to the requirements of the Investment Company Act of 1940, the undersigned registrant has caused this notice to be signed on its behalf this 22nd day of February, 1995. Oppenheimer Integrity Funds for the account of Oppenheimer Value Stock Fund By /s/ Robert G. Zack ----------------------------------- Robert G. Zack, Assistant Secretary __________________ (1) The calculation of the aggregate sales price is made pursuant to Rule 24f-2 of the Investment Company Act of 1940. Based upon an actual aggregate sales price and redemption price for the respective class during the previous fiscal year as shown below, the total filing fee (calculated at the rate of 1/29 of 1%) is as given below. Class A shares redeemed in excess of shares sold to be re-registered total 43,398.
Difference Value of Between Value Value of Shares Sold & Value Filing Shares Sold Redeemed Redeemed Fee Class A $27,564,846 ($27,939,743) ($ 374,897) $ -0- Class B $ 7,201,783 ($ 1,642,398) $ 5,559,385 $ 1,917 Total $ 1,917
SEC/285325.24F MYER, SWANSON, ADAMS & WOLF, P.C. Attorneys At Law The Colorado State Bank Building 1600 Broadway - Suite 1850 Denver, Colorado 80202-4918 Telephone (303) 866-9800 Facsimile (303) 866-9818 February 22, 1995 Oppenheimer Integrity Funds 3410 South Galena Street Denver, Colorado 80231 Gentlemen: In connection with the public offering of the no par value Class A and Class B shares of the Oppenheimer Investment Grade Bond Fund series of Oppenheimer Integrity Funds, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Trust"), as counsel for the Trust, we have examined such records and documents and have made such further investigation and examination as we deem necessary for the purpose of this opinion. As of the end of its fiscal year, the Trust was composed of two separate series, the Oppenheimer Value Stock Fund and the Oppenheimer Investment Grade Bond Fund. This opinion is rendered in connection with only the Class A and Class B shares of the Oppenheimer Investment Grade Bond Fund series. We are advised that during the period ending December 31, 1994, the following shares of Class A and Class B shares of beneficial interest in the Oppenheimer Investment Grade Bond Fund series of the Trust were sold in reliance on the registration of an indefinite number of shares pursuant to Rule 24f-2 of the Investment Company Act of 1940: Oppenheimer Investment Grade Bond Fund Class A shares: 1,071,379 Class B shares: 293,817 It is our opinion that the said shares of beneficial interest in said series sold by the Trust in reliance on Rule 24f-2 of the Investment Company Act of 1940 are legally issued and, subject to the matters mentioned in the next paragraph, fully paid and nonassessable by the Trust. Under Massachusetts law, shareholders of the Trust may, under certain circumstances, be held personally liable as partners for the obligations of the Trust. The Declaration of Trust does, however, contain an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of the trust property of any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. Sincerely, /s/ Allan B. Adams Allan B. Adams of MYER, SWANSON, ADAMS & WOLF, P.C. MYER, SWANSON, ADAMS & WOLF, P.C. Attorneys At Law The Colorado State Bank Building 1600 Broadway - Suite 1850 Denver, Colorado 80202-4918 Telephone (303) 866-9800 Facsimile (303) 866-9818 February 22, 1995 Oppenheimer Integrity Funds 3410 South Galena Street Denver, Colorado 80231 Gentlemen: In connection with the public offering of the no par value Class A and Class B shares of the Oppenheimer Value Stock Fund series of Oppenheimer Integrity Funds, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Trust"), as counsel for the Trust, we have examined such records and documents and have made such further investigation and examination as we deem necessary for the purpose of this opinion. As of the end of its fiscal year, the Trust was composed of two separate series, the Oppenheimer Value Stock Fund and the Oppenheimer Investment Grade Bond Fund. This opinion is rendered in connection with only the Class A and Class B shares of the Oppenheimer Value Stock Fund series. We are advised that during the period ending December 31, 1994, the following shares of Class A and Class B shares of beneficial interest in the Oppenheimer Value Stock Fund series of the Trust were sold in reliance on the registration of an indefinite number of shares pursuant to Rule 24f-2 of the Investment Company Act of 1940: Oppenheimer Value Stock Fund Class A shares: 1,880,960 Class B shares: 499,617 It is our opinion that the said shares of beneficial interest in said series sold by the Trust in reliance on Rule 24f-2 of the Investment Company Act of 1940 are legally issued and, subject to the matters mentioned in the next paragraph, fully paid and nonassessable by the Trust. Under Massachusetts law, shareholders of the Trust may, under certain circumstances, be held personally liable as partners for the obligations of the Trust. The Declaration of Trust does, however, contain an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of the trust property of any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. Sincerely, /s/ Allan B. Adams Allan B. Adams of MYER, SWANSON, ADAMS & WOLF, P.C. SEC\285325.24F -----END PRIVACY-ENHANCED MESSAGE-----