As filed with the Securities and Exchange Commission on December 2, 2005 OMB APPROVAL
-----------------------------
-----------------------------
Registration No. _______________ OMB Number: 3235-0336
Expires March 31, 2008
Estimated average burden
hours per response 1312.9
-----------------------------
UNITED STATES
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
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Address of Principal Executive Offices)
303-768-3200
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Registrant's Area Code and Telephone Number)
Robert G. Zack, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street
New York, New York 10148
(212) 323-0250
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Approximate Date of Proposed Public Offering)
Title of Securities Being Registered: Class A, Class B, Class C and Class N
shares of Oppenheimer Integrity Funds, on behalf of its series Oppenheimer Core
Bond Fund.
It is proposed that this filing will become effective on January 3, 2006
pursuant to Rule 488.
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940, as amended.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Part A
Combined Prospectus and Proxy Statement of Oppenheimer Core Bond Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
OPPENHEIMER TOTAL RETURN BOND FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 15, 2006
To the Shareholders of Oppenheimer Total Return Bond Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Total Return Bond Fund ("Total Return Bond Fund"), an open-end
registered management investment company, will be held at 6803 South Tucson Way,
Centennial, Colorado 80112 at 1:00 p.m., Mountain time, on March 15, 2006, or
any adjournments thereof (the "Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization between Total Return
Bond Fund and Oppenheimer Core Bond Fund ("Core Bond Fund"), and the
transactions contemplated thereby, including (a) the transfer of
substantially all the assets of Total Return Bond Fund to Core Bond Fund in
exchange for Class A, Class B, Class C and Class N shares of Core Bond
Fund; (b) the distribution of these shares of Core Bond Fund to the
corresponding Class A, Class B, Class C and Class N shareholders of Total
Return Bond Fund in complete liquidation of Total Return Bond Fund; and (c)
the cancellation of the outstanding shares of Total Return Bond Fund (all
of the foregoing being referred to as the "Proposal").
2. To act upon such other matters as may properly come before the Meeting.
Shareholders of record at the close of business on December 6, 2005 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more fully
discussed in the combined Prospectus and Proxy Statement. Please read it
carefully before telling us, through your proxy or in person, how you wish your
shares to be voted. The Board of Trustees of Total Return Bond Fund recommends a
vote in favor of the Proposal.
YOU CAN VOTE ON THE INTERNET, BY TELEPHONE OR BY MAIL.
WE URGE YOU TO VOTE PROMPTLY.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Trustees,
Robert G. Zack, Secretary
January 10, 2006
- --------------------------------------------------------------------------------
PLEASE VOTE THE ENCLOSED PROXY TODAY.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.
OPPENHEIMER CORE BOND FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
COMBINED PROSPECTUS AND PROXY STATEMENT
dated January 10, 2006
SPECIAL MEETING OF SHAREHOLDERS OF
OPPENHEIMER TOTAL RETURN BOND FUND
to be held on March 15, 2006
Acquisition of the Assets of
OPPENHEIMER TOTAL RETURN BOND FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
By and in exchange for Class A, Class B, Class C and Class N shares of
OPPENHEIMER CORE BOND FUND
This combined Prospectus and Proxy Statement solicits proxies from the
shareholders of Oppenheimer Total Return Bond Fund ("Total Return Bond Fund"),
an open-end management investment company, to be voted at a Special Meeting of
Shareholders (the "Meeting") to approve the Agreement and Plan of Reorganization
(the "Reorganization Agreement") and the transactions contemplated thereby (the
"Reorganization") between Total Return Bond Fund and Oppenheimer Core Bond Fund
("Core Bond Fund"), an open-end management investment company. This combined
Prospectus and Proxy Statement constitutes the Prospectus of Core Bond Fund and
the Proxy Statement of Total Return Bond Fund filed on Form N-14 with the
Securities and Exchange Commission ("SEC"). If shareholders vote to approve the
Reorganization Agreement and the Reorganization, substantially all of the assets
of Total Return Bond Fund will be acquired by and in exchange for shares of Core
Bond Fund and the assumption of certain liabilities, if any, described in the
Reorganization Agreement. The Meeting will be held at the offices of
OppenheimerFunds, Inc. ("Manager") at 6803 South Tucson Way, Centennial,
Colorado 80112 on March 15, 2006 at 1:00 P.M., Mountain time. The Board of
Trustees of Total Return Bond Fund is soliciting these proxies on behalf of
Total Return Bond Fund. This Prospectus and Proxy Statement will first be sent
to shareholders on or about January 10, 2006.
If the shareholders of Total Return Bond Fund vote to approve the
Reorganization Agreement and the Reorganization, shareholders will receive Class
A shares of Core Bond Fund equal in value to the value as of the "Valuation
Date," which is the business day preceding the Closing Date of the
Reorganization, of their Class A shares of Total Return Bond Fund; Class B
shares of Core Bond Fund equal in value to the value as of the Valuation Date of
their Class B shares of Total Return Bond Fund; Class C shares of Core Bond Fund
equal in value to the value as of the Valuation Date of their Class C shares of
Total Return Bond Fund; and Class N shares of Core Bond Fund equal in value to
the value as of the Valuation Date of their Class N shares of Total Return Bond
Fund. Total Return Bond Fund will then be de-registered under the Investment
Company Act of 1940 (the "Investment Company Act") and subsequently dissolved.
This combined Prospectus and Proxy Statement gives information about the
Class A, Class B, Class C and Class N shares of Core Bond Fund that you should
know before investing. You should retain it for future reference. A Statement of
Additional Information, dated January 10, 2006, relating to the Reorganization,
has been filed with the SEC as part of the Registration Statement on Form N-14
(the "Registration Statement") and is incorporated herein by reference. You may
receive a free copy by writing to OppenheimerFunds Services (the "Transfer
Agent") at P.O. Box 5270, Denver, Colorado 80217 or by calling toll-free
1.800.225.5677.
The Prospectus of Core Bond Fund dated March 11, 2005 and its supplement
dated September 30, 2005, are enclosed herewith and considered a part of this
combined Prospectus and Proxy Statement. It is intended to provide you with
information about Core Bond Fund. For more information regarding Core Bond Fund,
in addition to its Prospectus, see the Statement of Additional Information of
Core Bond Fund dated March 11, 2005, and its supplements dated August 16, 2005
and September 30, 2005, which includes audited financial statements of Core Bond
Fund for the 12-month period ended December 31, 2004. Also see the unaudited
financial statements of Core Bond Fund for the six-month period ended June 30,
2005. These documents have been filed with the SEC and are incorporated herein
by reference. You may receive a free copy of these documents by writing to the
Transfer Agent at P.O. Box 5270, Denver, Colorado 80217, by calling toll-free
1.800.225.5677 or by visiting the website at www.oppenheimerfunds.com.
For more information regarding Total Return Bond Fund, see the Prospectus
of Total Return Bond Fund dated August 26, 2005 and its supplement dated
November 23, 2005. In addition to its Prospectus, see the Statement of
Additional Information of Total Return Bond Fund dated August 26, 2005, revised
November 23, 2005, which includes audited financial statements of Total Return
Bond Fund for the 12-month period ended April 30, 2005. Both documents have been
filed with the SEC and are incorporated herein by reference. You may receive a
free copy of these documents by writing to the Transfer Agent at P.O. Box 5270,
Denver, Colorado 80217, by calling toll-free 1.800.225.5677 or by visiting the
website at www.oppenheimerfunds.com.
Mutual fund shares are not deposits or obligations of any bank, and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
U.S. government agency. Mutual fund shares involve investment risks including
the possible loss of principal.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Prospectus and Proxy Statement. Any representation to the contrary is a criminal
offense.
This combined Prospectus and Proxy Statement is dated January 10, 2006.
TABLE OF CONTENTS
COMBINED PROSPECTUS AND PROXY STATEMENT
Page
Synopsis.................................................................................................. 1
What am I being asked to vote on?.................................................................... 1
What are the general tax consequences of the Reorganization?......................................... 2
How do the investment objectives and policies of the Funds compare?.................................. 3
What are the fees and expenses of each Fund and what are they expected to be after
the Reorganization?.............................................................................. 5
What are the capitalizations of the Funds and what would the capitalization be after
the Reorganization?.............................................................................. 9
How have the Funds performed?........................................................................ 10
How do the account features and shareholder services for the Funds compare?............................... 13
Purchases, Redemptions and Exchanges............................................................. 13
Dividends and Distributions...................................................................... 13
Other Shareholder Services....................................................................... 14
What are the Principal Risks of an Investment in Total Return Bond Fund or
Core Bond Fund?........................................................................................... 14
Information About the Reorganization...................................................................... 22
How will the Reorganization be carried out? ......................................................... 22
Who will pay the expenses of the Reorganization? .................................................... 23
What are the tax consequences of the Reorganization? ................................................ 23
Reasons for the Reorganization............................................................................ 24
Board Considerations ................................................................................ 24
What should I know about Class A, Class B, Class C and Class N Shares of
Core Bond Fund?...................................................................................... 25
What are the fundamental investment restrictions of the Funds?............................................ 26
Other Comparisons Between the Funds....................................................................... 26
Management of the Funds.......................................................................... 26
Investment Management and Fees................................................................... 26
Distribution Services............................................................................ 28
Transfer Agency and Custody Services............................................................. 29
Shareholder Rights............................................................................... 29
Voting Information ....................................................................................... 30
How many votes are necessary to approve the Reorganization Agreement?................................ 30
How do I ensure my vote is accurately recorded?...................................................... 30
Can I revoke my proxy?............................................................................... 30
What other matters will be voted upon at the Meeting ................................................ 31
Who is entitled to vote?............................................................................. 31
What other solicitations will be made?............................................................... 31
Additional Information About Total Return Bond Fund and Core Bond Fund.................................... 32
Pending Litigation................................................................................... 32
Principal Shareholders............................................................................... 32
Exhibit A: Agreement and Plan of Reorganization between Oppenheimer Total
Return Bond Fund and Oppenheimer Core Bond Fund...................................................... A-1
Exhibit B: Principal Shareholders........................................................................ B-1
Enclosure:
Prospectus of Oppenheimer Core Bond Fund dated March 11, 2005 and its supplement
dated September 30, 2005.
11
SYNOPSIS
This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this combined
Prospectus and Proxy Statement and by the Reorganization Agreement which is
attached as Exhibit A. Shareholders should carefully review this Prospectus and
Proxy Statement and the Reorganization Agreement in their entirety and, in
particular, the current Prospectus of Core Bond Fund which accompanies this
Prospectus and Proxy Statement and is incorporated herein by reference.
What am I being asked to vote on?
You are being asked by the Board of Trustees of Total Return Bond Fund
to approve the reorganization of your Fund, Total Return Bond Fund, with and
into Core Bond Fund. If shareholders of Total Return Bond Fund approve the
Reorganization, substantially all of the assets of Total Return Bond Fund will
be transferred to Core Bond Fund, in exchange for an equal value of shares of
Core Bond Fund and the assumption of certain liabilities, if any, described in
the Reorganization Agreement. The shares of Core Bond Fund will then be
distributed to Total Return Bond Fund shareholders, and Total Return Bond Fund
will subsequently be liquidated. If the Reorganization is approved by
shareholders of Total Return Bond Fund, you will no longer be a shareholder of
Total Return Bond Fund, and, instead, will become a shareholder of Core Bond
Fund. This exchange will occur on the Closing Date (as such term is defined in
the Reorganization Agreement attached hereto as Exhibit A) of the
Reorganization.
Approval of the Reorganization means that as a shareholder in Total
Return Bond Fund, you will receive Class A, Class B, Class C and Class N shares
of Core Bond Fund equal in value to the value of the assets of Total Return Bond
Fund transferred to Core Bond Fund on the Closing Date. The shares you receive
will be issued at net asset value ("NAV") without a sales charge and will not be
subject to any contingent deferred sales charge ("CDSC").
In considering whether to approve the Reorganization, you should
consider, among other things:
(i) The principal differences between the Funds (as discussed
herein) and the relative advantages and disadvantages of
each Fund.
(ii) That the Reorganization would allow you the ability to
continue your investment in a fund that closely resembles
the investment style you were seeking when you invested in
Total Return Bond Fund.
Each Fund is a registered, open-end, diversified, management investment
company organized as a Massachusetts business trust. Total Return Bond Fund
commenced operations on February 21, 2003. Core Bond Fund commenced operations
on April 15, 1988. Total Return Bond Fund is significantly smaller than Core
Bond Fund. As of November 22, 2005, Total Return Bond Fund had approximately $57
million in net assets. In contrast, as of November 22, 2005, Core Bond Fund had
approximately $892 million in net assets. The Manager anticipates that Total
Return Bond Fund's assets will not increase substantially in size in the near
future. By merging into Core Bond Fund, shareholders of Total Return Bond Fund
should have the benefit of economies of scale associated with a larger fund
while maintaining their investment in a fund with similar investment objectives
and policies. Additionally, the Manager is the investment manager to both funds
and employs the same team of investment professionals to manage both funds. (See
the discussion in "Reasons for the Reorganization" beginning on page 24 below
for more details.)
The Board of Total Return Bond Fund reviewed and discussed with the
Manager and the Board's independent legal counsel the proposed Reorganization.
Information with respect to each Fund's respective investment objectives and
policies, management fees, distribution fees and other operating expenses,
historical performance and asset size, was also considered by the Board of Total
Return Bond Fund.
Based on the considerations discussed above and the reasons more fully
described under "Reasons for the Reorganization" (beginning on page 24 below),
together with other factors and information considered relevant at a meeting
held on September 14, 2005, the Board of Trustees of Total Return Bond Fund
concluded that the Reorganization would be in the best interests of shareholders
of Total Return Bond Fund and that the Fund would not experience any dilution as
a result of the Reorganization. The Board of Trustees of Total Return Bond Fund
voted to approve the proposed Reorganization and to recommend that shareholders
approve the proposed Reorganization.
The proposed Reorganization was also approved by the Board of Trustees
of Core Bond Fund at a meeting held on October 28, 2005.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
What are the general tax consequences of the Reorganization?
It is expected that shareholders of Total Return Bond Fund will not
recognize any gain or loss for federal income tax purposes as a result of the
exchange of their shares for shares of Core Bond Fund. You should, however,
consult your tax advisor regarding the effect, if any, of the Reorganization in
light of your individual circumstances. You should also consult your tax advisor
about state and local tax consequences.
For federal income tax purposes, the holding period of your Total
Return Bond Fund shares will be carried over to the holding period for Core Bond
Fund shares you receive in connection with the Reorganization. This exchange
will occur on the Closing Date (as such term is defined in the Reorganization
Agreement) of the Reorganization. For further information about the tax
consequences of the Reorganization, please see the "Information About the
Reorganization--What are the Tax Consequences of the Reorganization?"
How do the investment objectives and policies of the Funds compare?
As shown in the chart below, the respective investment objectives and strategies
of the Funds are substantially similar. However, Total Return Bond also has a
secondary objective to emphasize preservation of capital.
---------------------------------------------------------- --------------------------------------------------------
TOTAL RETURN BOND FUND CORE BOND FUND
---------------------------------------------------------- --------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Investment Objectives
-------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Seeks to maximize total return through both capital Seeks total return by
investing mainly in debt appreciation and income. As a secondary objective,
the instruments. Fund emphasizes preservation of capital.
---------------------------------------------------------- --------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Investment Strategies
-------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Under normal market conditions the Fund invests at least Under normal market conditions, the Fund invests at
80% of its net assets (plus borrowings for investment least 80% of its net assets (plus borrowings for
purposes) in bonds. The Fund primarily invests in investment purposes) in investment grade bonds. Those
investment-grade debt securities, U.S. government investment-grade debt securities can include:
securities and money market instruments, under normal o domestic and foreign corporate debt obligations,
market conditions. Those investment-grade debt o domestic and foreign government bonds, including
securities can include: U.S. government securities, and
o domestic and foreign government bonds, o mortgage-related securities (including CMOs) issued
o domestic and foreign corporate debt obligations, by private issuers.
o mortgage-related securities (including collateralized
mortgage obligations ("CMOs")) issued by private In general, these debt securities are referred to as
issuers, and "bonds." The Fund's investments in U.S. government
o other debt obligations. securities include securities issued or guaranteed by
the U.S. government or its agencies or
The Fund's investments in U.S. government securities federally-chartered corporate entities referred to as
include securities issued or guaranteed by the U.S. "instrumentalities." These include mortgage-related
government or its agencies or federally-chartered U.S. government securities and CMOs. The Fund can also
corporate entities referred to as "instrumentalities." invest in money market instruments and other debt
These include mortgage-related U.S. government obligations.
securities and CMOs.
There is no set allocation of the Fund's assets among There is no set allocation of the Fund's assets among
the classes of securities the Fund buys, but currently the classes of securities the Fund buys, but the Fund
the Fund focuses mainly on U.S. government securities focuses mainly on U.S. government securities and
and investment-grade debt securities. However, if market investment-grade debt securities. However, if market
conditions change, the Fund's portfolio managers might conditions change, the Fund's portfolio managers might
change the relative allocation of the Fund's assets. The change the relative allocation of the Fund's assets.
Fund can invest up to 20% of its total assets in The Fund can invest up to 20% of its total assets in
high-yield debt securities that are below high-yield debt securities that are below
investment-grade (commonly referred to as "junk bonds"). investment-grade (commonly referred to as "junk
bonds").
The Fund seeks to maintain an average effective The Fund seeks to maintain an average effective
portfolio duration of three to six years (measured on a portfolio duration of three to six years (measured on
dollar-weighted basis) to try to reduce the volatility a dollar-weighted basis) to try to reduce the
of the value of its securities portfolio. The Fund has volatility of the value of its securities portfolio.
no limitations on the range of maturities of the debt The Fund has no limitations on the range of maturities
securities in which it can invest and therefore may hold of the debt securities in which it can invest and
bonds with short-, medium- or long-term maturities. therefore may hold bonds with short-, medium- or
Because of market events and interest rate changes, the long-term maturities. Because of market events and
duration of the portfolio might not meet that target at interest rate changes, the duration of the portfolio
all times. The Manager will attempt to maintain the might not meet that target at all times. The Manager
overall weighted average credit quality of the portfolio will attempt to maintain the overall weighted average
at a rating of "A-" (or equivalent) or higher from any credit quality of the portfolio at a rating of "A-"
nationally recognized credit rating organization. These (or equivalent) or higher from any nationally
investments are more fully explained in "About the recognized credit rating organization. These
Fund's Investments," below. As stated below, the Fund investments are more fully explained in "About the
can use derivatives to seek increased returns or to try Fund's Investments," below. As stated below, the Fund
to hedge investment risks. can use derivatives to seek increased returns or try
to hedge investment risks.
In selecting securities for the Fund, the Fund's In selecting securities for the Fund, the Fund's
portfolio managers analyze the overall investment portfolio managers analyze the overall investment
opportunities and risks in different sectors of the debt opportunities and risks in different sectors of the
securities markets by focusing on business cycle debt securities markets by focusing on business cycle
analysis and relative values between the corporate and analysis and relative values between the corporate and
government sectors. The portfolio managers' overall government sectors. The portfolio managers' overall
strategy is to build a broadly diversified portfolio of strategy is to build a broadly diversified portfolio
corporate and government bonds. The portfolio managers of corporate and government bonds. The portfolio
currently focus on the factors below (which may vary in managers currently focus on the factors below (which
particular cases and may change over time), looking for: may vary in particular cases and may change over
time), looking for:
o Debt securities in market sectors that offer
attractive relative value, o Debt securities in market sectors that offer
o Investment-grade securities that offer more income attractive relative
value,
than U.S. treasury obligations with a good balance o Investment-grade securities that offer more income
of risk and return, than U.S. treasury obligations with a good
o High income potential from different types of balance of risk and return,
corporate and government securities, and
o High income potential from different types of
o Broad portfolio diversification to help reduce the corporate and government
securities, and volatility of the Fund's share prices. o Broad portfolio
diversification to help reduce the volatility of the Fund's share prices.
The portfolio manager monitors individual issuers for The portfolio manager
monitors individual issuers for changes in the factors above and these changes
may changes in the factors above and these changes may trigger a decision to
sell a security. Generally, the trigger a decision to sell a security.
Generally, the "total return" sought by the Fund consists of income "total
return" sought by the Fund consists of income earned on the Fund's
investments, plus capital earned on the Fund's investments, plus capital
appreciation, if any, which generally arises from appreciation, if any, which
generally arises from decreases in interest rates, improving credit decreases
in interest rates, improving credit fundamentals for a particular sector or
security, and fundamentals for a particular sector or security, and managing
pre-payment risks associated with managing pre-payment risks associated with
mortgage-related securities, as well as other techniques. mortgage-related
securities, as well as other
techniques.
-------------------------------------------------------------------------------------------------------------------
Manager
-------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
OppenheimerFunds, Inc. OppenheimerFunds, Inc.
---------------------------------------------------------- --------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Portfolio Managers
-------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------- --------------------------------------------------------
Angelo G. Manioudakis Angelo G. Manioudakis
Antulio N. Bomfim Benjamin J. Gord
Geoffrey Caan Charles Moon
Benjamin J. Gord
Charles Moon
---------------------------------------------------------- --------------------------------------------------------
In general the investment policies of the two Funds are similar but not
identical. The principal difference is that Total Return seeks to emphasize
preservation of capital as a secondary investment objective. As a result, Total
Return Bond Fund may invest more heavily in money market instruments. Both Funds
may invest in securities issued by private issuers that do not offer the credit
backing of the U.S. Government. Both Funds may buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans or
other assets or assets or receivables. Core Bond Fund may invest in credit
derivatives, such as credit default swaps, and may also invest in preferred
stocks. Additionally, Core Bond Fund may engage in securities lending. For more
information, see the discussion in "What are the Principal Risks of an
Investment in Total Return Bond Fund or Core Bond Fund?" beginning on page 14.
What are the fees and expenses of each Fund and what are they expected to be
after the Reorganization?
Total Return Bond Fund and Core Bond Fund each pay a variety of
expenses directly for management of the respective Fund's assets, administration
and/or distribution of shares and other services. Those expenses are subtracted
from each Fund's assets to calculate the Fund's net asset value per share.
Shareholders pay these expenses indirectly. Shareholders pay other expenses
directly, such as sales charges.
The following table is provided to help you understand and compare the
fees and expenses of investing in shares of Total Return Bond Fund with the fees
and expenses of investing in shares of Core Bond Fund. The pro forma fees and
expenses of the surviving Core Bond Fund show what the fees and expenses are
expected to be after giving effect to the Reorganization of Total Return Bond
Fund into Core Bond Fund.
The chart below reflects the current contractual management fee
schedule for each of the Funds and the proposed lower management fee schedule
for the surviving Core Bond Fund upon the successful completion of the
Reorganization. The Manager has contractually agreed to reduce the advisory fees
paid by Core Bond Fund to the Manager following the successful completion of the
Reorganization from the current rate of 0.56% to 0.50%, as shown below in the
last column of the table. The lowered rate of 0.50% reflects anticipated assets
of the Fund immediately following the Reorganization. As a result, the effective
management fee for Core Bond Fund (post merger) is expected to be the same as
that for Total Return Bond Fund (pre merger).
PRO FORMA FEE TABLES
For the 12 month period ended December 31, 2004
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Return Bond Core Bond Fund Pro Forma Surviving
Fund Core Bond Fund
Class A shares Class A Shares Class A shares
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's investment)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Sales Charge (Load) on purchases (as a % 4.75% 4.75% 4.75%
of offering price)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Deferred Sales Charge (Load) (as a % of
the lower of the original offering price or None(1) None(1) None(1)
redemption proceeds)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Management Fees 0.50% 0.56% 0.50%(6)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Distribution and/or Service (12b-1) Fees 0.25%(2) 0.25% 0.25%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Other Expenses 0.18% 0.29% 0.29%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Fund Operating Expenses 0.93% 1.10% 1.04%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Return Bond Core Bond Fund Pro Forma Surviving Core
Fund Bond Fund
Class B shares Class B Shares Class B shares
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's investment)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Sales Charge (Load) on purchases (as a % None None None
of offering price)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Deferred Sales Charge (Load) (as a % of
the lower of the original offering price or 5%(3) 5%(3) 5%(3)
redemption proceeds)
- -----------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Management Fees 0.50% 0.56% 0.50%(6)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Distribution and/or Service (12b-1) Fees 1.00% 1.00% 1.00%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Other Expenses 0.87% 0.35% 0.35%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Fund Operating Expenses 2.37% 1.91% 1.85%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Return Bond Core Bond Fund Pro Forma Surviving
Fund Core Bond Fund
Class C Shares Class C Shares Class C Shares
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's investment)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Sales Charge (Load) on purchases (as a % None None None
of offering price)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Deferred Sales Charge (Load) (as a % of 1%(4) 1%(4) 1%(4)
the lower of the original offering price or
redemption proceeds)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Management Fees 0.50% 0.56% 0.50%(6)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Distribution and/or Service (12b-1) Fees 1.00% 1.00% 1.00%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Other Expenses 0.63% 0.31% 0.31%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Fund Operating Expenses 2.13% 1.87% 1.81%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Return Bond Core Bond Fund Pro Forma Surviving Core
Fund Bond Fund
Class N shares Class N Shares Class N shares
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's investment)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Sales Charge (Load) on purchases (as a % None None None
of offering price)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Maximum Deferred Sales Charge (Load) (as a % of
the lower of the original offering price or 1%(5) 1%(5) 1%(5)
redemption proceeds)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Management Fees 0.50% 0.56% 0.50%(6)
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Distribution and/or Service (12b-1) Fees 0.50% 0.50% 0.50%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Other Expenses 0.46% 0.45% 0.45%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Total Fund Operating Expenses 1.46% 1.51% 1.45%
- -------------------------------------------------- ------------------- -------------------- ---------------------------
Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses that each Fund pays. The
"Other Expenses" shown for both Funds are based on, among other things, the fees
the Funds would have paid if the transfer agent had not waived a portion of its
fees under a voluntary undertaking to the Funds to limit those transfer agent
fees to 0.35% of average daily net assets per fiscal year for all classes. That
undertaking may be amended or withdrawn at any time. Additionally, the Manager
has voluntarily agreed to waive fees and/or reimburse the Funds for certain
expenses such that "Total Fund Operating Expenses" will not exceed 0.90% for
Class A shares, 1.65% for Class B shares, 1.65% for Class C shares, and 1.15%
for Class N shares of both Funds. The voluntary waivers described above may be
amended or withdrawn at any time.
After giving effect to the transfer agent fee waiver and expense limitation
described above the actual "Total Fund Operating Expenses" for Total Return Bond
Fund were 0.90% for Class A shares, 1.65% for Class B shares, 1.65% for Class C
shares, and 1.15% for Class N shares. Because the management fee waiver for Core
Bond Fund did not become effective until March 1, 2004, the actual "Total Fund
Operating Expenses" for Core Bond Fund were 0.93% for Class A shares, 1.69% for
Class B shares, 1.69% for Class C shares, and 1.20% for Class N shares.
1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more ($500,000 for retirement plan accounts) of Class A
shares. See "How to Buy Shares" in each Fund's Prospectus for details.
2. Due to the relatively low proportion of Class A shareholders who purchased
shares of Total Return Bond Fund through brokers, dealers and other
financial institutions entitled to receive payments under the Class A
service (12b-1) plan, "Distribution and/or Service (12b-1) Fees" were 0.08%
for the period ended December 31, 2004. "Distribution and/or Service
(12b-1) Fees" are expected to be 0.25% for the current fiscal year.
3. Applies to redemptions within the first year after purchase. The contingent
deferred sales charge gradually declines from 5% to 1% in years one through
six and is eliminated after that.
4. Applies to shares redeemed within 12 months of purchase.
5. Applies to shares redeemed within 18 months of retirement plan's first
purchase of Class N shares. 6. Upon completion of the Reorganization, Core
Bond Fund will contractually reduce its Management Fee. Figure
shown reflects Core Bond Fund's anticipated net asset level immediately
following the Reorganization, after giving effect to the reduced management
fee.
Examples
These examples below are intended to help you compare the cost of
investing in each Fund and the surviving Core Bond Fund after the
Reorganization. These examples assume an annual return for each class of 5%, the
operating expenses described in the tables above and reinvestment of your
dividends and distributions.
Your actual costs may be higher or lower because expenses will vary
over time. For each $10,000 investment, you would pay the following projected
expenses if you redeemed your shares after the number of years shown or held
your shares for the number of years shown without redeeming, according to the
following examples.
Total Return Bond Fund
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
If shares are redeemed(1): 1 year 3 years 5 years 10 years
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class A $566 $759 $967 $1,569
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class B $743 $1,048 $1,480 $2,030(3)
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class C $318 $674 $1,156 $2,488
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class N $250 $465 $803 $1,759
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Total Return Bond Fund
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
If shares are not redeemed(2): 1 year 3 years 5 years 10 years
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class A $566 $759 $967 $1,569
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class B $243 $748 $1,280 $2,030(3)
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class C $218 $674 $1,156 $2,488
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class N $150 $465 $803 $1,759
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Core Bond Fund
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
If shares are redeemed(1): 1 year 3 years 5 years 10 years
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class A $582 $810 $1,056 $1,758
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class B $696 $906 $1,241 $1,843(3)
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class C $292 $593 $1,020 $2,211
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class N $255 $481 $830 $1,815
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Core Bond Fund
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
If shares are not redeemed(2): 1 year 3 years 5 years 10 years
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class A $582 $810 $1,056 $1,758
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class B $196 $606 $1,041 $1,843(3)
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class C $192 $593 $1,020 $2,211
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Class N $155 $481 $830 $1,815
- ---------------------------------- ------------------- -------------------- ------------------- ---------------------
Pro Forma Surviving Core Bond Fund
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
If shares are redeemed(1): 1 year 3 years 5 years 10 years
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class A $577 $792 $1,025 $1,692
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class B $690 $887 $1,210 $1,776(3)
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class C $286 $575 $989 $2,146
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class N $249 $462 $798 $1,748
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Pro Forma Surviving Core Bond Fund
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
If shares are not redeemed(2): 1 year 3 years 5 years 10 years
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class A $577 $792 $1,025 $1,692
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class B $190 $587 $1,010 $1,776(3)
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class C $186 $575 $989 $2,146
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
Class N $149 $462 $798 $1,748
- ----------------------------------- ------------------ -------------------- ------------------- ---------------------
(1.) In the "If shares are redeemed" examples, expenses include the initial
sales charge for Class A and the applicable Class B, Class C and Class N
contingent deferred sales charges.
(2.) In the "If shares are not redeemed" examples, the Class A expenses include
the initial sales charge, but Class B, Class C and Class N expenses do not
include the contingent deferred sales charges.
(3.) Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
What are the capitalizations of the Funds and what would the capitalization be
after the Reorganization?
The following table sets forth the capitalization (unaudited) of Total
Return Bond Fund and Core Bond Fund as of September 30, 2005 and indicates the
pro forma combined capitalization as of September 30, 2005 as if the
Reorganization had occurred on that date.
- --------------------------------------------------------------------------------------------------------------------
Total Return Bond Fund Net Assets Shares Net Asset Value
Outstanding Per Share
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class A $44,849,632 4,502,160 $9.96
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class B $4,696,864 471,454 $9.96
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class C $7,451,045 748,214 $9.96
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class N $3,111,584 312,317 $9.96
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL $60,109,125 6,034,145
- ----------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Core Bond Fund Net Assets Shares Net Asset Value
Outstanding Per Share
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class A $458,656,930 44,510,641 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class B $131,254,856 12,742,376 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class C $104,709,396 10,155,161 $10.31
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class N $33,678,318 3,269,502 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class Y $120,501,806 11,709,704 $10.29
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL $848,801,306 82,387,384
- ----------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Core Bond Fund Net Assets Shares Net Asset Value
(Pro Forma Surviving Fund)* Outstanding Per Share
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class A $503,506,562 48,863,115 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class B $135,951,720 13,198,382 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class C $112,160,441 10,877,799 $10.31
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class N $36,789,902 3,571,577 $10.30
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Class Y $120,501,806 11,709,704 $10.29
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL $908,910,431 88,220,577
- ----------------------------------------------------------------------------------------
* Reflects the issuance of 4,352,474 Class A shares, 456,006 Class B shares,
722,638 Class C shares and 302,075 Class N shares of Core Bond Fund in a
tax-free exchange for the net assets of Total Return Bond Fund, aggregating
$60,109,125.
How have the Funds performed?
The following past performance information for the each Fund is set
forth below: (i) a bar chart showing changes in each Fund's performance for
Class A shares from year to year for the last ten calendar years (or the
calendar year since inception for Total Return Bond Fund) and (ii) tables
detailing how the average annual total returns of each Fund's shares, both
before and after taxes, compared to those of broad-based market indices. The
after-tax returns are shown for Class A shares only and are calculated using the
historical highest individual federal marginal income tax rates in effect during
the periods shown and do not reflect the impact of state or local taxes. In
certain cases, the figure representing "Return After Taxes on Distributions and
Sale of Fund Shares" may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss occurs upon
redemption and translates into an assumed tax deduction that benefits the
shareholder. The after-tax returns are calculated based on certain assumptions
mandated by regulation and your actual after-tax returns may differ from those
shown, depending on your individual tax situation. The after-tax returns set
forth below are not relevant to investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans or IRAs or to institutional
investors not subject to tax. The past investment performance of either Fund,
before and after taxes, is not necessarily an indication of how either Fund will
perform in the future.
Annual Total Returns for Total Return Bond Fund (Class A) as of 12/31/04
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Total Return Bond Fund.]
Sales charges and taxes are not included in the calculations of return in this
bar chart, and if those charges and taxes were included, the returns may be less
than those shown.
For the period from January 1, 2005 through September 30, 2005, the cumulative
total return (not annualized) before taxes for Total Return Bond Fund was 1.63%.
During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 3.17% (3rd Qtr 04) and the lowest return
(not annualized) before taxes for a calendar quarter was -2.19% (2nd Qtr 04).
Annual Total Returns for Core Bond Fund (Class A) as of 12/31 each year
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Core Bond Fund.]
Sales charges and taxes are not included in the calculations of return in this
bar chart, and if those charges and taxes were included, the returns may be less
than those shown.
For the period from January 1, 2005 through September 30, 2005, the cumulative
total return (not annualized) before taxes for Class A shares of Core Bond Fund
was 1.81%.
During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 6.24% (2Qtr95) and the lowest return
(not annualized) before taxes for a calendar quarter was -2.33% (2Qtr04).
- --------------------------------------------- ---------------------- ---------------------------
Total Return Bond Fund1, (2)
- --------------------------------------------- ---------------------- ---------------------------
- --------------------------------------------- ---------------------- ---------------------------
5 Years
Average Annual Total Returns 1 Year (or life of class, if
for the periods ended December 31, 2004 less)
- --------------------------------------------- ---------------------- ---------------------------
- --------------------------------------------- ---------------------- ---------------------------
Class A Shares (inception 2/21/03)
Return Before Taxes -0.66% 1.54%
Return After Taxes on Distributions -2.05% 0.28%
Return After Taxes on Distributions and
Sale of Fund Shares -0.42% 0.60%
- --------------------------------------------- ---------------------- ---------------------------
CitiGroup Broad Investment-Grade (BIG) Bond
Index (reflects no deduction for fees,
expenses or taxes)(3) 4.48% 3.90%*
- --------------------------------------------- ---------------------- ---------------------------
Class B Shares (inception 2/21/03) -1.59% 1.18%
- --------------------------------------------- ---------------------- ---------------------------
Class C Shares (inception 2/21/03) 2.51% 3.29%
- --------------------------------------------- ---------------------- ---------------------------
- --------------------------------------------- ---------------------- ---------------------------
Class N Shares (inception 2/21/03) 2.93% 3.81%
- --------------------------------------------- ---------------------- ---------------------------
* From 2/28/03
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Core Bond Fund1, (4)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
5 Years 10 Years
Average Annual Total Returns 1 Year (or life of class, if (or life of class, if
for the periods ended December 31, 2004 less) less)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class A Shares (inception 4/15/88)
Return Before Taxes -0.08% 5.69% 6.34%
Return After Taxes on Distributions -1.54% 3.47% 3.81%
Return After Taxes on Distributions and
Sale of Fund Shares -0.07% 3.45% 3.81%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
CitiGroup Broad Investment-Grade (BIG) Bond
Index (reflects no deduction for fees,
expenses or taxes) (3) 4.48% 7.73% 7.73%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Lehman Brothers Credit Index (reflects no 5.24% 8.63% 8.41%
deduction for fees, expenses or taxes)(3)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Lehman Brothers Aggregate Bond Index
(reflects no deduction for fees, expenses 4.34% 7.71% 7.72%
or taxes) (3)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class B Shares (inception 5/3/93) -0.79% 5.62% 6.39%(5)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class C Shares (inception 7/11/95) 3.12% 5.95% 5.16%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class N Shares (inception 3/1/01) 3.71% 6.01% N/A
- --------------------------------------------- ------------------------- ------------------------ ------------------------
1. The Funds' returns measure the performance of a hypothetical account and
assume that all dividends and capital gains distributions have been
reinvested in additional shares.
2. Total Return Bond Fund's average annual total returns include the
applicable sales charges: for Class A the current maximum initial sales
charge is 4.75%; for Class B shares, the contingent deferred sales charges
is 5% (1-year) and 3% (life of class); and for Class C and Class N, the 1%
contingent deferred sales charge for the 1-year period.
3. The performance of both Funds' Class A shares is compared to CitiGroup
Broad Investment-Grade (BIG) Bond Index ("CitiGroup BIG Bond Index"), which
represents a market capitalization-weighted index that includes U.S.
Treasury, government-sponsored, mortgage and investment-grade fixed-rate
corporate bonds with a maturity of one year or longer and is generally
considered representative of the U.S. bond market. The performance of the
Core Bond Fund's Class A shares also is compared to the Lehman Brothers
Credit Index, which measures the performance of non-convertible
investment-grade domestic corporate debt securities and the Lehman Brother
Aggregate Bond Index, which measures the performance to the broad-based
index of government agencies and corporate debt. Core Bond Fund changed its
index on January 21, 2005 from the Lehman Brothers Credit Index to
CitiGroup BIG Bond Index because the Manager believe that the CitiGroup BIG
Bond Index is a more appropriate benchmark reflecting the types of
securities in which Core Bond Fund invests. The CitiGroup BIG Bond Index
consists of securities having a higher grade and a lower modified duration
than the securities in the Lehman Brothers Credit Index. The index
performance includes reinvestment of income but does not reflect
transaction costs, fees, expenses or taxes. Both Funds' investments vary
from those in the indices.
4. Core Bond Fund's average annual total returns include the applicable sales
charges: for Class A the current maximum initial sales charge is 4.75%; for
Class B shares, the contingent deferred sales charges is 5% (1-year) and 2%
(5-year); and for Class C and Class N, the 1% contingent deferred sales
charge for the 1-year period.
5. Because Class B shares convert to Class A shares 72 months after purchase,
Class B "10 Years" performance for Core Bond Fund does not include the
contingent deferred sales charge and uses Class A performance for the
period after conversion.
HOW DO THE ACCOUNT FEATURES AND SHAREHOLDER SERVICES FOR THE FUNDS COMPARE?
Purchases, Redemptions and Exchanges
Both Funds are part of the OppenheimerFunds family 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 for shares of the
same class of other Oppenheimer funds offering such shares. Exchange privileges
are subject to amendment or termination at any time.
Both Funds have the same initial and subsequent minimum investment
amounts for the purchase of shares. These amounts are $1,000 and $50,
respectively. Both Funds have a maximum initial sales charge of 4.75% on Class A
shares for purchases of less than $25,000. The sales charge of 4.75% is reduced
for purchases of Class A shares of $25,000 or more. Investors who purchase $1
million or more of Class A shares pay no initial sales charge but may have to
pay a contingent deferred sales charge of up to 1% if the shares are sold within
18 calendar months from the beginning of the calendar month during which they
were purchased. Class B shares of the Funds are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge ("CDSC") upon
redemption depending on the length of time the shares are held. The CDSC begins
at 5% for shares redeemed in the first year and declines to 1% in the sixth year
and is eliminated after that. Class C shares may be purchased without an initial
sales charge, but if redeemed within 12 months of buying them, a CDSC of 1% may
be deducted. Class N shares are purchased without an initial sales charge, but
if redeemed within 18 months of the retirement plan's first purchase of N
shares, a CDSC of 1% may be deducted.
Class A, Class B, Class C and Class N shares of Core Bond Fund received
in the Reorganization will be issued at net asset value, without a sales charge
and no CDSC or redemption fee will be imposed on any Total Return Bond Fund
shares exchanged for Core Bond Fund shares as a result of the Reorganization.
However, any CDSC that applies to Total Return Bond Fund shares as of the date
of the exchange will carry over to Core Bond Fund shares received in the
Reorganization.
Dividends and Distributions
Both Funds intend to declare dividends separately for each class of
shares from net investment income each regular business day and pay those
dividends to shareholders monthly on a date selected by the Board of Trustees of
each Fund. Daily dividends will not be declared or paid on newly purchased
shares until Federal Funds are available to the Funds from the purchase payment
for shares. Dividends and distributions paid to Class A shares will generally be
higher than dividends for Class B, Class C and Class N shares, which normally
have higher expenses than Class A shares. The Funds have no fixed dividend rate
and cannot guarantee that they will pay any dividends or distributions.
Either Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains each year. The Funds may make supplemental distributions
of dividends and capital gains following the end of their fiscal years. There
can be no assurance that either Fund will pay any capital gains distributions in
a particular year.
Other Shareholder Services
Both Funds also offer the following privileges: (i) the ability to
reduce your sales charge on purchases of Class A shares through rights of
accumulation or letters of intent, (ii) reinvestment of dividends and
distributions at net asset value, (iii) net asset value purchases by certain
individuals and entities, (iv) Asset Builder (automatic investment) Plans, (v)
Automatic Withdrawal and Exchange Plans for shareholders who own shares of the
Funds valued at $5,000 or more, (vi) AccountLink and PhoneLink arrangements,
(vii) exchanges of shares for shares of the same class of certain other funds at
net asset value, (viii) telephone and Internet redemption and exchange
privileges, (ix) wire redemptions of fund shares (for a fee), and (x)
checkwriting. All of such services and privileges are subject to amendment or
termination at any time and are subject to the terms of the Funds' respective
prospectuses. For additional information, please see the section in the current
Prospectus of Core Bond Fund titled "ABOUT YOUR ACCOUNT."
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN TOTAL RETURN BOND
FUND OR CORE BOND FUND?
The risks associated with an investment in each Fund are substantially
similar. However, Core Bond Fund may have greater exposure to the risk of
investing in asset-backed securities. Total Return Bond Fund may have greater
exposure to the risk of investing in mortgage-backed securities issued by
private issuers that do not offer the credit backing of the U.S. government.
Like all investments, an investment in either Fund involves risk. There
is no assurance that either Fund will meet its investment objective. The
achievement of the Funds' goals depends upon market conditions, generally, and
on the portfolio manager's analytical and portfolio management skills. The risks
described below collectively form the risk profiles of the Funds, and can affect
the value of the Funds' investments, investment performance and prices per
share. There is also the risk that poor securities selection by the Manager will
cause the Funds to underperform other funds having a similar objective. These
risks mean that you can lose money by investing in either Fund. When you redeem
your shares, they may be worth more or less than what you paid for them.
In the OppenheimerFunds spectrum, the Funds generally have more risks
than bond funds that focus primarily on U.S. government securities, but the
Funds' emphasis on investment-grade securities may make their share prices less
volatile than high-yield bond funds or funds that focus on foreign bonds.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a debt security might not make interest and principal
payments on the security as they become due. A downgrade in an issuer's credit
rating or other adverse news about an issuer can reduce the value of that
issuer's securities. Securities directly issued by the U.S. Treasury and certain
U.S. government agencies that are backed by the full faith and credit of the
U.S. government have little credit risk. Securities issued by other agencies or
instrumentalities of the U.S. government such as the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association are neither guaranteed
nor insured by the U.S. government but generally are considered to have low
credit risks. These securities are described further below in "Obligations
Issued or Guaranteed by U.S. Government Agencies or Instrumentalities."
Securities issued by private issuers have greater credit risks. If an issuer
fails to pay interest, the Funds' income may be reduced. If an issuer fails to
repay principal, the value of that security and of the Funds' shares may be
reduced.
o Special Risks of Lower-Grade Securities. Because the Funds can invest
up to 20% of their total assets in securities (including convertible
securities) below investment-grade, the Funds' credit risks are greater
than those of funds that buy only investment-grade securities.
Lower-grade debt securities may be subject to greater market
fluctuations and greater risks of loss of income and principal than
investment-grade debt securities. Securities that are (or that have
fallen) below investment grade are exposed to a greater risk that the
issuers of those securities might not meet their debt obligations.
Those risks can reduce the Funds' share prices and the income it earns.
The market for lower-grade securities may be less liquid, especially
during times of economic distress, and therefore they may be harder to
value or to sell at an acceptable price.
INTEREST RATE RISKS. Debt securities are subject to changes in value when
prevailing interest rates change. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. When prevailing interest
rates rise, the values of outstanding debt securities generally fall, and those
securities may sell at a discount from their face amount. The magnitude of these
fluctuations is generally greater for securities having longer maturities than
for short-term securities. However, interest rate changes may have different
effects on the values of mortgage-related securities because of prepayment
risks, discussed below.
At times, the Funds may buy longer-term debt securities. When the
average duration of the Funds' portfolio is longer, their share prices may
fluctuate more when interest rates change. The Funds can buy zero-coupon or
"stripped" securities, which are particularly sensitive to interest rate changes
and the rate of principal payments (and prepayments). These are derivative
securities that have prices that may go up or down more than other types of debt
securities in response to interest rate changes. The Funds' share prices can go
up or down when interest rates change, because of the effect of the change on
the value of the Funds' investments. Also, if interest rates fall, the Funds'
investments in new securities at lower yields will reduce the Funds' income.
PREPAYMENT RISK. Prepayment risk is the risk that the issuer of a security can
prepay the principal prior to the security's expected maturity. The prices and
yields of mortgage-related securities are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when general interest rates rise.
The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. Interest-only and
principal-only "stripped" securities can be particularly volatile when interest
rates change. If the Funds buy mortgage-related securities at a premium,
accelerated prepayments on those securities could cause the Funds to lose a
portion of their principal investment represented by the premium the Funds paid.
If prepayments of mortgages underlying a Collateralized Mortgage
Obligation ("CMO") occur faster than expected when interest rates fall, the
market value and yield of the CMO could be reduced. If interest rates rise
rapidly, prepayments may occur at slower rates than expected, which could have
the effect of lengthening the expected maturity of a short- or medium-term
security. That could cause its value to fluctuate more widely in response to
changes in interest rates. In turn, this could cause the value of the Funds'
shares to fall more.
RISKS OF USING DERIVATIVE INVESTMENTS. The Funds can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, interest-only and principal-only securities, structured notes,
interest-rate swap agreements and mortgage-related securities are examples of
derivatives the Funds can use.
If the issuer of the derivative does not pay the amount due, the Funds
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, may not perform the
way the Manager expected it to perform. If that happens, the Funds' share prices
could fall and the Funds could get less income than expected, or their hedge
might be unsuccessful. Some derivatives may be illiquid, making it difficult to
value or to sell them at an acceptable price. The Funds have limits on the
amount of certain types of derivatives they can hold. However, using derivatives
can cause the Funds to lose money on their investments and/or increase the
volatility of their share prices. Hedging. The Funds can buy and sell certain
kinds of futures contracts, put and call options, interest rate swaps
and forward contracts to hedge investment risks. The Funds are not
required to use hedging instruments to seek its objective and do not
currently use them to a significant degree.
There are special risks in particular hedging strategies. If the
Manager used a hedging instrument at the wrong time or judged market
conditions incorrectly, the strategy could reduce the Funds' return.
The Funds 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.
Credit Derivatives. Core Bond Fund may enter into credit default swaps, both
(i) directly and (ii) indirectly in the form of a swap embedded within
a structured note to protect against the risk that a debt security will
default. Core Bond Fund pays a fee to enter into the trade and receives
a fixed payment during the life of the swap. If there is a credit event
(for example, the security fails to timely pay interest or principal),
Core Bond Fund either delivers the defaulted bond (if Core Bond Fund
has taken the short position in the credit default swap, also known as
"buying credit protection") or pays the par amount of the defaulted
bond (if Core Bond Fund has taken the long position in the credit
default swap note, also known as "selling credit protection"). Risks of
credit default swaps include the cost of paying for credit protection
if there are no credit events, and adverse pricing when purchasing
bonds to satisfy its delivery obligation where Core Bond Fund took a
short position in the swap and there has been a credit event.
U.S. GOVERNMENT SECURITIES. Not all of the U.S. government securities the Funds
buy are backed by the full faith and credit of the U.S. government as to payment
of interest and repayment of principal. Some are backed by the right of the
entity to borrow from the U.S. Treasury. Others are backed only by the credit of
the instrumentality. All of these different types of securities described below
are generally referred to as "U.S. government securities." o U.S. Treasury
Obligations. These include Treasury bills (having maturities of one year or less
when issued),
Treasury notes (having maturities of more than one year and up to ten
years when issued), and Treasury bonds (having maturities of more than
ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest
and repayments of principal. The Funds can buy U.S. Treasury securities
that have been "stripped" of their coupons and zero-coupon securities
described below.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and
mortgage-related securities that have different levels of credit
support from the U.S. government. Some are supported by the full faith
and credit of the U.S. government, such as Government National Mortgage
Association ("Ginnie Mae") pass-through mortgage certificates. Some are
supported by the right of the issuer to borrow from the U.S. Treasury
under certain circumstances, such as Federal National Mortgage
Association ("Fannie Mae") bonds or Federal Home Loan Mortgage
Corporation ("Freddie Mac") obligations.
o Mortgage-Related U.S. Government Securities. These include interests in
pools of residential or commercial mortgages, in the form of CMOs and
other "pass-through" mortgage securities. CMOs that are U.S. government
securities have collateral to secure payment of interest and principal.
They may be issued in different series with different interest rates
and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency.
The Funds can have substantial amounts of their assets invested in
mortgage-related U.S. government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected
prepayments of those mortgages to change. These prepayment risks can
make the prices of CMOs very volatile when interest rates change. That
volatility will affect the Funds' share prices.
OTHER DEBT SECURITIES. While the Funds invest primarily in investment-grade debt
securities, it is not required to dispose of debt securities that fall below
investment grade after the Funds buy them. However, the portfolio managers will
monitor those holdings to determine whether the Funds should sell them. While
securities rated "Baa" by Moody's or "BBB" by S&P are considered "investment
grade," they have some speculative characteristics.
While investment-grade securities are subject to risks of non-payment
of interest and principal, in general, higher-yielding lower-grade bonds,
whether rated or unrated, have greater risks than investment-grade securities.
There may be less of a market for them and therefore they may be harder to value
and sell at an acceptable price. These risks can reduce the Funds' share prices
and the income it earns.
ASSET-BACKED SECURITIES. The Funds can buy asset-backed securities, which are
fractional interests in pools of loans collateralized by the loans or other
assets or receivables. They are typically issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to prepayment risks and the risk of
default by the issuer as well as by the borrowers of the underlying loans in the
pool.
PRIVATE-ISSUER SECURITIES. The Funds can invest in securities issued by private
issuers that do not offer the credit backing of the U.S. government. These
include multi-class debt or pass-through certificates secured by mortgage loans.
They may be issued by banks, savings and loans, mortgage bankers or special
trusts. The Funds can buy other types of asset-backed securities collateralized
by loans or other assets or receivables. Private-issuer mortgage-backed
securities are subject to the credit risks of the issuers (as well as the
interest rate risks and prepayment risks discussed above). There is the risk
that private issuers may not make timely payment of interest or repay principal
when due, although in some cases those payment obligations may be supported by
insurance or guarantees.
THE FUNDS' PORTFOLIO "DURATION" STRATEGIES. The "maturity" of a security (the
date when its principal repayment is due) differs from effective duration, which
attempts to measure the expected volatility of a security's price.
Each Fund measures the duration of its entire portfolio of securities
on a dollar-weighted basis, to try to maintain an average effective duration of
its portfolio of three to six years under normal market conditions (that is,
when financial markets are not in an unstable or volatile state). However,
duration cannot be relied on as an exact prediction of future volatility. There
can be no assurance that either Fund will achieve its targeted portfolio
duration at all times.
Duration calculations rely on a number of assumptions and variables
based on the historic performance of similar securities. Therefore, duration can
be affected by unexpected economic events or conditions relating to a particular
security. In the case of CMOs, duration calculations are based on historic rates
of prepayments of underlying mortgages. If the mortgages underlying the Funds'
investments are prepaid more rapidly or more slowly than expected, the duration
calculation for that security may not be correct.
FOREIGN INVESTING. Each Fund may invest a portion of its assets in foreign debt
securities. The Funds can buy debt securities issued by foreign governments or
companies. The Funds can buy securities of governments and companies in emerging
and developed markets. However, Total Return Bond Fund limits its investments to
not more than 10% of its net assets in the securities of governments and
companies in emerging markets. Debt securities issued or guaranteed by a foreign
government or its agencies might not be backed by the "full faith and credit" of
the government.
The Funds' foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. However, the Funds may not invest more than 20% of
their net assets in foreign debt securities. The Funds will buy and sell foreign
currency only in connection with the purchase and sale of foreign securities and
not for speculation.
o Risks of Foreign Investing. While foreign securities offer special
investment opportunities, there are also special risks that can reduce
the Funds' share prices and returns. The change in value of a foreign
currency against the U.S. dollar will result in a change in the U.S.
dollar value of securities denominated in that foreign currency.
Currency rate changes can also affect the distributions the Funds make
from the income they receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can
result in higher transaction and operating costs for the Funds. Foreign
issuers are not subject to the same accounting and disclosure
requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, currency
devaluation, 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. These risks could cause the
prices of foreign securities to fall and therefore could depress the
Funds' share prices.
Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in
value of foreign securities that might result from events that occur
after the close of the foreign securities market on which a foreign
security is traded and before the close of the New York Stock Exchange
("the NYSE") that day, when the Fund's net asset value is calculated.
If such time-zone arbitrage were successful, it might dilute the
interests of other shareholders. However, the Fund's use of "fair value
pricing" to adjust the closing market prices of foreign securities
under certain circumstances, to reflect what the Manager and the Board
believe to be their fair value, may help deter those activities.
o Special Risks of Emerging Markets. The Funds can buy securities in
emerging and developing markets. They present risks not found in more
mature markets. Those securities may be more difficult to sell at an
acceptable price and their prices may be more volatile than securities
of issuers in more developed markets. Settlements of trades may be
subject to greater delays so that the Funds might not receive the sale
proceeds of a security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges, and less developed legal and accounting systems. Investments
may be subject to greater risks of government restrictions on
withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively
few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be substantially more volatile than
securities of issuers in the U.S. and other developed countries and may
be very speculative.
Forward Rolls. The Funds may enter into "forward rolls" (also referred to as
"mortgage dollar rolls") transactions with respect to mortgage-related
securities. In this type of transaction, the Funds sell a
mortgage-related security to a buyer and simultaneously agree to
repurchase a similar security at a later date at a set price.
During the period between the sale and the repurchase, the Funds will
not be entitled to receive interest and principal payments on the
securities that have been sold. It is possible that the market value of
the securities the Funds sell may decline below the price at which the
Funds are obligated to repurchase securities, or that the counterparty
might default in its obligation.
Zero-Coupon and "Stripped" Securities. Some of the debt securities the Funds buy
are zero-coupon bonds that pay no interest. They are issued at a
substantial discount from their face value. They may be securities
issued by the U.S. government or private issuers. "Stripped" securities
are the separate income or principal components of a debt security.
Some CMOs or other mortgage-related securities may be stripped, with
each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all
the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than typical debt securities that
pay interest on a regular basis. The Funds may have to pay out the
imputed income on zero-coupon securities without receiving the cash
currently. Stripped securities are particularly sensitive to changes in
interest rates.
The values of interest-only and principal-only mortgage-related
securities are very sensitive to changes in interest rates and
prepayments of underlying mortgages. The market for these securities
may be limited, making it difficult for the Funds to value or to sell
its holdings at an acceptable price.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. Restricted securities
may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may
be sold publicly. The Funds will not invest more than 15% of its net
assets in illiquid or restricted securities. Certain restricted
securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
"Structured" Notes. The Funds can buy "structured" notes, which are
specially-designed derivative debt investments whose payments of
principal or interest payments are linked to the value of an index
(such as a currency or securities index) or commodity. The terms of the
instrument may be "structured" by the purchaser (the Fund) and the
borrower issuing the note.
The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and
interest rate risks and therefore the Funds could receive more or less
than it originally invested when the notes mature, or it might receive
less interest than the stated coupon payment if the underlying
investment or index does not perform as anticipated. Their values may
be very volatile and they may have a limited trading market, making it
difficult for the Funds to value them or to sell its investment at an
acceptable price.
Short-Term Debt Securities. The Funds can buy high-quality, short-term money
market instruments, including obligations of the U.S. Government and
its agencies, short-term corporate debt obligations, bank certificates
of deposit and bankers' acceptances, and commercial paper, which are
short-term, negotiable promissory notes of companies.
Preferred Stock. Core Bond Fund also can invest in preferred stock. Unlike
common stock, preferred stock typically has a stated dividend rate.
Preferred stock dividends may be cumulative (they remain a liability of
the company until they are paid) or non-cumulative. When interest rates
rise, the value of preferred stock having a fixed dividend rate tends
to fall. The right to payment of dividends on preferred stock is
generally subordinate to the rights of a corporation's debt securities.
Loans of Portfolio Securities. Core Bond Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement, portfolio
securities of Core Bond Fund may be loaned to brokers, dealers and
other financial institutions. The Securities Lending Agreement provides
that loans must be adequately collateralized and may be made only in
conformity with Core Bond Fund's Securities Lending Guidelines, adopted
by Core Bond Fund's Board of Trustees. The value of the securities
loaned may not exceed 25% of the value of the Fund's net assets.
PORTFOLIO TURNOVER. A change in the securities held by the Funds is known as
"portfolio turnover." The Funds may engage in active and frequent short-term
trading to try to achieve their objective and may have a high portfolio turnover
rate of over 100% annually. Increased portfolio turnover creates higher
brokerage and transaction costs for the Funds (and may reduce performance).
However, most of the Funds' portfolio transactions are principal trades that do
not entail brokerage fees. If the Funds realize capital gains when they sell
their portfolio investments, they must generally pay those gains out to
shareholders, increasing their taxable distributions.
TEMPORARY DEFENSIVE AND INTERIM INVESTMENTS. In times of adverse or unstable
market, economic or political conditions, the Funds can invest up to 100% of
their total assets in temporary defensive investments that are inconsistent with
the Funds' principal investment strategies. Generally they would be highly-rated
commercial paper and money market instruments, U.S. government securities and
repurchase agreements. The Funds might also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or portfolio
securities or to meet anticipated redemptions of Fund shares. To the extent the
Funds invest defensively in these securities, they may not achieve their
investment objectives.
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the material terms of the Reorganization
Agreement. You should read the form of Reorganization Agreement, which is
attached as Exhibit A.
How will the Reorganization be carried out?
If the shareholders of Total Return Bond Fund approve the
Reorganization Agreement, the Reorganization will take place after various
conditions are satisfied by Total Return Bond Fund and Core Bond Fund, including
delivery of certain documents. The Closing Date is presently scheduled for on or
about March 24, 2006 and the "Valuation Date" (which is the business day
preceding the Closing Date of the Reorganization) is presently scheduled for on
or about March 23, 2006.
If the shareholders of Total Return Bond Fund vote to approve the
Reorganization Agreement, you will receive Class A, Class B, Class C and Class N
shares of Core Bond Fund equal in value to the value as of the Valuation Date of
your shares of Total Return Bond Fund. Total Return Bond Fund will then be
liquidated and its outstanding shares will be cancelled. The stock transfer
books of Total Return Bond Fund will be permanently closed at the close of
business on the Valuation Date.
Shareholders of Total Return Bond Fund who vote their Class A, Class B,
Class C and Class N shares in favor of the Reorganization will be electing in
effect to redeem their shares of Total Return Bond Fund at net asset value on
the Valuation Date, after Total Return Bond Fund subtracts a cash reserve, and
reinvests the proceeds in Class A, Class B, Class C and Class N shares of Core
Bond Fund at net asset value. The cash reserve is that amount retained by Total
Return Bond Fund, which is deemed sufficient in the discretion of the Board of
Total Return Bond Fund for the payment of Total Return Bond Fund's outstanding
debts, taxes and expenses of liquidation. The cash reserve will consist of
approximately $[?] in cash. Core Bond Fund is not assuming any debts of Total
Return Bond Fund except debts for unsettled securities transactions and
outstanding dividend and redemption checks. Any debts paid out of the cash
reserve will be those debts, taxes or expenses of liquidation incurred by Total
Return Bond Fund on or before the Closing Date. Total Return Bond Fund will
recognize capital gains or losses on any sales of portfolio securities made
prior to the Reorganization. The sales of portfolio securities contemplated in
the Reorganization are anticipated to be in the ordinary course of business of
Total Return Bond Fund's activities.
Under the Reorganization Agreement, within one year after the Closing
Date, Total Return 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 Core Bond Fund, if such remaining amount is not material (as
defined below) or (ii) distribute such remaining amount to the shareholders of
Total Return Bond Fund who were shareholders on the Valuation Date. The
remaining amount shall be deemed to be material if the amount to be distributed,
after deducting the estimated expenses of the distribution, equals or exceeds
one cent per share of the number of Total Return Bond Fund shares outstanding on
the Valuation Date. In order to qualify for this rebate, it is not necessary for
a shareholder of Total Return Bond Fund to continue to hold Core Bond Fund
shares received in the Reorganization. If the Cash Reserve is insufficient to
satisfy any of Total Return Bond Fund's liabilities, the Manager will assume
responsibility for any such unsatisfied liability. Within one year after the
Closing Date, Total Return Bond Fund will complete its liquidation.
Under the Reorganization Agreement, either Total Return Bond Fund or
Core Bond Fund may abandon and terminate the Reorganization Agreement for any
reason and there shall be no liability for damages or other recourse available
to the other Fund, provided, however, that in the event that one of the Funds
terminates the Reorganization Agreement without reasonable cause, it shall, upon
demand, reimburse the other Fund for all expenses, including reasonable
out-of-pocket expenses and fees incurred in connection with the Reorganization
Agreement.
To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of Total Return Bond Fund.
Who will pay the expenses of the Reorganization?
The cost of printing and mailing this Proxy will be borne by Total
Return Bond Fund and is estimated to be approximately $10,000. The Funds will
share the cost of the tax opinion. Any documents such as existing prospectuses
or annual reports that are included in the proxy mailing or at a shareholder's
request will be a cost of the Fund issuing the document. Any other out-of-pocket
expenses associated with the Reorganization will be paid by the Funds in the
amounts incurred by each. The approximate cost of the Reorganization is $[?] for
Total Return Bond Fund and $[?] for Core Bond Fund.
What are the tax consequences of the Reorganization?
The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended. Based on certain assumptions and representations
received from Total Return Bond Fund and Core Bond Fund, it is expected to be
the opinion of Deloitte & Touche LLP that shareholders of Total Return Bond Fund
will not recognize any gain or loss for federal income tax purposes as a result
of the exchange of their shares for shares of Core Bond Fund, and it is expected
to be the opinion of Deloitte & Touche LLP that shareholders of Core Bond Fund
will not recognize any gain or loss upon receipt of Total Return Bond Fund's
assets, and that the holding period of Core Bond Fund shares received in that
exchange will include the period that Total Return Bond Fund shares were held
(provided such shares were held as a capital asset on the Closing Date). Please
see the Agreement and Plan of Reorganization for more details. If the tax
opinion is not received by the Closing Date, the Fund may still choose to go
forward with the Reorganization, pending re-solicitation of shareholders and
shareholder approval. In addition, neither Fund is expected to recognize a gain
or loss as a direct result of the Reorganization.
Immediately prior to the Valuation Date, Total Return Bond Fund will
pay a dividend which will have the effect of distributing to Total Return Bond
Fund's shareholders all of Total Return Bond Fund's investment company taxable
income, if any, for taxable years ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gains, if any, realized in taxable years ending on or prior to the
Closing Date (after reduction for any available capital loss carry-forward). Any
such dividends will be included in the taxable income of Total Return Bond
Fund's shareholders as ordinary income and capital gain, respectively.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Reorganization in light of your individual circumstances.
You should also consult your tax advisor as to state and local and other tax
consequences, if any, of the Reorganization because this discussion only relates
to federal income tax consequences.
REASONS FOR THE REORGANIZATION
Board Considerations
At a meeting of the Board of Trustees of Total Return Bond Fund held
September 14, 2005, the Board considered whether to approve the proposed
Reorganization and reviewed and discussed with the Manager and the Board's
independent legal counsel the proposed Reorganization. Information with respect
to the Funds' respective investment objectives and policies, management fees,
distribution fees and other operating expenses, historical performance and asset
size also was considered by the Board.
The Board reviewed information demonstrating that Total Return Bond
Fund is a significantly smaller fund with approximately $59 million in net
assets as of August 25, 2005. The Board considered that Total Return Fund has
not seen any significant influx of money into the Fund and the Manager does not
anticipate the assets of the Fund will grow substantially thereby helping to
decrease fund operating expenses. The Board also considered that Total Return
Bond Fund's assets are unlikely to increase substantially in size in the near
future, and, as a result, its expense ratios would likely remain the same as
fixed expenses are borne by a relatively small fund. In comparison, Core Bond
Fund had approximately $830 million in net assets as of August 25, 2005.
Economies of scale may benefit shareholders of Total Return Bond Fund.
At that meeting, the Board considered the fact that both Funds have
similar investment objectives and are managed by the same team of investment
professionals. Additionally, the Board considered that both Funds invest
primarily in investment-grade debt securities, which include domestic and
foreign government bonds, domestic and foreign corporate debt obligations, and
mortgage related securities issued by private issuers. Although there is no set
allocation of assets among the classes of securities either Fund buys, currently
the Funds focus mainly on U.S. government securities and investment-grade debt
securities.
The Board also considered that the procedures for purchases, exchanges
and redemptions of shares of both Funds are substantially similar and that both
Funds offer the same investor services and options.
The Board also considered the terms and conditions of the
Reorganization, including that there would be no sales charge imposed in
effecting the Reorganization and that the Reorganization is expected to be a
tax-free reorganization. The Board concluded that Total Return Bond Fund's
participation in the transaction is in the best interests of Total Return Bond
Fund and that the Reorganization would not result in a dilution of the interests
of existing shareholders of Total Return Bond Fund.
After consideration of the above factors, and such other factors and
information as the Board of Total Return Bond Fund deemed relevant, the Board,
including the Trustees who are not "interested persons" (as defined in the
Investment Company Act) of either Total Return Bond Fund or the Manager (the
"Independent Trustees"), unanimously approved the Reorganization and the
Reorganization Agreement and voted to recommend its approval by the shareholders
of Total Return Bond Fund.
The Board of Core Bond Fund also determined that the Reorganization was
in the best interests of Core Bond Fund and its shareholders and that no
dilution would result to those shareholders. Core Bond Fund shareholders do not
vote on the Reorganization. The Board of Core Bond Fund, including the
Independent Trustees, unanimously approved the Reorganization and the
Reorganization Agreement.
Neither Board's members are required to attend the meeting nor do they
plan to attend the meeting.
For the reasons discussed above, the Board, on behalf of Total Return
Bond Fund, recommends that you vote FOR the Reorganization Agreement. If
shareholders of Total Return Bond Fund do not approve the Reorganization
Agreement, the Reorganization will not take place.
What should I know about Class A, Class B, Class C and Class N Shares of Core
Bond Fund?
Upon consummation of the Reorganization, Class A, Class B, Class C and
Class N shares of Core Bond Fund will be distributed to shareholders of Class A,
Class B, Class C and Class N shares of Total Return Bond Fund, respectively, in
connection with the Reorganization. Each share will be fully paid and
non-assessable when issued, will have no preemptive or conversion rights and
will be transferable on the books of Core Bond Fund. Each 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. Neither Fund permits cumulative voting. The shares of Core Bond
Fund will be recorded electronically in each shareholder's account. Core Bond
Fund will then send a confirmation to each shareholder. Shareholders of Total
Return Bond Fund holding certificates representing their shares will not be
required to surrender their certificates in connection with the reorganization.
However, former shareholders of Total Return Bond Fund whose shares are
represented by outstanding share certificates will not be allowed to redeem or
exchange shares of Core Bond Fund they receive in the Reorganization until the
exchanged Total Return Bond Fund certificates have been returned to the Transfer
Agent.
Like Total Return Bond Fund, Core Bond Fund does not routinely hold
annual shareholder meetings.
WHAT ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS?
Both Total Return Bond Fund and Core Bond Fund have certain additional
investment restrictions that, together with their investment objectives, are
fundamental policies, changeable only by shareholder approval. Generally, these
investment restrictions are similar between the Funds. Please see the Statement
of Additional Information for each Fund for descriptions of those investment
restrictions.
OTHER COMPARISONS BETWEEN THE FUNDS
The description of certain other key features of the Funds below is
supplemented by Core Bond Fund's Prospectus and Statement of Additional
Information, which are incorporated by reference.
Management of the Funds
Each Fund is governed by a different Board of Trustees, who are
responsible for protecting the interests of their respective Fund's shareholders
under federal and Massachusetts law and other applicable laws. For a listing of
the Core Bond Fund's Board of Trustees and biographical information, please
refer to the Statement of Additional Information to this Prospectus and Proxy
Statement.
Investment Management and Fees
The day-to-day management of the business and affairs of each Fund is
the responsibility of the Manager. Pursuant to each Fund's investment advisory
agreement, the Manager acts as the investment advisor for both Funds, manages
the assets of both Funds and makes their respective investment decisions. The
Manager employs the Funds' portfolio managers. Angelo Manioudakis, Antulio
Bomfin, Geoffrey Caan, Benjamin J. Gord and Charles Moon are primarily
responsible for the day-to-day management of Total Return Bond Fund's
investments. Angelo Manioudakis, Benjamin J. Gord and Charles Moon are primarily
responsible for the day-to-day management of Core Bond Fund's investments.
Both Funds obtain investment management services from the Manager
according to the terms of management agreements that are substantially similar
except that Core Bond Fund's management fee rates were higher than those of
Total Return Bond Fund during each Fund's last completed fiscal year. However,
the Manager has agreed to contractually reduce the advisory fees paid by Core
Bond Fund to the Manager, following the successful completion of the merger,
from the current rate of 0.56% of the Fund's average daily net assets to 0.50%,
which rate reflects anticipated net assets of Core Bond Fund immediately
following the Reorganization. As a result, the effective management fee for Core
Bond Fund (post merger) is expected to be the same as that for Total Return Bond
Fund. The chart below shows the current contractual management fee schedule for
each of the Funds and the proposed lower management fee schedule for Core Bond
Fund upon the successful completion of the merger.
- ----------------------------------------- ------------------------------------- --------------------------------------
Total Return Bond Fund(1) Core Bond Fund(1) Core Bond Fund (post merger)(1)
- ----------------------------------------- ------------------------------------- --------------------------------------
- ----------------------------------------- ------------------------------------- --------------------------------------
0.50% of the first $250 million of 0.60% of the first $200 million of 0.50% of the first $1 billion of
average annual net assets of the Fund; average annual net assets of the average annual net assets of the
0.475% of the next $500 million; and Fund, 0.57% of the next $200 Fund and 0.35% of average annual net
0.45% of average annual net assets in million, 0.54% of the next $200 assets in excess of $1 billion.
excess of $750 million. million, 0.51% of the next $200
million, 0.45% of the next $200
million and 0.35% of average annual
net assets in excess of $1 billion.
- ----------------------------------------- ------------------------------------- --------------------------------------
1. Based on average annual net assets of the respective Fund.
In connection with the Reorganization, Core Bond Fund will acquire
approximately $57 million in net assets from Total Return Bond Fund bringing
Core Bond Fund's net assets to approximately $949 million. For purposes of the
foregoing calculation, average annual net assets for both funds are measured as
of November 22, 2005. Assuming additional growth post merger, it is expected
that Core Bond Fund shareholders also may benefit from the reduction of the
management fee to 0.35% when average annual net assets exceed $1 billion.
In addition, OFI will continue to voluntarily waive expenses for Core
Bond Fund after the merger so that "Total Annual Operating Expenses" as
percentages of average daily net assets, will not exceed the following annual
rates: 0.90% for the Class A shares; 1.65% for the Class B shares; 1.65% for the
Class C shares and 1.15% for the Class N shares.
The advisory agreements require the Manager, at its expense, to provide
the Funds with adequate office space, facilities and equipment. The agreements
also require the Manager to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Funds. Those responsibilities include the compilation and
maintenance of records with respect to their operations, the preparation and
filing of specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Funds.
Each Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreements list examples of expenses paid by
each Fund. The major categories relate to interest, taxes, brokerage
commissions, fees to Independent Trustees, legal and audit expenses, custodian
bank and transfer agent expenses, share issuance costs, certain printing and
registration costs, and non-recurring expenses, including litigation costs.
Both investment advisory agreements generally provide that in the
absence of willful misfeasance, bad faith, gross negligence in the performance
of its duties or reckless disregard of its obligations and duties under the
investment advisory agreement, the Manager is not liable for any loss sustained
by reason of good faith errors or omissions in connection with any matters to
which the agreement(s) relate.
The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior officers of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies. The
Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $190 billion in
assets as of September 30, 2005, including other Oppenheimer funds with more
than 6 million shareholder accounts. The Manager is located at 225 Liberty
Street, 11th Floor, New York, New York 10281-1008.
Distribution Services
OppenheimerFunds Distributor, Inc. (the "Distributor") acts as the
principal underwriter in a continuous public offering of shares of the Funds,
but is not obligated to sell a specific number of shares. Both Funds have
adopted a Service Plan and Agreement under Rule 12b-1 of the Investment Company
Act for their Class A shares. The Service Plan provides for the reimbursement to
the Distributor for a portion of its costs incurred in connection with the
services provided to accounts that hold Class A shares of the respective Funds.
Under the Class A Service Plans, reimbursement is made at a rate of up to 0.25%
of average annual net assets of Class A shares of the respective Funds. The
Distributor currently uses the fees it receives from the Funds to pay dealers,
brokers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers that hold Class A shares of the respective Funds.
Both Funds have adopted Distribution and Service Plans and Agreements
under Rule 12b-1 of the Investment Company Act for Class B, Class C and Class N
shares. These plans compensate the Distributor for its services and costs in
connection with the distribution of Class B, Class C and Class N shares and for
servicing shareholder accounts. Under the plans, the Funds pay the Distributor
an annual asset-based sales charge of 0.75% on Class B and Class C shares and
0.25% on Class N shares. The Distributor also receives a service fee of 0.25%
per year under the Class B, Class C and Class N plans.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.0% and increase Class N expenses by 0.50% of the net
assets per year of the respective class. Because these fees are paid out of the
Funds' assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B, Class C or Class N
shares. The Distributor normally pays the 0.25% service fees to dealers in
advance for the first year after the shares are sold by the dealer. After the
shares have been held for a year, the Distributor pays the service fees to
dealers on a periodic basis.
In addition, the Manager and the Distributor may make substantial
payments to dealers or other financial intermediaries and service providers for
distribution and/or shareholder servicing activities, out of their own
resources, including the profits from the advisory fees the Manager receives
from the Fund. Some of these distribution-related payments may be made to
dealers or financial intermediaries for marketing, promotional or related
expenses; these payments are often referred to as "revenue sharing." In some
circumstances, those types of payments may create an incentive for a dealer or
financial intermediary or its representatives to recommend or offer shares of
the Fund or other Oppenheimer funds to its customers. You should ask your dealer
or financial intermediary for more details about any such payments it receives.
Transfer Agency and Custody Services
Both Funds receive shareholder accounting and other clerical services
from OppenheimerFunds Services, a division of the Manager, in its capacity as
transfer agent and dividend paying agent. It acts on an annual per-account fee
basis for both Funds. The terms of the transfer agency agreement for both Funds,
and of a voluntary undertaking to limit transfer agent fees (to 0.35% per fiscal
year for each class of both Funds) are substantially similar. Citibank, N.A.,
located at 388 Greenwich Street, New York, New York, 10013, and JP Morgan Chase
Bank, located at 4 Chase Metro Tech Center, Brooklyn, NY 11245, act as custodian
of the securities and other assets of Total Return Bond Fund and Core Bond Fund,
respectively.
Shareholder Rights
Both Total Return Bond Fund and Core Bond Fund are organized as
Massachusetts business trusts and thus their shareholders have the same rights
due them under state law. The Funds are not required to, and do not, hold annual
meetings of shareholders and have no current intention to hold such meetings,
except as required by the Investment Company Act. Under the Investment Company
Act, the Funds are required to hold a shareholder meeting if, among other
reasons, the numbers of Trustees elected by shareholders is less than a majority
of the total number of Trustees, or if they seek to change a fundamental
investment policies. In addition, holders of at least 10% of each Fund's
outstanding shares may require such Fund to hold a shareholder meeting for the
purpose of voting on the removal of any Trustee.
VOTING INFORMATION
How many votes are necessary to approve the Reorganization Agreement?
The affirmative vote of the holders of a "majority of the outstanding
voting securities" (as defined in the Investment Company Act) of Total Return
Bond Fund is necessary to approve the Reorganization Agreement and the
transactions contemplated thereby. As defined in the Investment Company Act, the
vote of a majority of the outstanding voting securities means the vote of (1)
67% or more of Total Return Bond Fund's outstanding shares present at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy; or (2) more than 50% of the Fund's outstanding
shares, whichever is less. Core Bond Fund shareholders do not vote on the
Reorganization. The Manager owns approximately 35.72% of the outstanding voting
securities of Total Return Bond Fund. For purposes of this vote, the Manager has
undertaken to vote those shares in the same proportion as the shares of the
other Total Return Bond Fund shareholders are voted.
Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share of Total Return Bond Fund held on
the Record Date. In the absence of a quorum, the shareholders present or
represented by proxy and entitled to vote thereat have the power to adjourn the
meeting from time to time without further notice. If a quorum is present but
sufficient votes to approve the proposal are not received by the date of the
Meeting, the Meeting may be adjourned to permit further solicitation of proxies.
The holders of a majority of shares entitled to vote at the Meeting and present
in person or by proxy (whether or not sufficient to constitute a quorum) may
adjourn the Meeting to permit further solicitation of proxies. For purposes of
the Meeting, a quorum exists if a majority of shares outstanding and entitled to
vote are present in person or represented by proxy.
How do I ensure my vote is accurately recorded?
You can vote your shares by completing and signing the enclosed proxy
ballot(s), and mailing the proxy ballot(s) in the enclosed postage paid
envelope. You also may vote your shares by telephone or via the internet by
following the instructions on the attached proxy ballot(s) and accompanying
materials. If you need assistance, or have any questions regarding the proposals
or how to vote your shares, please call 1-800-225-5677 (1-800-CALL-OPP). If you
simply sign and date the proxy but give no voting instructions, your shares will
be voted in favor of the Reorganization Agreement.
Can I revoke my proxy?
Yes. You may revoke a previously granted proxy at any time before it is
voted by (1) delivering a written notice to the Fund expressly revoking your
proxy, (2) signing and forwarding to the Funds a later-dated proxy, or (3)
telephone or internet or (4) attending the Meeting and casting your votes in
person if you are a record owner. Please be advised that the deadline for
revoking your proxy by telephone or the internet is 3:00 p.m., Eastern Time, on
the last business day before the Meeting.
What other matters will be voted upon at the Meeting?
The Board of Trustees of Total Return Bond Fund does not intend to
bring any matters before the Meeting other than those described in this proxy.
It is not aware of any other matters to be brought before the Meeting by others.
Neither Fund's Trustees are required to attend the meeting and the Trustees are
not expected to attend the meeting. If any other matters legally come before the
Meeting, the proxy ballots confer discretionary authority with respect to such
matters, and it is the intention of the persons named to vote proxies to vote in
accordance with their judgment in such matters.
Who is entitled to vote?
Shareholders of record of Total Return Bond Fund at the close of
business on December 6, 2005 (the "record date") will be entitled to vote at the
Meeting. On December 6, 2005, there were [o] outstanding shares of Total Return
Bond Fund, consisting of [o] Class A shares, [o] Class B shares, [o] Class C
shares and [o] Class N shares. Proxies representing abstentions and broker
non-votes will be included for purposes of determining whether a quorum is
present at the Meeting, but will be treated as votes not cast and, therefore,
will not be counted for purposes of determining whether the matters and
proposals and motions to be voted upon at the Meeting have been approved.
What other solicitations will be made?
Total Return Bond Fund will request broker-dealer firms, custodians,
nominees and fiduciaries to forward proxy material to the beneficial owners of
the shares of record, and may reimburse them for their reasonable expenses
incurred in connection with such proxy solicitation. In addition to
solicitations by mail, officers of Total Return Bond Fund or officers and
employees of OppenheimerFunds Services, without extra pay, may conduct
additional solicitations personally or by telephone or email. Any expenses so
incurred will be borne by OppenheimerFunds Services. Proxies may also be
solicited by a proxy solicitation firm hired at Total Return Bond Fund's
expense. If a proxy solicitation firm is hired, it is anticipated that the cost
to Total Return Bond Fund of engaging a proxy solicitation firm would not exceed
$7,500, plus the additional costs which would be incurred in connection with
contacting those shareholders who have not voted, in the event of a need for
re-solicitation of votes.
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 does not have discretionary power to vote such street account
shares under applicable stock exchange rules. Accordingly, the shares
represented thereby will be considered to be present at the Meeting only for
purposes of determining the quorum ("broker non-votes"). Because of the need to
obtain a vote of the "majority of the outstanding voting securities" for the
Reorganization proposal to pass, abstentions and broker non-votes will have the
same effect as a vote "against" the Proposal.
ADDITIONAL INFORMATION ABOUT TOTAL RETURN BOND FUND AND CORE BOND FUND
Both Funds also file proxy materials, proxy voting reports and other information with the SEC in
accordance with the informational requirements of the Securities and Exchange Act of 1934 and the Investment
Company Act. These materials can be inspected and copied at: the SEC's Public Reference Room in Washington, D.C.
(Phone: 1.202.942.8090) or the EDGAR database on the SEC's website at www.sec.gov. Copies may be obtained upon
payment of a duplicating fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Pending Litigation
A consolidated amended complaint has been filed as putative derivative
and class actions against the Manager, Distributor and Transfer Agent, as well
as 51 of the Oppenheimer funds (collectively the "funds") including the Funds,
30 present and former Directors or Trustees and 8 present and former officers of
certain of the funds. This complaint, initially filed in the U.S. District Court
for the Southern District of New York on January 10, 2005 and amended on March
4, 2005, consolidates into a single action and amends six individual
previously-filed putative derivative and class action complaints. Like those
prior complaints, the complaint alleges that the Manager charged excessive fees
for distribution and other costs, improperly used assets of the funds in the
form of directed brokerage commissions and 12b-1 fees to pay brokers to promote
sales of the funds, and failed to properly disclose the use of fund assets to
make those payments in violation of the Investment Company Act and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the officers breached their fiduciary duties
to Fund shareholders under the Investment Company Act and at common law. The
complaint seeks unspecified compensatory and punitive damages, rescission of the
funds' investment advisory agreements, an accounting of all fees paid, and an
award of attorneys' fees and litigation expenses.
The defendants believe the claims asserted in these law suits to be
without merit, and intend to defend the suits vigorously. The Manager and the
Distributor do not believe that the pending actions are likely to have a
material adverse effect on the Funds or on their ability to perform their
respective investment advisory or distribution agreements with the Funds.
Principal Shareholders
As of [o], the officers and Trustees of Total Return Bond Fund as a
group and of Core Bond Fund as a group, owned less than 1% of the outstanding
voting shares of their respective Fund. As of [o], the only persons who owned of
record or were known by Total Return Bond Fund or Core Bond Fund to own
beneficially 5% or more of any class of the outstanding shares of that
respective Fund are listed in Exhibit B.
As of October 31, 2005, the Manager beneficially owned 49.66% of the
Class A shares, which represents 35.72% of the outstanding voting securities of
Total Return Bond Fund. For purposes of voting on the Reorganization, the
Manager has undertaken to vote its shares of Total Return Bond Fund in the same
proportion as the shares of other Fund shareholders are voted on such matter.
By Order of the Board of Trustees,
Robert G. Zack, Secretary
January 10, 2006
EXHIBITS TO THE COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization between Oppenheimer Total Return Bond Fund and Oppenheimer Core Bond
Fund
B Principal Shareholders
A-12
A-1
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
[___________] by and between Oppenheimer Total Return Bond Fund ("Total Return
Bond Fund"), a Massachusetts business trust and Oppenheimer Integrity Funds, a
Massachusetts business trust, on behalf of its series Oppenheimer Core Bond
Fund.
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 Total Return Bond Fund through the acquisition by Core Bond
Fund of substantially all of the assets of Total Return Bond Fund in exchange
for the voting shares of beneficial interest ("shares") of Class A, Class B,
Class C and Class N shares of Core Bond Fund and the assumption by Core Bond
Fund of certain liabilities of Total Return Bond Fund, which Class A, Class B,
Class C and Class N shares of Core Bond Fund are to be distributed by Total
Return Bond Fund pro rata to its shareholders in complete liquidation of Total
Return Bond Fund and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan of
Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code as
follows: The reorganization will be comprised of the acquisition by Core Bond
Fund of substantially all of the assets of Total Return Bond Fund in exchange
for Class A, Class B, Class C and Class N shares of Core Bond Fund and the
assumption by Core Bond Fund of certain liabilities of Total Return Bond Fund,
followed by the distribution of such Class A, Class B, Class C and Class N
shares of Core Bond Fund to the Class A, Class B, Class C and Class N
shareholders of Total Return Bond Fund in exchange for their Class A, Class B,
Class C and Class N shares of Total Return Bond Fund, all upon and subject to
the terms of the Agreement hereinafter set forth.
The share transfer books of Total Return 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 Total Return Bond Fund;
redemption requests received by Total Return Bond Fund after that date shall be
treated as requests for the redemption of the shares of Core Bond Fund to be
distributed to the shareholder in question as provided in Section 5 hereof.
2. On the Closing Date (as hereinafter defined), all of the assets of Total
Return Bond Fund on that date, excluding a cash reserve (the "cash reserve") to
be retained by Total Return Bond Fund sufficient in its discretion for the
payment of the expenses of Total Return 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 Core Bond Fund, in exchange for and
against delivery to Total Return Bond Fund on the Closing Date of a number of
Class A, Class B, Class C and Class N shares of Core Bond Fund, having an
aggregate net asset value equal to the value of the assets of Total Return Bond
Fund so transferred and delivered.
3. The net asset value of Class A, Class B, Class C and Class N shares of
Core Bond Fund and the value of the assets of Total Return Bond Fund to be
transferred shall in each case be determined as of the close of business of The
New York Stock Exchange on the Valuation Date. The computation of the net asset
value of the Class A, Class B, Class C and Class N shares of Core Bond Fund and
the Class A, Class B, Class C and Class N shares of Total Return Bond Fund shall
be done in the manner used by Core Bond Fund and Total Return Bond Fund,
respectively, in the computation of such net asset value per share as set forth
in their respective prospectuses. The methods used by Core Bond Fund in such
computation shall be applied to the valuation of the assets of Total Return Bond
Fund to be transferred to Core Bond Fund.
Total Return 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 Total Return Bond Fund's
shareholders all of Total Return Bond Fund's investment company taxable income
for taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any, realized
in taxable years ending on or prior to the Closing Date (after reduction for any
capital loss carry-forward).
4. The closing (the "Closing") shall be at the offices of OppenheimerFunds,
Inc. (the "Agent"), 6803 S Tucson Way, Centennial, Colorado 80112, on such time
or such other place as the parties may designate or as provided below (the
"Closing Date"). The business day preceding the Closing Date is herein referred
to as the "Valuation Date."
In the event that on the Valuation Date either party has, pursuant to
the Investment Company Act of 1940, as amended (the "Act"), or any rule,
regulation or order thereunder, suspended the redemption of its shares or
postponed payment therefore, the Closing Date shall be postponed until the first
business day after the date when both parties have ceased such suspension or
postponement; provided, however, that if such suspension shall continue for a
period of 60 days beyond the Valuation Date, then the other party to the
Agreement shall be permitted to terminate the Agreement without liability to
either party for such termination.
5. In conjunction with the Closing, Total Return Bond Fund shall distribute
on a pro rata basis to the shareholders of Total Return Bond Fund as of the
Valuation Date Class A, Class B, Class C and Class N shares of Core Bond Fund
received by Total Return Bond Fund on the Closing Date in exchange for the
assets of Total Return Bond Fund in complete liquidation of Total Return Bond
Fund; for the purpose of the distribution by Total Return Bond Fund of Class A,
Class B, Class C and Class N shares of Core Bond Fund to Total Return Bond
Fund's shareholders, Core Bond Fund will promptly cause its transfer agent to:
(a) credit an appropriate number of Class A, Class B, Class C and Class N shares
of Core Bond Fund on the books of Core Bond Fund to each Class A, Class B, Class
C and Class N shareholder of Total Return Bond Fund in accordance with a list
(the "Shareholder List") of Total Return Bond Fund shareholders received from
Total Return Bond Fund; and (b) confirm an appropriate number of Class A, Class
B, Class C and Class N shares of Core Bond Fund to each Class A, Class B, Class
C and Class N shareholder of Total Return 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 Total Return Bond
Fund, indicating his or her share balance. Total Return Bond Fund agrees to
supply the Shareholder List to Core Bond Fund not later than the Closing Date.
Shareholders of Total Return 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 Core Bond Fund which they received.
6. Within one year after the Closing Date, Total Return 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 Core
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 Total Return 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 Total Return 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, Core Bond
Fund will be in compliance with all of its investment policies and restrictions.
At the Closing, Total Return Bond Fund shall deliver to Core Bond Fund two
copies of a list setting forth the securities then owned by Total Return Bond
Fund. Promptly after the Closing, Total Return Bond Fund shall provide Core Bond
Fund a list setting forth the respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to Core 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 Total Return 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
Total Return Bond Fund on the Closing Date to Core 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 Core Bond Fund for the
account of Core Bond Fund. Class A, Class B, Class C and Class N shares of Core
Bond Fund representing the number of Class A, Class B, Class C and Class N
shares of Core Bond Fund being delivered against the assets of Total Return Bond
Fund, registered in the name of Total Return Bond Fund, shall be transferred to
Total Return Bond Fund on the Closing Date. Such shares shall thereupon be
assigned by Total Return Bond Fund to its shareholders so that the shares of
Core Bond Fund may be distributed as provided in Section 5.
If, at the Closing Date, Total Return Bond Fund is unable to make
delivery under this Section 8 to Core Bond Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased by Total
Return 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 Total Return Bond
Fund's custodian, then the delivery requirements of this Section 8 with respect
to said undelivered securities or cash will be waived and Total Return Bond Fund
will deliver to Core Bond Fund by or on the Closing Date with respect to said
undelivered securities or cash executed copies of an agreement or agreements of
assignment in a form reasonably satisfactory to Core Bond Fund, together with
such other documents, including a due bill or due bills and brokers'
confirmation slips as may reasonably be required by Core Bond Fund.
9. Core 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 Total Return Bond Fund, but Total Return 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 Total
Return Bond Fund. Total Return Bond Fund and Core Bond Fund will bear the cost
of the 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 Core Bond Fund and Total Return
Bond Fund associated with this reorganization, including legal, accounting and
transfer agent expenses, will be borne by Total Return Bond Fund and Core Bond
Fund, respectively, in the amounts so incurred by each.
10. The obligations of Core Bond Fund hereunder shall be subject to the
following conditions:
A. The Board of Trustees of Total Return Bond Fund shall have
authorized the execution of the Agreement, and the shareholders of Total Return
Bond Fund shall have approved the Agreement and the transactions contemplated
hereby, and Total Return Bond Fund shall have furnished to Core Bond Fund copies
of resolutions to that effect certified by the Secretary or the Assistant
Secretary of Total Return Bond Fund; such shareholder approval shall have been
by the affirmative vote required by the Massachusetts Law and its charter
documents at a meeting for which proxies have been solicited by the Proxy
Statement and Prospectus (as hereinafter defined).
B. Core Bond Fund shall have received an opinion dated as of the
Closing Date from counsel to Total Return Bond Fund, to the effect that (i)
Total Return Bond Fund is a business trust duly organized, validly existing and
in good standing under the laws of the State of Massachusetts with full
corporate powers to carry on its business as then being conducted and to enter
into and perform the Agreement; and (ii) that all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable on Total
Return Bond Fund and to authorize effectively the transactions contemplated by
the Agreement have been taken by Total Return Bond Fund. Massachusetts counsel
may be relied upon for this opinion.
C. The representations and warranties of Total Return Bond Fund contained herein
shall be true and correct at and as of the Closing Date, and Core 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 or the
Assistant Treasurer of Total Return Bond Fund, dated as of the Closing Date, to
that effect.
D. On the Closing Date, Total Return Bond Fund shall have furnished to Core Bond
Fund a certificate of the Treasurer or Assistant Treasurer of Total Return Bond
Fund as to the amount of the capital loss carry-over and net unrealized
appreciation or depreciation, if any, with respect to Total Return 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 Total Return Bond Fund at the
close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by Core Bond Fund under the
Securities Act of 1933, as amended (the "1933 Act"), containing a preliminary
form of the Proxy Statement and Prospectus, shall have become effective under
the 1933 Act.
G. On the Closing Date, Core Bond Fund shall have received a letter
from the General Counsel or other senior executive officer of OppenheimerFunds,
Inc. acceptable to Core 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 Total Return
Bond Fund arising out of litigation brought against Total Return 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 Total Return Bond
Fund delivered to Core 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. Core Bond Fund shall have received an opinion, dated as of the
Closing Date, of Deloitte & Touche LLP, to the same effect as the opinion
contemplated by Section 11.E. of the Agreement.
I. Core Bond Fund shall have received at the Closing all of the assets of Total
Return 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 Total Return Bond Fund hereunder shall be subject to
the following conditions:
A. The Board of Trustees of Core Bond Fund shall have authorized the
execution of the Agreement, and the transactions contemplated thereby, and Core
Bond Fund shall have furnished to Total Return Bond Fund copies of resolutions
to that effect certified by the Secretary or the Assistant Secretary of Core
Bond Fund.
B. Total Return Bond Fund's shareholders shall have approved the
Agreement and the transactions contemplated hereby, by an affirmative vote
required by the Massachusetts Law and its charter documents and Total Return
Bond Fund shall have furnished Core Bond Fund copies of resolutions to that
effect certified by the Secretary or an Assistant Secretary of Total Return Bond
Fund.
C. Total Return Bond Fund shall have received an opinion dated as of
the Closing Date from counsel to Core Bond Fund, to the effect that (i) Core
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 actions necessary to make the Agreement, according to its
terms, valid, binding and enforceable upon Core Bond Fund and to authorize
effectively the transactions contemplated by the Agreement have been taken by
Core Bond Fund, and (iii) the shares of Core Bond Fund to be issued hereunder
are duly authorized and when issued will be validly issued, fully-paid and
non-assessable, except as set forth under "Shareholder and Trustee Liability" in
Core Bond Fund's Statement of Additional Information. Massachusetts counsel may
be relied upon for this opinion.
D. The representations and warranties of Core Bond Fund contained
herein shall be true and correct at and as of the Closing Date, and Total Return
Bond Fund shall have been furnished with a certificate of the President, a Vice
President or the Secretary or the Assistant Secretary or the Treasurer or the
Assistant Treasurer of the Trust to that effect dated as of the Closing Date.
E. Total Return Bond Fund shall have received an opinion of Deloitte &
Touche LLP to the effect that the federal tax consequences of the transaction,
if carried out in the manner outlined in the Agreement and in accordance with
(i) Total Return Bond Fund's representation that there is no plan or intention
by any Total Return Bond Fund shareholder who owns 5% or more of Total Return
Bond Fund's outstanding shares, and, to Total Return Bond Fund's best knowledge,
there is no plan or intention on the part of the remaining Total Return Bond
Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of
Core Bond Fund shares received in the transaction that would reduce Total Return
Bond Fund shareholders' ownership of Core 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 Total Return Bond Fund shares as of the same date, and
(ii) the representation by each of Total Return Bond Fund and Core Bond Fund
that, as of the Closing Date, Total Return Bond Fund and Core 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:
a. 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.
b. Total Return Bond Fund and Core Bond Fund will each qualify as a "party to a
reorganization" within the meaning of Section 368(b)(2) of the Code.
c. No gain or loss will be recognized by the shareholders of Total Return Bond
Fund upon the distribution of Class A, Class B, Class C and Class N shares of
beneficial interest in Core Bond Fund to the shareholders of Total Return Bond
Fund pursuant to Section 354 of the Code.
d. Under Section 361(a) of the Code no gain or loss will be recognized by Total
Return Bond Fund by reason of the transfer of substantially all its assets in
exchange for Class A, Class B, Class C and Class N shares of Core Bond Fund.
e. Under Section 1032 of the Code no gain or loss will be recognized by Core
Bond Fund by reason of the transfer of substantially all of Total Return Bond
Fund's assets in exchange for Class A, Class B, Class C and Class N shares of
Core Bond Fund and Core Bond Fund's assumption of certain liabilities of Total
Return Bond Fund.
f. The shareholders of Total Return Bond Fund will have the same tax basis and
holding period for the Class A, Class B, Class C and Class N shares of
beneficial interest in Core Bond Fund that they receive as they had for Total
Return Bond Fund shares that they previously held, pursuant to Section 358(a)
and 1223(1), respectively, of the Code.
g. The securities transferred by Total Return Bond Fund to Core Bond Fund will
have the same tax basis and holding period in the hands of Core Bond Fund as
they had for Total Return 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 Total Return Bond Fund at the
close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by Core Bond Fund under
the 1933 Act, containing a preliminary form of the Proxy Statement and
Prospectus, shall have become effective under the 1933 Act.
H. On the Closing Date, Total Return Bond Fund shall have received a
letter from General Counsel or other senior executive officer of
OppenheimerFunds, Inc. acceptable to Total Return 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 Core Bond Fund arising out of litigation brought
against Core 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 Core Bond Fund delivered to Total Return 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. Total Return Bond Fund shall acknowledge receipt of the Class A, Class B,
Class C and Class N shares of Core Bond Fund.
12. Total Return Bond Fund hereby represents and warrants that:
A. The audited financial statements and financial highlights of Total Return
Bond Fund as of April 30, 2005 and unaudited financial statements as of October
31, 2005 heretofore furnished to Core Bond Fund, present fairly the financial
position, results of operations, and changes in net assets of Total Return Bond
Fund as of that date, in conformity with U.S. generally accepted accounting
principles applied on a basis consistent with the preceding year; and that from
October 31, 2005 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 Total Return Bond Fund, it being agreed that a decrease
in the size of Total Return 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 Total Return Bond Fund's shareholders, Total Return Bond Fund has
authority to transfer all of the assets of Total Return 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 Total Return 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. Except for this Agreement, there is no material contingent liability of Total
Return Bond Fund and no material claim and no material legal, administrative or
other proceedings pending or, to the knowledge of Total Return Bond Fund,
threatened against Total Return Bond Fund, not reflected in such Prospectus;
E. Except for the Agreement, there are no material contracts outstanding to
which Total Return Bond Fund is a party other than those ordinary in the conduct
of its business;
F. Total Return Bond Fund is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts; and has all necessary and material Federal and state
authorizations to own all of its assets and to carry on its business as now
being conducted; and Total Return Bond Fund that is duly registered under the
Act and such registration has not been rescinded or revoked and is in full force
and effect;
G. All Federal and other tax returns and reports of Total Return Bond Fund
required by law to be filed have been filed as of the date of this Agreement,
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 Total Return Bond Fund no such return is currently under
audit and no assessment has been asserted with respect to such returns; and
H. Total Return Bond Fund has elected that Total Return Bond Fund be treated as
a regulated investment company and, for each fiscal year of its operations,
Total Return Bond Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and Total Return
Bond Fund intends to meet such requirements with respect to its current taxable
year.
13. Core Bond Fund hereby represents and warrants that:
A. The audited financial statements of Core Bond Fund as of December 31, 2004
and unaudited financial statements as of June 30, 2005 heretofore furnished to
Total Return Bond Fund, present fairly the financial position, results of
operations, and changes in net assets of Core Bond Fund, as of that date, in
conformity with U.S. generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from June 30, 2005 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 Core Bond
Fund, it being understood that a decrease in the size of Core 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 Core Bond Fund's
Registration Statement under the 1933 Act, is true, correct and complete,
conforms to the requirements of the 1933 Act and does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Registration Statement, as amended, was, as of the date of the filing of the
last Post-Effective Amendment, true, correct and complete, conformed to the
requirements of the 1933 Act and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
C. Except for this Agreement, there is no material contingent liability of Core
Bond Fund and no material claim and no material legal, administrative or other
proceedings pending or, to the knowledge of Core Bond Fund, threatened against
Core Bond Fund, not reflected in such Prospectus;
D. Except for this Agreement, there are no material contracts outstanding to
which Core Bond Fund is a party other than those ordinary in the conduct of its
business;
E. Core Bond Fund is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts; Core Bond
Fund has all necessary and material Federal and state authorizations to own all
its properties and assets and to carry on its business as now being conducted;
the Class A, Class B, Class C and Class N shares of Core Bond Fund which it
issues to Total Return Bond Fund pursuant to the Agreement will be duly
authorized, validly issued, fully-paid and non-assessable, except as set forth
under "Shareholder & Trustee Liability" in Core Bond Fund's Statement of
Additional Information, will conform to the description thereof contained in
Core Bond Fund's Registration Statement and will be duly registered under the
1933 Act and in the states where registration is required; and Core 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 Core 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 Core 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 Core Bond Fund ended December 31, 2004 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. Core Bond Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, Core Bond Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and Core Bond Fund intends to meet such
requirements with respect to its current taxable year;
H. Core Bond Fund has no plan or intention (i) to dispose of any of the
assets transferred by Total Return Bond Fund, other than in the ordinary course
of business, or (ii) to redeem or reacquire any of the Class A, Class B, Class C
and Class N 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, Core 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 U.S. 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. Core Bond Fund hereby
represents to and covenants with Total Return Bond Fund that, if the
reorganization becomes effective, Core Bond Fund will treat each shareholder of
Total Return Bond Fund who received any of Core Bond Fund's shares as a result
of the reorganization as having made the minimum initial purchase of shares of
Core Bond Fund received by such shareholder for the purpose of making additional
investments in shares of Core Bond Fund, regardless of the value of the shares
of Core Bond Fund received.
15. Core 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.
Total Return Bond Fund covenants and agrees to liquidate and dissolve under the
laws of the State of Massachusetts, following the Closing, and, upon Closing, to
cause the cancellation of its outstanding shares.
16. The obligations of the parties shall be subject to the right of either
party to abandon and terminate the Agreement for any reason and there shall be
no liability for damages or other recourse available to a party not so
terminating this Agreement, provided, however, that in the event that a party
shall terminate this Agreement without reasonable cause, the party so
terminating shall, upon demand, reimburse the party not so terminating for all
expenses, including reasonable out-of-pocket expenses and fees incurred in
connection with this Agreement.
17. The Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all taken together shall constitute one
Agreement. The rights and obligations of each party pursuant to the Agreement
shall not be assignable.
18. All prior or contemporaneous agreements and representations are merged
into the Agreement, which constitutes the entire contract between the parties
hereto. No amendment or modification hereof shall be of any force and effect
unless in writing and signed by the parties and no party shall be deemed to have
waived any provision herein for its benefit unless it executes a written
acknowledgment of such waiver.
19. Core Bond Fund understands that the obligations of Total Return Bond
Fund under the Agreement are not binding upon any Trustee or shareholder of
Total Return Bond Fund personally, but bind only Total Return Bond Fund and
Total Return Bond Fund's property. Core Bond Fund represents that it has notice
of the provisions of the Declaration of Trust of Total Return Bond Fund
disclaiming shareholder and trustee liability for acts or obligations of Total
Return Bond Fund.
20. Total Return Bond Fund understands that the obligations of Core Bond
Fund under the Agreement are not binding upon any trustee or shareholder of Core
Bond Fund personally, but bind only Core Bond Fund and Core Bond Fund's
property. Total Return Bond Fund represents that it has notice of the provisions
of the Declaration of Trust of Core Bond Fund disclaiming shareholder and
trustee liability for acts or obligations of Core Bond Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to be
executed and attested by its officers thereunto duly authorized on the date
first set forth above.
OPPENHEIMER TOTAL RETURN BOND FUND
By:
----------------------
Robert G. Zack
Secretary
OPPENHEIMER INTEGRITY FUNDS, on behalf of its series, OPPENHEIMER
CORE BOND FUND
By:
----------------------
Robert G. Zack
Secretary
B-1
EXHIBIT B
PRINCIPAL SHAREHOLDERS
Principal Shareholders of Total Return Bond Fund. As of [o], the only
persons who owned of record or were known by Total Return Bond Fund to own
beneficially 5% or more of any class of the outstanding shares of Total Return
Bond Fund were:
TO BE FILED BY AMENDMENT
Principal Shareholders of Core Bond Fund. As of [?], 2005, the only
persons who owned of record or were known by Core Bond Fund to own beneficially
5% or more of any class of the outstanding shares of Core Bond Fund were:
TO BE FILED BY AMENDMENT
Appendix to Combined Prospectus and Proxy Statement of Oppenheimer Core Bond Fund
Graphic material included under the heading "How have the Funds
performed?":
A bar chart will be included in the combined Prospectus and Proxy Statement,
depicting the annual total return of a hypothetical investment in Class A shares
of Core Bond Fund for each of the ten most recent calendar years, without
deducting sales charges. Set forth below are the relevant data points that will
appear on the bar chart.
- ----------------------------------------------------------- ---------------------------------------------------------
Calendar Year Ended: Oppenheimer Core Bond Fund
Annual Total Returns
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/95 16.94%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/96 4.87%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/97 10.13%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/98 5.61%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/99 -1.65%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/00 5.80%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/01 7.05%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/02 10.06%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/03 5.87%
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/04 4.90%
- ----------------------------------------------------------- ---------------------------------------------------------
A bar chart will be included in the combined Prospectus and Proxy Statement,
depicting the annual total returns of a hypothetical investment in Class A
shares of Total Return Bond Fund for each of the calendars year since the Fund's
inception, without deducting sales charges. Set forth below is the relevant data
point that will appear on the bar chart.
- ----------------------------------------------------------- ---------------------------------------------------------
Calendar Year Ended: Oppenheimer Total Return Bond Fund
Annual Total Returns
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
12/31/04 4.30%
- ----------------------------------------------------------- ---------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TO PROSPECTUS AND PROXY STATEMENT
OF
OPPENHEIMER CORE BOND FUND
PART B
Acquisition of the Assets of
OPPENHEIMER TOTAL RETURN BOND FUND
By and in exchange for Shares of
OPPENHEIMER CORE BOND FUND
This Statement of Additional Information to this Prospectus and Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer Total Return Bond Fund ("Total
Return Bond Fund") for Class A, Class B, Class C and Class N shares of
Oppenheimer Core Bond Fund ("Core Bond Fund") (the "Reorganization").
This SAI consists of this Cover Page and the following documents which
are incorporated into this SAI by reference: (i) the Statement of Additional
Information of Total Return Bond Fund dated August 26, 2005 revised November 23,
2005 which includes audited financial statements of Total Return Bond Fund for
the 12-month period ended April 30, 2005; (ii) and the Statement of Additional
Information of Core Bond Fund dated March 11, 2005, and its supplements dated
August 16, 2005 and September 30, 2005, which includes audited financial
statements of Core Bond Fund for the 12-month period ended December 31, 2004;
and (iii) unaudited financial statement of Core Bond Fund for the 6-month period
ended June 30, 2005.
This SAI is not a Prospectus; you should read this SAI in conjunction
with the combined Prospectus and Proxy Statement dated January 10, 2006,
relating to the Reorganization. You can request a copy of the Prospectus and
Proxy Statement by calling 1.800.647.1963 or by writing OppenheimerFunds
Services at P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is
January 10, 2006.
FINANCIAL STATEMENTS
Financial Statements for Core Bond Fund are incorporated by reference
to the Statement of Additional Information of Core Bond Fund dated March 11,
2005, and its supplements dated August 16, 2005 and September 30, 2005.
Financial Statements for Total Return Bond Fund are incorporated by reference to
the Statement of Additional Information of Total Return Bond Fund dated August
26, 2005 revised November 23, 2005.
Pro forma financial statements demonstrating the effect of the
Reorganization on Core Bond Fund are not necessary because the net asset value
of Total Return Bond Fund does not exceed ten percent of the net asset value of
Core Bond Fund, measured as of November 8, 2005.
PROXY CARD
OPPENHEIMER TOTAL RETURN BOND FUND
Proxy for a Special Meeting of Shareholders to be held on March 15, 2006
The undersigned, revoking prior proxies, hereby appoints Brian Wixted, Philip
Vottiero and Kathleen Ives, and each of them, as attorneys-in-fact and proxies
of the undersigned, with full power of substitution, to vote shares held in the
name of the undersigned on the record date at the Special Meeting of
Shareholders of Oppenheimer Total Return Bond Fund (the "Fund") to be held at
6803 South Tucson Way, Centennial, Colorado, 80112, on March 15, 2006, at 1:00
p.m. Mountain time, or at any adjournment thereof, upon the proposal described
in the Notice of Meeting and accompanying Prospectus and Proxy Statement, which
have been received by the undersigned.
This proxy is solicited on behalf of the Fund's Board of Trustees, and the
proposal (set forth on the reverse side of this proxy card) has been proposed by
the Board of Trustees. When properly executed, this proxy will be voted as
indicated on the reverse side or "FOR" the proposal if no choice is indicated.
The proxy will be voted in accordance with the proxy holders' best judgment as
to any other matters that may arise at the Meeting.
CONTROL NUMBER: 999 9999 9999 999
Note: Please sign this proxy exactly as your name or names appear hereon. Each
joint owner should sign. Trustees and other fiduciaries should indicate the
capacity in which they sign. If a corporation, partnership or other entity, this
signature should be that of a duly authorized individual who should state his or
her title.
Signature
Signature of joint owner, if any
Date
PLEASE VOTE ON THE REVERSE SIDE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK. Example: [ ]
1. To approve an Agreement and Plan of Reorganization between Oppenheimer
Total Return Bond Fund ("Total Return Bond Fund") and Oppenheimer Core Bond
Fund ("Core Bond Fund") and the transactions contemplated thereby,
including: (a) the transfer of substantially all the assets of Total Return
Bond Fund to Core Bond Fund in exchange for Class A, Class B, Class C and
Class N shares of Core Bond Fund, (b) the distribution of such shares of
Core Bond Fund to the Class A, Class B, Class C and Class N shareholders of
Total Return Bond Fund in complete liquidation of Total Return Bond Fund
and (c) the cancellation of the outstanding shares of Total Return Bond
Fund.
Oppenheimer Balanced Fund Oppenheimer Capital Appreciation Fund Oppenheimer
Capital Income Fund Oppenheimer Cash Reserves Oppenheimer Champion Income Fund
Oppenheimer Convertible Securities Fund Oppenheimer Core Bond Fund Oppenheimer
Developing Markets Fund Oppenheimer Discovery Fund Oppenheimer Dividend Growth
Fund Oppenheimer Emerging Growth Fund Oppenheimer Emerging Technologies Fund
Oppenheimer Enterprise Fund Oppenheimer Equity Fund, Inc. Oppenheimer Global
Fund Oppenheimer Global Opportunities Fund Oppenheimer Gold & Special
Minerals Fund Oppenheimer Growth Fund Oppenheimer High Yield Fund Oppenheimer
International Bond Fund Oppenheimer International Diversified Fund Oppenheimer
International Growth Fund Oppenheimer International Large-Cap Core Fund
Oppenheimer International Small Company Fund Oppenheimer International Value
Fund Oppenheimer Limited-Term Government Fund Oppenheimer Main Street Fund
Oppenheimer Main Street Opportunity Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer MidCap Fund Oppenheimer Portfolio Series Oppenheimer Quest Balanced
Fund Oppenheimer Quest Capital Value Fund, Inc. Oppenheimer Quest International
Value Fund, Inc. Oppenheimer Quest Opportunity Value Fund Oppenheimer Quest
Value Fund, Inc. Oppenheimer Real Asset Fund Oppenheimer Real Estate Fund
Oppenheimer Select Value Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Strategic Income Fund Oppenheimer Total Return Bond Fund Oppenheimer
U.S. Government Trust Oppenheimer Value Fund
Prospectus Supplement dated September 30, 2005
This supplement amends the Prospectus of each of the above-referenced Funds (the
"Funds") and is in addition to any existing supplements.
1. Effective October 1, 2005, for each of the Funds, the section in the
Prospectus titled "Special Sales Charge Arrangements and Waivers--Other
Special Sales Charge Arrangements and Waivers--Purchases by Certain
Retirement Plans" is amended by deleting that section in its entirety and
replacing it with the following:
Purchases by Certain Retirement Plans. There is no initial sales charge
on purchases of Class A shares of the Fund by retirement plans that
have $5 million or more in plan assets. In that case the Distributor
may pay from its own resources, at the time of sale, concessions in an
amount equal to 0.25% of the purchase price of Class A shares purchased
within the first six months of account establishment by those
retirement plans to dealers of record, subject to certain exceptions
described in "Retirement Plans" in the Statement of Additional
Information. There is also no initial sales charge on purchases of
Class A shares of the Fund by certain retirement plans that are part of
a retirement plan or platform offered by banks, broker-dealers,
financial advisors, insurance companies or recordkeepers. No contingent
deferred sales charge is charged upon the redemption of such shares.
2. Effective October 1, 2005, for each of the Funds, in the section in the
Prospectus titled "Distribution and Service Plans--Distribution and Service
Plans for Class B, Class C and Class N Shares" the paragraph that begins
"Under certain circumstances, if there is . . ." is amended by deleting
that paragraph in its entirety and replacing it with the following:
For certain group retirement plans held in omnibus accounts, the
Distributor will pay the full Class C or Class N asset-based sales
charge and the service fee to the dealer beginning in the first year
after the purchase of such shares in lieu of paying the dealer the
sales concession and the advance of the first year's service fee at the
time of purchase. Group omnibus plans may not purchase Class B shares.
September 30, 2005 PS0000.018
Oppenheimer
Core Bond Fund
Prospectus dated March 11, 2005
Oppenheimer Core Bond Fund is a mutual fund that seeks
total return. It invests primarily in investment-grade bonds
and U.S. government securities. Prior to January 21, 2005,
the Fund's name was Oppenheimer Bond Fund.
This Prospectus contains important information about
the Fund's objective, and its investment policies,
strategies and risks. It also contains important information
about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully
before you invest and keep it for future reference about
your account.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
1234
CONTENTS
ABOUT THE FUND
The Fund's Investment Objective and Principal Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class N Shares
Class Y Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Website
Retirement Plans
How to Sell Shares
By Checkwriting
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
ABOUT THE FUND
The Fund's Investment Objective and Principal Investment Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks total return by
investing mainly in debt instruments.
WHAT DOES THE FUND MAINLY INVEST IN? As a non-fundamental policy (which will not
be changed without providing 60 days notice to Fund shareholders), under normal
market conditions, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in investment grade bonds. Those
investment-grade debt securities can include:
o domestic and foreign corporate debt obligations, o domestic and foreign
government bonds, including U.S. government securities, and o mortgage-related
securities (including collateralized mortgage obligations ("CMOs")) issued by
private issuers.
In general, these debt securities are referred to as "bonds." The Fund's
investments in U.S. government securities include securities issued or
guaranteed by the U.S. government or its agencies or federally-chartered
corporate entities referred to as "instrumentalities." These include
mortgage-related U.S. government securities and CMOs. The Fund can also invest
in money market instruments and other debt obligations.
There is no set allocation of the Fund's assets among the classes of
securities the Fund buys, but the Fund focuses mainly on U.S. government
securities and investment-grade debt securities. However, if market conditions
change, the Fund's portfolio managers might change the relative allocation of
the Fund's assets. The Fund can invest up to 20% of its total assets in
high-yield debt securities that are below investment-grade (commonly referred to
as "junk bonds").
The Fund seeks to maintain an average effective portfolio duration
(discussed below) of three to six years (measured on a dollar-weighted basis) to
try to reduce the volatility of the value of its securities portfolio. The Fund
has no limitations on the range of maturities of the debt securities in which it
can invest and therefore may hold bonds with short-, medium- or long-term
maturities. Because of market events and interest rate changes, the duration of
the portfolio might not meet that target at all times. The Manager will attempt
to maintain the overall weighted average credit quality of the portfolio at a
rating of "A-" (or equivalent) or higher from any nationally recognized credit
rating organization. These investments are more fully explained in "About the
Fund's Investments," below. As stated below, the Fund can use derivatives to
seek increased returns or try to hedge investment risks.
HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund's portfolio managers analyze the
overall investment opportunities and risks in different sectors of the debt
securities markets by focusing on business cycle analysis and relative values
between the corporate and government sectors. The portfolio managers' overall
strategy is to build a broadly diversified portfolio of corporate and government
bonds. The portfolio managers currently focus on the factors below (which may
vary in particular cases and may change over time), looking for:
o Debt securities in market sectors that offer attractive relative value, o
Investment-grade securities that offer more income than U.S. treasury
obligations with a good balance of risk and return, o High income potential from
different types of corporate and government securities, and o Broad portfolio
diversification to help reduce the volatility of the Fund's share prices.
The portfolio manager monitors individual issuers for changes in the
factors above and these changes may trigger a decision to sell a security.
Generally, the "total return" sought by the Fund consists of income earned on
the Fund's investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates, improving credit fundamentals for a
particular sector or security, and managing pre-payment risks associated with
mortgage-related securities, as well as other techniques.
WHO IS THE FUND DESIGNED FOR? The Fund is designed for investors seeking total
return from a fund that invests primarily in investment-grade debt securities
but which can also hold high-yield below investment grade debt securities. Those
investors should be willing to assume the credit risks of a fund that typically
invests a significant amount of its assets in corporate-debt securities, and the
changes in share prices that can occur when interest rates change. The Fund is
intended as a long-term investment, not a short-term trading vehicle, and may be
appropriate for a part of an investor's retirement plan portfolio. The Fund is
not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in value from a number of factors described below. They include changes
in general bond market movements in the U.S. and abroad (this is referred to as
"market risk"). There is also the risk that poor security selection by the
Fund's investment Manager, OppenheimerFunds, Inc., will cause the Fund to
underperform other funds having similar objectives.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the
risk that the issuer of a debt security might not make interest and principal
payments on the security as it becomes due. A downgrade in an issuer's credit
rating or other adverse news about an issuer can reduce the value of that
issuer's securities. Securities directly issued by the U.S. Treasury and certain
agencies that are backed by the full faith and credit of the U.S. government
have little credit risk, and securities issued by other agencies of the U.S.
government generally have low credit risks. Securities issued by private issuers
have greater credit risks. If an issuer fails to pay interest, the Fund's income
may be reduced. If an issuer fails to repay principal, the value of that
security and of the Fund's share prices may be reduced. o Special Risks of
Lower-Grade Securities. Because the Fund can invest up to 20% of its total
assets in securities (including convertible securities) below investment grade,
the Fund's credit risks are greater than those of funds that buy only
investment-grade securities. Lower-grade debt securities may be subject to
greater market fluctuations and greater risks of loss of income and principal
than investment-grade debt securities. Securities that are (or that have fallen)
below investment grade are exposed to a greater risk that the issuers of those
securities might not meet their debt obligations. Those risks can reduce the
Fund's share prices and the income it earns. The market for lower-grade
securities may be less liquid, especially during times of economic distress, and
therefore they may be harder to value or to sell at an acceptable price.
INTEREST RATE RISKS. Debt securities are subject to changes in value when
prevailing interest rates change. When interest rates fall, the values of
outstanding debt securities generally rise. When interest rates rise, the values
of outstanding debt securities generally fall, and those securities may sell at
a discount from their face amount. The magnitude of these fluctuations is
generally greater for securities having longer maturities than for short-term
securities. However, interest rate changes may have different effects on the
values of mortgage-related securities because of prepayment risks, discussed
below.
At times, the Fund may buy longer-term debt securities. When the
average effective duration of the Fund's portfolio is longer, its share prices
may fluctuate more when interest rates change. The Fund can buy zero-coupon or
"stripped" securities, which are particularly sensitive to interest rate changes
and the rate of principal payments (and prepayments). These are derivative
securities that have prices that may go up or down more than other types of debt
securities in response to interest rate changes. 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 investments. Also, if interest rates fall, the Fund's
investments in new securities at lower yields will reduce the Fund's income.
PREPAYMENT RISK. Prepayment risk is the risk that the issuer of a security can
prepay the principal prior to the security's expected maturity. The prices and
yields of mortgage-related securities are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when general interest rates rise.
The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. Interest-only and
principal-only "stripped" securities can be particularly volatile when interest
rates change. If the Fund buys mortgage-related securities at a premium,
accelerated prepayments on those securities could cause the Fund to lose a
portion of its principal investment represented by the premium the Fund paid.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Fund's shares to fall more.
RISKS OF USING DERIVATIVE INVESTMENTS. The Fund can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, interest-only and principal-only securities, structured notes,
interest-rate swap agreements and certain mortgage-related securities, including
CMOs, are examples of derivatives the Fund can use.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, may not perform the
way the Manager expected it to perform. If that happens, the Fund's share prices
could fall and the Fund could get less income than expected, or its hedge might
be unsuccessful. Some derivatives may be illiquid, making it difficult to value
or to sell them at an acceptable price. The Fund has limits on the amount of
certain types of derivatives it can hold. However, using derivatives can cause
the Fund to lose money on its investments and/or increase the volatility of its
share prices.
HOW RISKY IS THE FUND OVERALL? The risks described above collectively form the
overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and the prices of its shares. Particular
investments and investment strategies also have risks. These risks mean that you
can lose money by investing in the Fund. When you redeem your shares, they may
be worth more or less than what you paid for them. The share price of the Fund
will change daily based on changes in interest rates, market prices of
securities and market conditions, and in response to other economic events.
There is no assurance that the Fund will achieve its investment objective.
Debt securities are subject to market, credit and interest rate risks
that can affect their values and the share prices of the Fund. Prepayment risks
of mortgage-backed securities can cause the Fund to reinvest proceeds of its
investments in lower-yielding securities. In the OppenheimerFunds spectrum, the
Fund generally has more risks than bond funds that focus primarily on U. S.
government securities, but the Fund's emphasis on investment-grade securities
may make its share prices less volatile than high-yield bond funds or funds that
focus on foreign bonds.
- -------------------------------------------------------------------------------------------------------------------
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- -------------------------------------------------------------------------------------------------------------------
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the last 10 calendar years and by showing how the average
annual total returns of the Fund's shares, both before and after taxes, compared
to those of broad-based market indices. The after-tax returns for the other
classes of shares will vary.
The after-tax returns are shown for Class A shares only and are
calculated using the historical highest individual federal marginal income tax
rates in effect during the periods shown, and do not reflect the impact of state
or local taxes. In certain cases, the figure representing "Return After Taxes on
Distributions and Sale of Fund Shares" may be higher than the other return
figures for the same period. A higher after-tax return results when a capital
loss occurs upon redemption and translates into an assumed tax deduction that
benefits the shareholder. The after-tax returns are calculated based on certain
assumptions mandated by regulation and your actual after-tax returns may differ
from those shown, depending on your individual tax situation. The after-tax
returns set forth below are not relevant to investors who hold their fund shares
through tax-deferred arrangements such as 401(k) plans or IRAs or to
institutional investors not subject to tax. The Fund's past investment
performance, before and after taxes, is not necessarily an indication of how the
Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing the annual total return]
Sales charges and taxes are not included in the calculations of return in this
bar chart, and if those charges and taxes were included, the returns may be less
than those shown.
During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 6.24% (2Qtr95) and the lowest return
(not annualized) before taxes for a calendar quarter was -2.33% (2Qtr04).
- --------------------------------------------- ------------------------- ------------------------ ------------------------
5 Years 10 Years
Average Annual Total Returns (or life of class, if (or life of class, if
for the periods ended December 31, 2004 1 Year less) less)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class A Shares (inception 4/15/88)
Return Before Taxes -0.08% 5.69% 6.34%
Return After Taxes on Distributions -1.54% 3.47% 3.81%
Return After Taxes on Distributions and
Sale of Fund Shares -0.07% 3.45% 3.81%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Lehman Brothers Credit Index (reflects no 5.24% 8.63% 8.41%(1)
deduction for fees, expenses or taxes)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Citigroup Broad Investment Grade Index
(reflects no deduction for fees, expenses 4.48% 7.73% 7.73%(1)
or taxes)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Lehman Brothers Aggregate Bond Index
(reflects no deduction for fees, expenses 4.34% 7.71% 7.72%(1)
or taxes)
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class B Shares (inception 5/3/93) -0.79% 5.62% 6.39%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class C Shares (inception 7/11/95) 3.12% 5.95% 5.16%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class N Shares (inception 3/1/01) 3.71% 6.01% N/A
- --------------------------------------------- ------------------------- ------------------------ ------------------------
- --------------------------------------------- ------------------------- ------------------------ ------------------------
Class Y Shares (inception 4/27/98) 5.30% 7.32% 5.89%
- --------------------------------------------- ------------------------- ------------------------ ------------------------
1 From 12/31/94.
The Fund's average annual total returns include applicable sales charges: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
contingent deferred sales charge of 5% (1-year) and 2% (5-year); and for Class C
and Class N, the 1% contingent deferred sales charge for the 1-year period.
There is no sales charge for Class Y shares. Because Class B shares convert to
Class A shares 72 months after purchase, Class B "life-of-class" performance
does not include any contingent deferred sales charge and uses Class A
performance for the period after conversion. The returns measure the performance
of a hypothetical account and assume that all dividends and capital gains
distributions have been reinvested in additional shares. The performance of the
Fund's Class A shares is compared to the Lehman Brothers Credit Index (formerly
named Lehman Brothers Corporate Bond Index), which measures the performance of
non-convertible investment-grade domestic corporate debt securities; the Lehman
Brother Aggregate Bond Index, which measure the performance to the broad-based
index of government agencies and corporate debt; and the Citigroup Broad
Investment Grade Index. The Fund changed its index from the Lehman Brothers
Credit Index to Citigroup Broad Investment Grade Index because the Fund believes
that the Citigroup Broad Investment Grade Index is a more appropriate benchmark
reflecting the types of securities in which the Fund invests. The Citigroup
Broad Investment Grade Index consists of securities having a higher grade and a
lower modified duration than the securities in the Lehman Brothers Credit Index.
The index performance includes reinvestment of income but does not reflect
transaction costs, fees, expenses or taxes. The Fund's investments vary from
those in the index.
Fees and Expenses of the Fund
The following tables are provided to help you understand the fees and expenses
you may pay if you buy and hold shares of the Fund. The Fund pays a variety of
expenses directly for management of its assets, administration, distribution of
its shares and other services. Those expenses are subtracted from the Fund's
assets to calculate the Fund's net asset values per share. All shareholders
therefore pay those expenses indirectly. Shareholders pay other transaction
expenses directly, such as sales charges. The numbers below are based on the
Fund's expenses during its fiscal year ended December 31, 2004.
- ------------------------------------------------------------------------------------------------------------------------
Shareholder Fees (charges paid directly from your investment):
- ------------------------------------------------------------------------------------------------------------------------
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
Class A Shares Class B Shares Class C Shares Class N Shares Class Y
Shares
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
Maximum Sales Charge (Load) on 4.75% None None None None
purchases (as % of offering price)
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
Maximum Deferred Sales Charge (Load)
(as % of the lower of the original None(1) 5%(2) 1%(3) 1%(4) None
offering price or redemption proceeds)
- --------------------------------------- --------------- ---------------- --------------- ---------------- --------------
- ------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- ------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Class A Class B Shares Class C Class N Class Y Shares
Shares Shares Shares
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Management Fees 0.56% 0.56% 0.56% 0.56% 0.56%
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Distribution and/or Service (12b-1) Fees 0.25% 1.00% 1.00% 0.50% None
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Other Expenses 0.29% 0.35% 0.31% 0.45% 0.08%
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Total Annual Operating Expenses 1.10% 1.91% 1.87% 1.51% 0.64%
- ---------------------------------------------- -------------- --------------- ------------- -------------- -------------
Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses that the Fund pays. The "Other
Expenses" in the table are based on, among other things, the fees the Fund would
have paid if the transfer agent had not waived a portion of its fee under a
voluntary undertaking to the Fund to limit these fees to 0.35% of average daily
net assets per fiscal year for all classes. That undertaking may be amended or
withdrawn at any time. After the waiver, the actual "Other Expenses" as
percentages of average daily net assets for Class N shares were 0.38%. Class A,
Class B, Class C and Class Y were not impacted by that waiver. Effective March
1, 2004, the Manager has voluntarily undertaken to limit the "Total Annual
Operating Expenses" for all classes of shares so that "Total Annual Operating
Expenses," as percentages of average daily net assets, will not exceed the
following annual rates: 0.90% for the Class A shares; 1.65% for the Class B and
Class C shares, respectively; 1.15% for the Class N shares and 0.65% for the
Class Y shares. The Manager may terminate this voluntary expense limitation
arrangement at any time without notice to shareholders. Because that waiver was
only in place for a part of the Fund's most recent fiscal year, after that
waiver, the actual "Total Annual Operating Expenses" for each class as a
percentage of average daily net assets were 0.93% for Class A shares, 1.69% for
Class B shares, 1.68% for Class C shares, 1.20% for the Class N shares. Class Y
shares were not impacted by that waiver.
1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more ($500,000 for certain retirement plan accounts) of
Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge gradually declines from 5% to 1% in years one through
six and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
4. Applies to shares redeemed within 18 months of a retirement plan's first
purchase of Class N shares.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund
for the time periods indicated and reinvest your dividends and
distributions.
The first example assumes that you redeem all of your shares at the end
of those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class A Shares $582 $810 $1056 $1758
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class B Shares $696 $906 $1241 $1843(1)
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class C Shares $292 $593 $1020 $2211
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class N Shares $255 $481 $830 $1815
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class Y Shares $66 $206 $358 $801
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
If shares are not redeemed: 1 Year 3 Years 5 Years 10 Years
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class A Shares $582 $810 $1056 $1758
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class B Shares $196 $606 $1041 $1843(1)
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class C Shares $192 $593 $1020 $2211
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class N Shares $155 $481 $830 $1815
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
Class Y Shares $66 $206 $358 $801
- ---------------------------------- --------------------- -------------------- ------------------- -------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B, Class C and Class N contingent deferred sales charges.
In the second example, the Class A expenses include the sales charge, but Class
B, Class C and Class N expenses do not include contingent deferred sales
charges. There is no sales charge on Class Y shares.
1. Class B expenses for years 7 through 10 are based on Class A expenses since
Class B shares automatically convert to Class A shares 72 months after purchase.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES AND RISKS. The allocation of the Fund's
portfolio among the different types of investments will vary over time based
upon the evaluation of economic and market trends. The Fund's portfolio might
not always include all of the different types of investments described below.
The Statement of Additional Information contains more detailed information about
the Fund's investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of securities of any one issuer and by not investing too great a
percentage of the Fund's assets in any one company. Also, the Fund does not
concentrate 25% or more of its investments in any one industry.
However, changes in the overall market prices of securities and any
income they may pay can occur at any time. The share price and yield of the Fund
will change daily based on changes in market prices of securities and market
conditions, and in response to other economic events.
In selecting debt securities and evaluating their yield potential and
credit risk, the Manager does not rely solely on ratings by rating organizations
but evaluates business and economic factors affecting an issuer as well. The
debt securities the Fund buys may be rated by nationally recognized rating
organizations such as Moody's Investors Service or Standard & Poor's Rating
Services, or they may be unrated securities assigned an equivalent rating by the
Manager. "Investment-grade" rated securities are those in the four highest
rating categories of national ratings organizations. A description of those
ratings definitions is included in Appendix A to the Statement of Additional
Information. U.S. Government Securities. Not all of the U.S. government
securities the Fund buys are backed by the full faith and credit of the U.S.
government as to payment of interest and repayment of principal. Some are backed
by the right of the entity to borrow from the U.S. Treasury. Others are backed
only by the credit of the instrumentality. All of these different types of
securities described below are generally referred to as "U.S. government
securities" in this Prospectus. o U.S. Treasury Obligations. These include
Treasury bills (having maturities of one year or less when issued), Treasury
notes (having maturities of more than one year and up to ten years when issued),
and Treasury bonds (having maturities of more than ten years when issued).
Treasury securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. The Fund can buy
U. S. Treasury securities that have been "stripped" of their coupons and
zero-coupon securities described below. o Obligations Issued or Guaranteed by
U.S. Government Agencies or Instrumentalities. These include direct obligations
and mortgage-related securities that have different levels of credit support
from the U.S. government. Some are supported by the full faith and credit of the
U.S. government, such as Government National Mortgage Association ("Ginnie Mae")
pass-through mortgage certificates. Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as
Fannie Mae bonds. Others are supported only by the credit of the entity that
issued them, such as Freddie Mac obligations. o Mortgage-Related U.S. Government
Securities. These include interests in pools of residential or commercial
mortgages, in the form of CMOs and other "pass-through" mortgage securities.
CMOs that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series with different
interest rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have substantial amounts of its assets invested in mortgage-related U.S.
government securities. CMOs and other types of mortgage-related securities may
be considered to be derivative investments.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected
prepayments of those mortgages to change. These prepayment risks can
make the prices of CMOs very volatile when interest rates change. That
volatility will affect the Fund's share prices.
Other Debt Securities. While the Fund invests primarily in investment-grade
debt securities, it is not required to dispose of debt securities that
fall below investment grade after the Fund buys them. However, the
portfolio managers will monitor those holdings to determine whether the
Fund should sell them. While securities rated "Baa" by Moody's or "BBB"
by S&P are considered "investment grade," they have some
speculative characteristics.
While investment-grade securities are subject to risks of non-payment
of interest and principal, in general, higher-yielding lower-grade
bonds, whether rated or unrated, have greater risks than
investment-grade securities. There may be less of a market for them and
therefore they may be harder to value and sell at an acceptable price.
These risks can reduce the Fund's share prices and the income it earns.
Asset-Backed Securities. The Fund can buy asset-backed securities, which are
fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are typically issued by trusts and
special purpose corporations that pass the income from the underlying
pool to the buyer of the interest. These securities are subject to
prepayment risks and the risk of default by the issuer as well as by
the borrowers of the underlying loans in the pool.
The Fund's Portfolio "Duration" Strategy. The "maturity" of a security (the
date when its principal repayment is due) differs from effective
duration, which attempts to measure the expected volatility of a
security's price.
The Fund measures the duration of its entire portfolio of securities on
a dollar-weighted basis, to try to maintain an average effective
duration of its portfolio of three to six years under normal market
conditions (that is, when financial markets are not in an unstable or
volatile state). However, duration cannot be relied on as an exact
prediction of future volatility. There can be no assurance that the
Fund will achieve its targeted portfolio duration at all times.
Duration calculations rely on a number of assumptions and variables
based on the historic performance of similar securities. Therefore,
duration can be affected by unexpected economic events or conditions
relating to a particular security. In the case of CMOs, duration
calculations are based on historic rates of prepayments of underlying
mortgages. If the mortgages underlying the Fund's investments are
prepaid more rapidly or more slowly than expected, the duration
calculation for that security may not be correct.
Foreign Securities. The Fund typically invests a portion of its assets in
foreign debt securities. The Fund can buy debt securities issued by
foreign governments or companies. The Fund can buy securities of
governments and companies in both developed markets and emerging
markets. Debt securities issued or guaranteed by a foreign government
or its agencies might not be backed by the "full faith and credit" of
the government.
The Fund's foreign debt investments can be denominated in U.S. dollars or
in foreign currencies. However, the Fund may not invest more than 20% of its net
assets in foreign debt securities. The Fund will buy foreign currency only in
connection with the purchase and sale of foreign securities and not for
speculation. o Risks of Foreign Investing. While foreign securities offer
special investment opportunities, there are also special risks that can reduce
the Fund's share prices and returns. The change in value of a foreign currency
against the U.S. dollar will result in a change in the U.S. dollar value of
securities denominated in that foreign currency. Currency rate changes can also
affect the distributions the Fund makes from the income it receives from foreign
securities as foreign currency values change against the U.S. dollar. Foreign
investing can result in higher transaction and operating costs for the Fund.
Foreign issuers are not subject to the same accounting and disclosure
requirements that U.S. companies are subject to.
The value of foreign investments may be affected by exchange control
regulations, currency devaluation, 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. These
risks could cause the prices of foreign securities to fall and
therefore could depress the Fund's share prices.
Additionally, if the Fund invests a significant amount of its assets in
foreign securities, it might expose the Fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in
value of foreign securities that might result from events that occur
after the close of the foreign securities market on which a foreign
security is traded and the close of The New York Stock Exchange that
day, when the Fund's net asset value is calculated. If such time-zone
arbitrage were successful, it might dilute the interests of other
shareholders. However, the Fund's use of "fair value pricing" to adjust
the closing market prices of foreign securities under certain
circumstances, to reflect what the Manager and the Board believe to be
their fair value, may help deter those activities.
Special Risks of Emerging Markets. The Fund can buy securities in emerging and
developing markets. They present risks not found in more mature
markets. Those securities may be more difficult to sell at an
acceptable price and their prices may be more volatile than securities
of issuers in more developed markets. Settlements of trades may be
subject to greater delays so that the Fund might not receive the sale
proceeds of a security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges, and less developed legal and accounting systems. Investments
may be subject to greater risks of government restrictions on
withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively
few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be substantially more volatile than
securities of issuers in the U.S. and other developed countries and may
be very speculative.
Portfolio Turnover. The Fund can engage in active and frequent trading to try to
achieve its objective, and may have a high portfolio turnover rate of
over 100% annually. Increased portfolio turnover creates higher
brokerage and transaction costs for the Fund (and may reduce
performance). However, most of the Fund's portfolio transactions are
principal trades that do not entail brokerage fees. If the Fund
realizes capital gains when it sells its portfolio investments, it must
generally pay those gains out to shareholders, increasing their taxable
distributions. The Financial Highlights table at the end of this
Prospectus shows the Fund's portfolio turnover rates during recent
fiscal years.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of Additional
Information says that it is. The Fund's policy to invest at least 80% of its net
assets (plus borrowings) in investment grade bonds is not a fundamental policy;
however, it cannot be changed without 60 days prior notice to shareholders.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Manager might not
always use all of them. These techniques have risks, although some are designed
to help reduce overall investment or market risks.
Forward Rolls. The Fund may enter into "forward rolls" (also referred to as
"mortgage dollar rolls") transactions with respect to mortgage-related
securities. In this type of transaction, the Fund sells a
mortgage-related security to a buyer and simultaneously agrees to
repurchase a similar security at a later date at a set price.
During the period between the sale and the repurchase, the Fund will
not be entitled to receive interest and principal payments on the
securities that have been sold. It is possible that the market value of
the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities, or that the counterparty
might default in its obligation.
Zero-Coupon and "Stripped" Securities. Some of the debt securities the Fund buys
are zero-coupon bonds that pay no interest. They are issued at a
substantial discount from their face value. They may be securities
issued by the U.S. government or private issuers. "Stripped" securities
are the separate income or principal components of a debt security.
Some CMOs or other mortgage-related securities may be stripped, with
each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all
the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than typical debt securities that
pay interest on a regular basis. The Fund may have to pay out the
imputed income on zero-coupon securities without receiving the cash
currently. Stripped securities are particularly sensitive to changes in
interest rates.
The values of interest-only and principal-only mortgage-related
securities are very sensitive to changes in interest rates and
prepayments of underlying mortgages. The market for these securities
may be limited, making it difficult for the Fund to value or to sell
its holdings at an acceptable price.
Preferred Stock. Unlike common stock, preferred stock typically has a stated
dividend rate. Preferred stock dividends may be cumulative (they remain
a liability of the company until they are paid) or non-cumulative. When
interest rates rise, the value of preferred stock having a fixed
dividend rate tends to fall. The right to payment of dividends on
preferred stock is generally subordinate to the rights of a
corporation's debt securities.
Private-Issuer Securities. The Fund can invest in securities issued by private
issuers that do not offer the credit backing of the U.S. government.
These include multi-class debt or pass-through certificates secured by
mortgage loans. They may be issued by banks, savings and loans,
mortgage bankers or special trusts. The Fund can buy other types of
asset-backed securities collateralized by loans or other assets or
receivables. Private-issuer mortgage-backed securities are subject to
the credit risks of the issuers (as well as the interest rate risks and
prepayment risks discussed above). There is the risk that private
issuers may not make timely payment of interest or repay principal when
due, although in some cases those payment obligations may be supported
by insurance or guarantees.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. Restricted securities
may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may
be sold publicly. The Fund will not invest more than 15% of its net
assets in illiquid or restricted securities. Certain restricted
securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
Credit Derivatives. The Fund may enter into credit default swaps, both (i)
directly and (ii) indirectly in the form of a swap embedded within a
structured note to protect against the risk that a debt security will
default. The Fund pays a fee to enter into the trade and receives a
fixed payment during the life of the swap. If there is a credit event
(for example, the security fails to timely pay interest or principal),
the Fund either delivers the defaulted bond (if the Fund has taken the
short position in the credit default swap, also known as "buying credit
protection") or pays the par amount of the defaulted bond (if the Fund
has taken the long position in the credit default swap note, also known
as "selling credit protection"). Risks of credit default swaps include
the cost of paying for credit protection if there are no credit events,
and adverse pricing when purchasing bonds to satisfy its delivery
obligation where the Fund took a short position in the swap and there
has been a credit event.
"Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments whose payments of
principal or interest payments are linked to the value of an index
(such as a currency or securities index) or commodity. The terms of the
instrument may be "structured" by the purchaser (the Fund) and the
borrower issuing the note.
The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and
interest rate risks and therefore the Fund could receive more or less
than it originally invested when the notes mature, or it might receive
less interest than the stated coupon payment if the underlying
investment or index does not perform as anticipated. Their values may
be very volatile and they may have a limited trading market, making it
difficult for the Fund to value them or to sell its investment at an
acceptable price.
Hedging. The Fund can buy and sell certain kinds of futures contracts, put and
call options, interest rate swaps and forward contracts to hedge
investment risks. The Fund is not required to use hedging instruments
to seek its objective and does not currently use them to a significant
degree.
There are special risks in particular hedging strategies. If the
Manager used a hedging instrument at the wrong time or judged market
conditions incorrectly, the strategy could reduce the Fund's return.
The Fund could also experience losses if the prices of its futures and
options positions were not correlated with its other investments or if
it could not close out a position because of an illiquid market.
Short-Term Debt Securities. The Fund can buy high-quality, short-term money
market instruments, including obligations of the U.S. Government and
its agencies, short-term corporate debt obligations, bank certificates
of deposit and bankers' acceptances, and commercial paper, which are
short-term, negotiable promissory notes of companies.
Temporary Defensive and Interim Investments. In times of adverse or unstable
market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary defensive investments that are
inconsistent with the Fund's principal investment strategies. Generally
they would be cash or cash equivalents, such as U.S. Treasury Bills,
other short-term U.S. government obligations or high-grade commercial
paper and repurchase agreements. The Fund could also hold these types
of securities pending the investment of proceeds from the sale of Fund
shares or portfolio securities or to meet anticipated redemptions of
Fund shares. To the extent the Fund invests defensively in these
securities, it might not achieve its investment objectives.
Loans of Portfolio Securities. The Fund has entered into a Securities Lending
Agreement with JP Morgan Chase. Under that agreement, portfolio
securities of the Fund may be loaned to brokers, dealers and other
financial institutions. The Securities Lending Agreement provides that
loans must be adequately collateralized and may be made only in
conformity with the Fund's Securities Lending Guidelines, adopted by
the Fund's Board of Trustees. The value of the securities loaned may
not exceed 25% of the value of the Fund's net assets.
PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The Fund
also makes disclosures of the portfolio securities holdings in Statement of
Investments under Form N-Q, filed with the SEC no later than 60 days after the
close of the first and third fiscal quarters. These additional quarterly filings
are publicly available at the SEC. Therefore, portfolio holdings of the Fund are
made publicly available no later than 60 days after the close of the Fund's
fiscal quarter.
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.
How the Fund Is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets the
fees the Fund pays to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has been an investment advisor since 1960. The Manager and
its subsidiaries and controlled affiliates managed more than $170 billion in
assets as of December 31, 2004, including other Oppenheimer funds with more than
7 million shareholder accounts. The Manager is located at Two World Financial
Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008.
Advisory Fees. Under the Investment Advisory Agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.60% of the first $200 million of average
annual net assets of the Fund, 0.57% of the next $200 million, 0.54% of
the next $200 million, 0.51% of the next $200 million, 0.45% of the
next $200 million and 0.35% of average annual net assets in excess of
$1 billion. The Fund's management fee for its last fiscal year ended
December 31, 2004 was 0.56% of average annual net assets for each class
of shares.
Portfolio Managers. The fund's portfolio is managed by a team of investment
professionals including Angelo Manioudakis, Benjamin Gord and Charles
Moon. Messrs. Manioudakis, Gord and Moon have been members of the
Fund's portfolio management team since April, 2002.
Mr. Manioudakis is a Senior Vice President of the Manager
(since April 2002), HarbourView Asset Management Corporation (since
April 2002), and of OFI Institutional Asset Management, Inc. (since
June 2002). He is also an officer and portfolio manager of other
Oppenheimer funds. Prior to joining the Manager in April 2002, Mr.
Manioudakis was an executive director and portfolio manager for Miller,
Anderson & Sherrerd, a division of Morgan Stanley Investment
Management (August 1993 to April 2002). Mr. Manioudakis is the Fund's
lead portfolio manager.
Mr. Gord is a Vice President of the Manager (since April
2002), HarbourView Asset Management Corporation (since April 2002) and
of OFI Institutional Asset Management, Inc. (since June 2002). He is
also an officer and portfolio manager of other Oppenheimer funds. Prior
to joining the Manager in April 2002, Mr. Gord was an executive
director and senior fixed income analyst at Miller, Anderson &
Sherrerd, a division of Morgan Stanley Investment Management (April
1992 to March 2002). Mr. Gord is responsible for assisting Mr.
Manioudakis in the selection of fixed income securities for the Fund.
Mr. Moon is a Vice President of the Manager (since April
2002), HarbourView Asset Management Corporation (since April 2002) and
of OFI Institutional Asset Management, Inc. (since June 2002). He is
also an officer and portfolio manager of other Oppenheimer funds. Prior
to joining the Manager in April 2002, Mr. Moon was an executive
director and portfolio manager at Miller, Anderson & Sherrerd, a
division of Morgan Stanley Investment Management (June 1999 - March
2002) and a Vice President of Citicorp Securities Inc. (June 1993 - May
1999). Mr. Moon is responsible for assisting Mr. Manioudakis in the
selection of fixed income securities for the Fund.
The Statement of Additional Information provides additional
information about the portfolio management team's compensation, other
accounts they manage and their ownership of Fund shares.
Pending Litigation. A consolidated amended complaint has been filed as putative
derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively
the "funds") including the Fund, 31 present and former Directors or
Trustees and 9 present and former officers of certain of the funds.
This complaint, initially filed in the U.S. District Court for the
Southern District of New York on January 10, 2005 and amended on March
4, 2005, consolidates into a single action and amends six individual
previously-filed putative derivative and class action complaints. Like
those prior complaints, the complaint alleges that the Manager charged
excessive fees for distribution and other costs, improperly used assets
of the funds in the form of directed brokerage commissions and 12b-1
fees to pay brokers to promote sales of the funds, and failed to
properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act
of 1940. Also, like those prior complaints, the complaint further
alleges that by permitting and/or participating in those actions, the
Directors/Trustees and the Officers breached their fiduciary duties to
Fund shareholders under the Investment Company Act and at common law.
The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting
of all fees paid, and an award of attorneys' fees and litigation
expenses.
The Manager and the Distributor believe the claims asserted in
these law suits to be without merit, and intend to defend the suits
vigorously. The Manager and the Distributor do not believe that the
pending actions are likely to have a material adverse effect on the
Fund or on their ability to perform their respective investment
advisory or distribution agreements with the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
You can buy shares several ways, as described below. The Fund's
Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing agents to
accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares. Buying Shares
Through Your Dealer. You can buy shares through any dealer, broker or financial
institution that has a sales agreement with the Distributor. Your dealer will
place your order with the Distributor on your behalf. A broker or dealer may
charge for that service. Buying Shares Through the Distributor. Complete an
OppenheimerFunds new account application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado
80217. If you don't list a dealer on the application, the Distributor will act
as your agent in buying the shares. However, we recommend that you discuss your
investment with a financial advisor before you make a purchase to be sure that
the Fund is appropriate for you. o Paying by Federal Funds Wire. Shares
purchased through the Distributor may be paid for by Federal Funds wire. The
minimum investment is $2,500. Before sending a wire, call the Distributor's Wire
Department at 1.800.225.5677 to notify the Distributor of the wire and to
receive further instructions. o Buying Shares Through OppenheimerFunds
AccountLink. With AccountLink, you pay for shares by electronic funds transfers
from your bank account. Shares are purchased for your account by a transfer of
money from your bank account through the Automated Clearing House (ACH) system.
You can provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds PhoneLink,
also described below. Please refer to "AccountLink," below for more details. o
Buying Shares Through Asset Builder Plans. You may purchase shares of the Fund
automatically each month from your account at a bank or other financial
institution under an Asset Builder Plan with AccountLink. Details are in the
Asset Builder application and the Statement of Additional Information.
WHAT IS THE MINIMUM AMOUNT YOU MUST INVEST? In most cases, you can buy Fund
shares with a minimum initial investment of $1,000 and make additional
investments at any time with as little as $50. There are reduced minimums
available under the following special investment plans:
o If you establish one of the many types of retirement plan accounts that
OppenheimerFunds offers, more fully described below under "Special
Investor Services," you can start your account with as little as $500.
o By using an Asset Builder Plan or Automatic Exchange Plan (details are
in the Statement of Additional Information), or government allotment
plan, you can make subsequent investments (after making the initial
investment of $500) for as little as $50. For any type of account
established under one of these plans prior to November 1, 2002, the
minimum additional investment will remain $25.
o The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or reinvesting distributions from
unit investment trusts that have made arrangements with the
Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order. Net Asset Value. The Fund calculates the net
asset value of each class of shares as of the close of The New York
Stock Exchange (the "Exchange"), on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day").
The Exchange normally closes at 4:00 P.M., Eastern time, but may close
earlier on some days. All references to time in this Prospectus mean
"Eastern time."
The net asset value per share for a class of shares on a "regular
business day" is determined by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding on that day. To determine net asset values, the Fund assets
are valued primarily on the basis of current market quotations. If
market quotations are not readily available or do not accurately
reflect fair value for a security (in the Manager's judgment) or if a
security's value has been materially affected by events occurring after
the close of the exchange or market on which the security is
principally traded, that security may be valued by another method that
the Board of Trustees believes accurately reflects the fair value.
Because some foreign securities trade in markets and on exchanges that
operate on weekends and U.S. holidays, the values of some of the Fund's
foreign investments may change on days when investors cannot buy or
redeem Fund shares.
The Board has adopted valuation procedures for the Fund and has
delegated the day-to-day responsibility for fair value determinations
to the Manager's Valuation Committee. Fair value determinations by the
Manager are subject to review, approval and ratification by the Board
at its next scheduled meeting after the fair valuations are determined.
In determining whether current market prices are readily available and
reliable, the Manager monitors the information it receives in the
ordinary course of its investment management responsibilities for
significant events that it believes in good faith will affect the
market prices of the securities of issuers held by the Fund. Those may
include events affecting specific issuers (for example, a halt in
trading of the securities of an issuer on an exchange during the
trading day) or events affecting securities markets (for example, a
foreign securities market closes early because of a natural disaster).
If, after the close of the principal market on which a security held by
the Fund is traded and before the time as of which the Fund's net asset
values are calculated that day, a significant event occurs that the
Manager learns of and believes in the exercise of its judgment will
cause a material change in the value of that security from the closing
price of the security on the principal market on which it is traded,
the Manager will use its best judgment to determine a fair value for
that security.
The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close
of foreign securities markets. The Manager's fair valuation procedures
therefore include a procedure whereby foreign securities prices may be
"fair valued" to take those factors into account.
The Offering Price. To receive the offering price for a particular day, the
Distributor or your financial intermediary must receive your order by
the time the Exchange closes. If your order is received on a day when
the Exchange is closed or after it has closed on a regular business
day, the order will receive the offering price that is determined on
the next regular business day.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of the Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that
day's offering price, unless your dealer has made alternative
arrangements with the Distributor. Otherwise, the order will receive
the next offering price that is determined.
- -------------------------------------------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors five
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge
(on investments up to $1 million for regular accounts or lesser amounts
for certain retirement plans). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are
listed in "How Can You Buy Class A Shares?" below.
- -------------------------------------------------------------------------------------------------------------------
Class B Shares. If you buy Class B shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within 6 years of buying them, you will
normally pay a contingent deferred sales charge. That contingent
deferred sales charge varies depending on how long you own your shares,
as described in "How Can You Buy Class B Shares?" below.
- -------------------------------------------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1.0%, as described
in "How Can You Buy Class C Shares?" below.
- -------------------------------------------------------------------------------------------------------------------
Class N Shares. If you buy Class N shares (available only through certain
retirement plans), you pay no sales charge at the time of purchase, but
you will pay an annual asset-based sales charge. If you sell your
shares within 18 months of the retirement plan's first purchase of
Class N shares, you may pay a contingent deferred sales charge of 1.0%,
as described in "How Can You Buy Class N Shares?" below.
Class Y Shares. Class Y shares are offered only to certain institutional
investors that have a special agreement with the Distributor.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares and
not a combination of shares of different classes. Of course, these examples are
based on approximations of the effects of current sales charges and expenses
projected over time, and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice. How Long Do You Expect to Hold Your
Investment? While future financial needs cannot be predicted with certainty,
knowing how long you expect to hold your investment will assist you in selecting
the appropriate class of shares. Because of the effect of class-based expenses,
your choice will also depend on how much you plan to invest. For example, the
reduced sales charges available for larger purchases of Class A shares may, over
time, offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares of
Class B, Class C or Class N. For retirement plans that qualify to purchase Class
N shares, Class N shares will generally be more advantageous than Class B and
Class C shares. o Investing for the Shorter Term. While the Fund is meant to be
a long-term investment, if you have a relatively short-term investment horizon
(that is, you plan to hold your shares for not more than six years), you should
most likely invest in Class A or Class C shares rather than Class B shares. That
is because of the effect of the Class B contingent deferred sales charge if you
redeem within six years, as well as the effect of the Class B asset-based sales
charge on the investment return for that class in the short-term. Class C shares
might be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C
shares might not be as advantageous as Class A shares. That is because
the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced
front-end sales charge available for larger purchases of Class A
shares.
If you 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 $100,000 or more of Class B shares or $1 million or
more of Class C shares from a single investor. Dealers or other
financial intermediaries purchasing shares for their customers in
omnibus accounts are responsible for compliance with those limits.
o Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to
need access to your money for seven years or more, Class B shares may
be appropriate.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B, Class C and Class N
shareholders. Other features may not be advisable (because of the
effect of the contingent deferred sales charge) for Class B, Class C
and Class N shareholders. Therefore, you should carefully review how
you plan to use your investment account before deciding which class of
shares to buy.
Additionally, the dividends payable to Class B, Class C and Class N
shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A or Class Y shares, such as the
Class B, Class C and Class N asset-based sales charge described below
and in the Statement of Additional Information. Also, checkwriting is
not available on accounts subject to a contingent deferred sales
charge.
How Do Share Classes Affect Payments to Your Broker? A financial advisor
may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B,
Class C and Class N contingent deferred sales charges and asset-based
sales charges have the same purpose as the front-end sales charge on
sales of Class A shares: to compensate the Distributor for concessions
and expenses it pays to dealers and financial institutions for selling
shares. The Distributor may pay additional compensation from its own
resources to securities dealers or financial institutions based upon
the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as a concession. The Distributor reserves the right to reallow the
entire concession to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:
------------------------------------ ------------------------ ------------------------- -------------------------
Front-End Sales Front-End Sales Concession As a
Charge As a Charge As a
Percentage of Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
Less than $50,000 4.75% 4.98% 4.00%
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$50,000 or more but less than 4.50% 4.71% 3.75%
$100,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$100,000 or more but less than 3.50% 3.63% 2.75%
$250,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$250,000 or more but less than 2.50% 2.56% 2.00%
$500,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$500,000 or more but less than $1 2.00% 2.04% 1.60%
million
------------------------------------ ------------------------ ------------------------- -------------------------
Due to rounding, the actual sales charge for a particular transaction may be
higher or lower than the rates listed above.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement
of Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that a special condition
applies. Can You Reduce Class A Sales Charges? You and your spouse may be
eligible to buy Class A shares of the Fund at reduced sales charge rates set
forth in the table above under the Fund's "Right of Accumulation" or a "Letter
of Intent." The Fund reserves the right to modify or to cease offering these
programs at any time. o Right of Accumulation. To qualify for the reduced Class
A sales charge that would apply to a larger purchase than you are currently
making (as shown in the table above), you can add the value of any Class A,
Class B or, effective March 18, 2005, Class C shares of the Fund or other
Oppenheimer funds that you or your spouse currently own, or are currently
purchasing, to the value of your Class A share purchase. Your Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on which you
have not paid a sales charge will not be counted for this purpose. In totaling
your holdings, you may count shares held in your individual accounts (including
IRAs and 403(b) plans), your joint accounts with your spouse, or accounts you or
your spouse hold as trustees or custodians on behalf of your children who are
minors. A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including employee benefit plans for the same employer) that
has multiple accounts. To qualify for this Right of Accumulation, if you are
buying shares directly from the Fund you must inform the Fund's Distributor of
your eligibility and holdings at the time of your purchase. If you are buying
shares through your financial intermediary you must notify your intermediary of
your eligibility for this Right of Accumulation at the time of your purchase.
To count shares of eligible Oppenheimer funds held in accounts at other
intermediaries under this Right of Accumulation, you may be requested to provide
the Distributor or your current intermediary (depending on the way you are
buying your shares) a copy of each account statement showing your current
holdings of the Fund or other eligible Oppenheimer funds, including statements
for accounts held by you and your spouse or in retirement plans or trust or
custodial accounts for minor children as described above. The Distributor or
intermediary through which you are buying shares will combine the value of all
your eligible Oppenheimer fund accounts based on the current offering price per
share to determine what Class A sales charge breakpoints you may qualify for on
your current purchase. o Letters of Intent. You may also qualify for reduced
Class A sales charges by submitting a Letter of Intent to the Distributor. A
Letter of Intent is a written statement of your intention to purchase a
specified value of Class A, Class B or (effective March 18, 2005) Class C shares
of the Fund or other Oppenheimer funds over a 13-month period. The total amount
of your intended purchases of Class A, Class B and (effective March 18, 2005)
Class C shares will determine the reduced sales charge rate that will apply to
your Class A share purchases of the Fund during that period. You can choose to
include purchases made up to 90 days before the date that you submit a Letter.
Your Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash
Reserves on which you have not paid a sales charge will not be counted for this
purpose. Submitting a Letter of Intent does not obligate you to purchase the
specified amount of shares. You may also be able to also apply the Right of
Accumulation to these purchases.
If you do not complete the Letter of Intent, the front-end sales charge you
paid on your purchases will be recalculated to reflect the actual value of
shares you purchased. A certain portion of your shares will be held in escrow by
the Fund's Transfer Agent for this purpose. Please refer to "How to Buy Shares -
Letters of Intent" in the Fund's Statement of Additional Information for more
complete information. Other Special Sales Charge Arrangements and Waivers. The
Fund and the Distributor offer other opportunities to purchase shares without
front-end or contingent deferred sales charges under the programs described
below. The Fund reserves the right to amend or discontinue these programs at any
time without prior notice. o Dividend Reinvestment. Dividends and/or capital
gains distributions received by a shareholder from the Fund may be reinvested in
shares of the Fund or any of the other Oppenheimer funds without a sales charge,
at the net asset value per share in effect on the payable date. You must notify
the Transfer Agent in writing to elect this option and must have an existing
account in the fund selected for reinvestment. o Exchanges of Shares. Shares of
the Fund may be exchanged for shares of certain other Oppenheimer funds at net
asset value per share at the time of exchange, without sales charge, and shares
of the Fund can be purchased by exchange of shares of certain other Oppenheimer
funds on the same basis. Please refer to "How to Exchange Shares" in this
Prospectus and in the Statement of Additional Information for more details,
including a discussion of circumstances in which sales charges may apply on
exchanges. o Reinvestment Privilege. Within six months of a redemption of
certain Class A and Class B shares, the proceeds may be reinvested in Class A
shares of the Fund without sales charge. This privilege applies to redemptions
of Class A shares that were subject to an initial sales charge or Class A or
Class B shares that were subject to a contingent deferred sales charge when
redeemed. The investor must ask the Transfer Agent for that privilege at the
time of reinvestment and must identify the account from which the redemption was
made. o Other Special Reductions and Waivers. The Fund and the Distributor offer
additional arrangements to reduce or eliminate front-end sales charges or to
waive contingent deferred sales charges for certain types of transactions and
for certain classes of investors (primarily retirement plans that purchase
shares in special programs through the Distributor). These are described in
greater detail in Appendix C to the Statement of Additional Information, which
may be ordered by calling 1.800.225.5677 or through the OppenheimerFunds
website, at www.oppenheimerfunds.com (follow the hyperlinks: "Access Accounts
and ------------------------ Services" - "Forms & Literature" - "Order
Literature" - "Statements of Additional Information"). A description of these
waivers and special sales charge arrangements is also available for viewing on
the OppenheimerFunds website (follow the hyperlinks: "Research Funds" - "Fund
Documents" - "View a description . . ."). To receive a waiver or special sales
charge rate under these programs, the purchaser must notify the Distributor (or
other financial intermediary through which shares are being purchased) at the
time of purchase, or notify the Transfer Agent at the time of redeeming shares
for those waivers that apply to contingent deferred sales charges. o Purchases
by Certain Retirement Plans. There is no initial sales charge on purchases of
Class A shares of the Fund by (1) retirement plans that have $10 million or more
in plan assets and that have entered into a special agreement with the
Distributor and by (2) retirement plans that are part of a retirement plan
product or platform offered by banks, broker-dealers, financial advisors,
insurance companies or record-keepers that have entered into a special agreement
with the Distributor for this purpose. The Distributor currently pays dealers of
record concessions in an amount equal to 0.25% of the purchase price of Class A
shares by those retirement plans from its own resources at the time of sale,
subject to certain exceptions described in "Retirement Plans" in the Statement
of Additional Information. No contingent deferred sales charge is charged upon
the redemption of such shares. Class A Contingent Deferred Sales Charge. There
is no initial sales charge on purchases of Class A shares of any one or more of
the Oppenheimer funds aggregating $1 million or more, or on purchases of Class A
shares by certain retirement plans that satisfied certain requirements prior to
March 1, 2001 ("grandfathered retirement accounts"). However, those Class A
shares may be subject to a Class A contingent deferred sales charge, as
described below. Retirement plans holding shares of Oppenheimer funds in an
omnibus account(s) for the benefit of plan participants in the name of a
fiduciary or financial intermediary (other than OppenheimerFunds-sponsored
Single DB Plus plans) are not permitted to make initial purchases of Class A
shares subject to a contingent deferred sales charge.
The Distributor pays dealers of record concessions in an amount equal
to 1.0% of purchases of $1 million or more other than purchases by
grandfathered retirement accounts. For grandfathered retirement
accounts, the concession is 0.75% of the first $2.5 million of
purchases plus 0.25% of purchases in excess of $2.5 million. In either
case, the concession will not be paid on purchases of shares by
exchange or that were previously subject to a front-end sales charge
and dealer concession.
If you redeem any of those shares within an 18-month "holding period"
measured from the beginning of the calendar month of their purchase, a
contingent deferred sales charge (called the "Class A contingent deferred sales
charge") may be deducted from the redemption proceeds. That sales charge will be
equal to 1.0% of the lesser of: o the aggregate net asset value of the redeemed
shares at the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions); or o the original net asset value of
the redeemed shares.
The Class A contingent deferred sales charge will not exceed the
aggregate amount of the concessions the Distributor paid to your dealer
on all purchases of Class A shares of all Oppenheimer funds you made
that were subject to the Class A contingent deferred sales charge.
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within six years from the beginning of the calendar month of their purchase, a
contingent deferred sales charge will be deducted from the redemption proceeds.
The Class B contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related services to the
Fund in connection with the sale of Class B shares.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule for the Class B contingent deferred sales
charge holding period:
- ----------------------------------------------------------- --------------------------------------------------------
Years Since Beginning of Month in Which Purchase Order Contingent Deferred Sales Charge on Redemptions in
was Accepted That Year (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%
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
More than 6 None
- ----------------------------------------------------------- --------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the contingent deferred
sales charge, all purchases are considered to have been made on the first
regular business day of the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion
feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and
Service Plan, described below. The conversion is based on the relative
net asset value of the two classes, and no sales load or other charge
is imposed. When any Class B shares that you hold convert, any other
Class B shares that were acquired by reinvesting dividends and
distributions on the converted shares will also convert to Class A
shares. For further information on the conversion feature and its tax
implications, see "Class B Conversion" in the Statement of Additional
Information.
HOW CAN YOU BUY CLASS C SHARES? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within a holding period of 12 months from the beginning of the calendar month of
their purchase, a contingent deferred sales charge of 1.0% will be deducted from
the redemption proceeds. The Class C contingent deferred sales charge is paid to
compensate the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
HOW CAN YOU BUY CLASS N SHARES? Class N shares are offered for sale to
retirement plans (including IRAs and 403(b) plans) that purchase $500,000 or
more of Class N shares of one or more Oppenheimer funds or to group retirement
plans (which do not include IRAs and 403(b) plans) that have assets of $500,000
or more or 100 or more eligible participants. See "Availability of Class N
shares" in the Statement of Additional Information for other circumstances where
Class N shares are available for purchase.
Class N shares are sold at net asset value without an initial sales
charge. A contingent deferred sales charge of 1.0% will be imposed upon the
redemption of Class N shares, if: o The group retirement plan is terminated or
Class N shares of all Oppenheimer funds are terminated as an
investment option of the plan and Class N shares are redeemed within 18
months after the plan's first purchase of Class N shares of any
Oppenheimer fund, or
o With respect to an IRA or 403(b) plan, Class N shares are redeemed
within 18 months of the plan's first purchase of Class N shares of any
Oppenheimer fund.
Retirement plans that offer Class N shares may impose charges on plan
participant accounts. The procedures for buying, selling, exchanging and
transferring the Fund's other classes of shares (other than the time those
orders must be received by the Distributor or Transfer Agent in Colorado) and
the special account features applicable to purchasers of those other classes of
shares described elsewhere in this Prospectus do not apply to Class N shares
offered through a group retirement plan. Instructions for buying, selling,
exchanging or transferring Class N shares offered through a group retirement
plan must be submitted by the plan, not by plan participants for whose benefit
the shares are held.
WHO CAN BUY CLASS Y SHARES? Class Y shares are sold at net asset value per share
without a sales charge directly to institutional investors that have special
agreements with the Distributor for this purpose. They may include insurance
companies, registered investment companies, employee benefit plans and Section
529 plans, among others. Individual investors cannot buy Class Y shares
directly.
An institutional investor that buys Class Y shares for its customers'
accounts may impose charges on those accounts. The procedures for buying,
selling, exchanging and transferring the Fund's other classes of shares (other
than the time those orders must be received by the Distributor or Transfer Agent
at their Colorado office) and the special account features available to
investors buying those other classes of shares do not apply to Class Y shares.
Instructions for buying, selling, exchanging or transferring Class Y shares must
be submitted by the institutional investor, not by its customers for whose
benefit the shares are held. Investments By "Funds of Funds." Class Y shares of
the Fund are offered as an investment to other Oppenheimer
funds that act as "funds of funds." The Fund's Board of Trustees has
approved making the Fund's shares available as an investment to those
funds. Those funds of funds may invest significant portions of their
assets in shares of the Fund, as described in their respective
prospectuses. Those other funds, individually and/or collectively, may
own significant amounts of the Fund's shares from time to time. Those
funds of funds typically use asset allocation strategies under which
they may increase or reduce the amount of their investment in the Fund
frequently, which may occur on a daily basis under volatile market
conditions. Depending on a number of factors, such as the flows of cash
into and from the Fund as a result of the activity of other investors
and the Fund's then-current liquidity, those purchases and redemptions
of the Fund's shares by funds of funds could require the Fund to
purchase or sell portfolio securities, increasing its transaction costs
and possibly reducing its performance, if the size of those purchases
and redemptions were significant relative to the size of the Fund. For
a further discussion of the possible effects of frequent trading in the
Fund's shares, please refer to "Are There Limitations On Exchanges?".
DISTRIBUTION AND SERVICE (12b-1) PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class
A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Class A shares of the Fund. The
Distributor currently uses all of those fees to pay dealers, brokers,
banks and other financial institutions quarterly for providing personal
service and maintenance of accounts of their customers that hold Class
A shares. With respect to Class A shares subject to a Class A
contingent deferred sales charge purchased by grandfathered retirement
accounts, the Distributor pays the 0.25% service fee to dealers in
advance for the first year after the shares are sold by the dealer. The
Distributor retains the first year's service fee paid by the Fund.
After the shares have been held by grandfathered retirement accounts
for a year, the Distributor pays the service fee to dealers on a
quarterly basis.
Distribution and Service Plans for Class B, Class C and Class N Shares. The Fund
has adopted Distribution and Service Plans for Class B, Class C and
Class N shares to pay the Distributor for its services and costs in
distributing Class B, Class C and Class N shares and servicing
accounts. Under the plans, the Fund pays the Distributor an annual
asset-based sales charge of 0.75% on Class B and Class C shares and
0.25% on Class N shares. The Distributor also receives a service fee of
0.25% per year under the Class B, Class C and Class N plans.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.0% and increase Class N expenses by 0.50% of the
net assets per year of the respective class. Because these fees are
paid out of the Fund's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B, Class C or
Class N shares. The Distributor normally pays the 0.25% service fees to
dealers in advance for the first year after the shares are sold by the
dealer. After the shares have been held for a year, the Distributor
pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a sales concession of 3.75% of the
purchase price of Class B shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class B shares is therefore 4.00% of the purchase price. The
Distributor normally retains the Class B asset-based sales charge. See
the Statement of Additional Information for exceptions.
The Distributor currently pays a sales concession of 0.75% of the
purchase price of Class C shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class C shares is therefore 1.0% of the purchase price. The Distributor
pays the asset-based sales charge as an ongoing concession to the
dealer on Class C shares that have been outstanding for a year or more.
The Distributor normally retains the asset-based sales charge on Class
C shares during the first year after the purchase of Class C shares.
See the Statement of Additional Information for exceptions.
The Distributor currently pays a sales concession of 0.75% of the
purchase price of Class N shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class N shares is therefore 1.0% of the purchase price. The Distributor
normally retains the asset-based sales charge on Class N shares. See
the Statement of Additional Information for exceptions.
Under certain circumstances, the Distributor will pay the full Class B,
Class C or Class N asset-based sales charge and the service fee to the
dealer beginning in the first year after purchase of such shares in
lieu of paying the dealer the sales concession and the advance of the
first year's service fee at the time of purchase, if there is a special
agreement between the dealer and the Distributor. In those
circumstances, the sales concession will not be paid to the dealer.
For Class C shares purchased through the OppenheimerFunds Recordkeeper
Pro program, the Distributor will pay the Class C asset-based sales
charge to the dealer of record in the first year after the purchase of
such shares in lieu of paying the dealer a sales concession at the time
of purchase. The Distributor will use the service fee it receives from
the Fund on those shares to reimburse FASCorp for providing personal
services to the Class C accounts holding those shares.
In addition, the Manager and the Distributor may make substantial
payments to dealers or other financial intermediaries and service
providers for distribution and/or shareholder servicing activities, out
of their own resources, including the profits from the advisory fees
the Manager receives from the Fund. Some of these distribution-related
payments may be made to dealers or financial intermediaries for
marketing, promotional or related expenses; these payments are often
referred to as "revenue sharing." In some circumstances, those types of
payments may create an incentive for a dealer or financial intermediary
or its representatives to recommend or offer shares of the Fund or
other Oppenheimer funds to its customers. You should ask your dealer or
financial intermediary for more details about any such payments it
receives.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the
Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.225.5677. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions and proper documentation to the Transfer
Agent. AccountLink privileges will apply to each shareholder listed in the
registration on your account as well as to your dealer representative of record
unless and until the Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own the
account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
PhoneLink number, 1.800.225.5677.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by phone,
by calling 1.800.225.5677. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below
for details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.225.5677 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEBSITE. You can obtain information about the Fund, as
well as your account balance, on the OppenheimerFunds Internet website, at
www.oppenheimerfunds.com. Additionally, shareholders listed in the account
registration (and the dealer of record) may request certain account transactions
through a special section of that website. To perform account transactions or
obtain account information online, you must first obtain a user I.D. and
password on that website. If you do not want to have Internet account
transaction capability for your account, please call the Transfer Agent at
1.800.225.5677. At times, the website may be inaccessible or its transaction
features may be unavailable.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use: Individual Retirement Accounts (IRAs). These include
regular IRAs, Roth IRAs, SIMPLE IRAs and rollover IRAs. SEP-IRAs. These are
Simplified Employee Pension Plan IRAs for small business owners or self-employed
individuals. 403(b)(7) Custodial Plans. These are tax-deferred plans for
employees of eligible tax-exempt organizations, such
as schools, hospitals and charitable organizations.
401(k) Plans. These are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by wire, by using the Fund's
checkwriting privilege, or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner or from a retirement
plan account, please call the Transfer Agent first, at 1.800.225.5677, for
assistance. Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations that
also require a signature guarantee): o You wish to redeem more than $100,000 and
receive a check. o The redemption check is not payable to all shareholders
listed on the account statement. o The redemption check is not sent to the
address of record on your account statement, o Shares are being transferred to a
Fund account with a different owner or name. o Shares are being redeemed by
someone (such as an Executor) other than the owners. Where Can You Have Your
Signature Guaranteed? The Transfer Agent will accept a guarantee of your
signature by a number of financial institutions, including: o a U.S. bank, trust
company, credit union or savings association, o a foreign bank that has a U.S.
correspondent bank, o a U.S. registered dealer or broker in securities,
municipal securities or government securities, or o a U.S. national securities
exchange, a registered securities association or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the
signature.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must
ask the plan trustee or administrator to request the sale of the Fund
shares in your plan account.
Sending Redemption Proceeds by Wire. While the Fund normally sends your money
by check, you can arrange to have the proceeds of shares you sell sent
by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system.
The minimum redemption you can have sent by wire is $2,500. There is a
$10 fee for each request. To find out how to set up this feature on
your account or to arrange a wire, call the Transfer Agent at
1.800.225.5677.
CHECKWRITING. To write checks against your Fund account, request that privilege
on your account application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.225.5677
to request checkwriting for an account in this Fund with the same registration
as the other account. o Checks can be written to the order of whomever you wish,
but may not be cashed at the bank the checks
are payable through or the Fund's custodian bank.
o Checkwriting privileges are not available for accounts holding shares
that are subject to a contingent deferred sales charge.
o Checks must be written for at least $500. Checks written below the
stated amount on the check will not be accepted. However, if you have
existing checks indicating a $100 minimum, you may still use them for
amounts of $100 or more.
o Checks cannot be paid if they are written for more than your account
value. Remember, your shares fluctuate in value and you should not
write a check close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the
prior 10 days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
HOW DO YOU SELL SHARES BY MAIL? Write a letter of instruction that includes: o
Your name, o The Fund's name, o Your Fund account number (from your account
statement), o The dollar amount or number of shares to be redeemed, o Any
special payment instructions, o Any share certificates for the shares you
are selling, o The signatures of all registered owners exactly as the
account is registered, and o Any special documents requested by the
Transfer Agent to assure proper authorization of the person
asking to sell the shares.
Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of the 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-sponsored qualified retirement plan account or under a share
certificate by telephone.
o To redeem shares through a service representative or automatically on
PhoneLink, call 1.800.225.5677.
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by telephone
in any seven-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 or by Wire. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when
you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be transferred.
If you have requested Federal Funds wire privileges for your account,
the wire of the redemption proceeds will normally be transmitted on the
next bank business day after the shares are redeemed. There is a
possibility that the wire may be delayed up to seven days to enable the
Fund to sell securities to pay the redemption proceeds. No dividends
are accrued or paid on the proceeds of shares that have been redeemed
and are awaiting transmittal by wire.
CAN YOU SELL SHARES THROUGH YOUR DEALER? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase shares
subject to a Class A, Class B, Class C or Class N contingent deferred sales
charge and redeem any of those shares during the applicable holding period for
the class of shares, the contingent deferred sales charge will be deducted from
the redemption proceeds (unless you are eligible for a waiver of that sales
charge based on the categories listed in Appendix C to the Statement of
Additional Information and you advise the Transfer Agent of your eligibility for
the waiver when you place your redemption request.)
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on: o the amount
of your account value represented by an increase in net asset value over the
initial purchase price, o shares purchased by the reinvestment of dividends or
capital gains distributions, or o shares redeemed in the special circumstances
described in Appendix C to the Statement of Additional Information.
To determine whether a contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions, 2. shares held for the holding period that applies to the
class, and 3. shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange
shares of the Fund for shares of other Oppenheimer funds. However, if you
exchange them within the applicable contingent deferred sales charge holding
period, the holding period will carry over to the fund whose shares you acquire.
Similarly, if you acquire shares of this Fund by exchanging shares of another
Oppenheimer fund that are still subject to a contingent deferred sales charge
holding period, that holding period will carry over to this Fund.
How to Exchange Shares
If you want to change all or part of your investment from one Oppenheimer fund
to another, you can exchange your shares for shares of the same class of another
Oppenheimer fund that offers the exchange privilege. For example, you can
exchange Class A shares of the Fund only for Class A shares of another fund. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence. o The prospectus of the selected fund must offer
the exchange privilege. o When you establish an account, you must hold the
shares you buy for at least seven days before you can
exchange them. After your account is open for seven days, you can
exchange shares on any regular business day, subject to the limitations
described below.
o You must meet the minimum purchase requirements for the selected fund.
o Generally, exchanges may be made only between identically registered
accounts, unless all account owners send written exchange instructions with a
signature guarantee.
o Before exchanging into a fund, you must obtain its prospectus and should
read it.
For tax purposes, an exchange of shares of the Fund is considered a
sale of those shares and a purchase of the shares of the fund to which you are
exchanging. An exchange may result in a capital gain or loss.
You can find a list of the Oppenheimer funds that are currently
available for exchanges in the Statement of Additional Information or you can
obtain a list by calling a service representative at 1.800.225.5677. The funds
available for exchange can change from time to time.
In some cases, sales charges may be imposed on exchange transactions.
In general, a contingent deferred sales charge (CDSC) is not imposed on
exchanges of shares that are subject to a CDSC. However, if you exchange shares
that are subject to a CDSC, the CDSC holding period will be carried over to the
acquired shares, and the CDSC may be imposed if those shares are redeemed before
the end of the CDSC holding period.
There are a number of other special conditions and limitations that
apply to certain types of exchanges. These conditions and circumstances are
described in detail in the "How to Exchange Shares" section in the Statement of
Additional Information.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing,
by telephone or internet, or by establishing an Automatic Exchange Plan.
Written Exchange Requests. Send an OppenheimerFunds Exchange Request form,
signed by all owners of the account, to the Transfer Agent at the
address on the back cover. Exchanges of shares for which share
certificates have been issued cannot be processed unless the Transfer
Agent receives the certificates with the request.
Telephone and Internet Exchange Requests. Telephone exchange requests may be
made either by calling a service representative or by using PhoneLink
by calling 1.800.225.5677. You may submit internet exchange requests on
the OppenheimerFunds internet website, at www.oppenheimerfunds.com. You
must have obtained a user I.D. and password to make transactions on
that website. Telephone and/or internet exchanges may be made only
between accounts that are registered with the same name(s) and address.
Shares for which share certificates have been issued may not be
exchanged by telephone or the internet.
Automatic Exchange Plan. Shareholders can authorize the Transfer Agent to
exchange a pre-determined amount of shares automatically on a monthly,
quarterly, semi-annual or annual basis.
Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
ARE THERE LIMITATIONS ON FREQUENT PURCHASES, REDEMPTIONS AND EXCHANGES?
Risks from Excessive Purchase, Redemption and Short-Term Exchange Activity. The
OppenheimerFunds exchange privilege affords investors the ability to switch
their investments among Oppenheimer funds if their investment needs change.
However, there are limits on that privilege. Frequent purchases, redemptions and
exchanges of fund shares may interfere with the Manager's ability to manage the
fund's investments efficiently, increase the fund's transaction and
administrative costs and/or affect the fund's performance, depending on various
factors, such as the size of the fund, the nature of its investments, the amount
of fund assets the portfolio manager maintains in cash or cash equivalents, the
aggregate dollar amount and the number and frequency of trades. If large dollar
amounts are involved in exchange and/or redemption transactions, the Fund might
be required to sell portfolio securities at unfavorable times to meet redemption
or exchange requests, and the Fund's brokerage or administrative expenses might
be increased.
Therefore, the Manager and the Fund's Board of Trustees have adopted the
following policies and procedures to detect and prevent frequent and/or
excessive exchanges, and/or purchase and redemption activity, while balancing
the needs of investors who seek liquidity from their investment and the ability
to exchange shares as investment needs change. There is no guarantee that the
policies and procedures described below will be sufficient to identify and deter
excessive short-term trading.
o Timing of Exchanges. Exchanged shares are normally redeemed from one fund
and the proceeds are reinvested in the fund selected for exchange on the same
regular business day on which the Transfer Agent or its agent (such as a
financial intermediary holding the investor's shares in an "omnibus" or "street
name" account) receives an exchange request that conforms to these policies. The
request must be received by the close of The New York Stock Exchange that day,
which is normally 4:00 p.m. Eastern time, but may be earlier on some days.
However, the Transfer Agent may delay the reinvestment of proceeds from an
exchange for up to five business days if it determines, in its discretion, that
an earlier transmittal of the redemption proceeds to the receiving fund would be
detrimental to either the fund from which the exchange is made or the fund to
which the exchange is made.
o Limits on Disruptive Activity. The Transfer Agent may, in its
discretion, limit or terminate trading activity by any person, group or
account that it believes would be disruptive, even if the activity has
not exceeded the policy outlined in this Prospectus. The Transfer Agent
may review and consider the history of frequent trading activity in all
accounts in the Oppenheimer funds known to be under common ownership or
control as part of the Transfer Agent's procedures to detect and deter
excessive trading activity.
o Exchanges of Client Accounts by Financial Advisers. The Fund and the
Transfer Agent permit dealers and financial intermediaries to submit exchange
requests on behalf of their customers (unless the customer has revoked that
authority). The Distributor and/or the Transfer Agent have agreements with a
number of financial intermediaries that permit them to submit exchange orders in
bulk on behalf of their clients. Those intermediaries are required to follow the
exchange policies stated in this Prospectus and to comply with additional, more
stringent restrictions. Those additional restrictions include limitations on the
funds available for exchanges, the requirement to give advance notice of
exchanges to the Transfer Agent, and limits on the amount of client assets that
may be invested in a particular fund. A fund or the Transfer Agent may limit or
refuse bulk exchange requests submitted by such financial intermediaries if, in
the Transfer Agent's judgment, exercised in its discretion, the exchanges would
be disruptive to any of the funds involved in the transaction.
o Redemptions of Shares. These exchange policy limits do not apply to
redemptions of shares. Shareholders are permitted to redeem their
shares on any regular business day, subject to the terms of this
Prospectus.
o Right to Refuse Exchange and Purchase Orders. The Distributor and/or
the Transfer Agent may refuse any purchase or exchange order in their
discretion and are not obligated to provide notice before rejecting an
order. The Fund may amend, suspend or terminate the exchange privilege
at any time. You will receive 60 days' notice of any material change in
the exchange privilege unless applicable law allows otherwise.
o Right to Terminate or Suspend Account Privileges. The Transfer Agent
may send a written warning to direct shareholders who the Transfer
Agent believes may be engaging in excessive purchases, redemptions
and/or exchange activity and reserves the right to suspend or terminate
the ability to purchase shares and/or exchange privileges for any
account that the Transfer Agent determines, in carrying out these
policies and in the exercise of its discretion, has engaged in
disruptive or excessive trading activity, with or without such warning.
o Omnibus Accounts. If you hold your shares of the Fund through a
financial intermediary such as a broker-dealer, a bank, an insurance
company separate account, an investment adviser, an administrator or
trustee of a retirement plan or 529 plan, that holds your shares in an
account under its name (these are sometimes referred to as "omnibus" or
"street name" accounts), that financial intermediary may impose its own
restrictions or limitations to discourage short-term or excessive
trading. You should consult your financial intermediary to find out
what trading restrictions, including limitations on exchanges, they may
apply.
While the Fund, the Distributor, the Manager and the Transfer Agent encourage
financial intermediaries to apply the Fund's policies to their customers who
invest indirectly in the Fund, the Transfer Agent may not be able to detect
excessive short term trading activity facilitated by, or in accounts maintained
in, the "omnibus" or "street name" accounts of a financial intermediary.
Therefore the Transfer Agent might not be able to apply this policy to accounts
such as (a) accounts held in omnibus form in the name of a broker-dealer or
other financial institution, or (b) omnibus accounts held in the name of a
retirement plan or 529 plan trustee or administrator, or (c) accounts held in
the name of an insurance company for its separate account(s), or (d) other
accounts having multiple underlying owners but registered in a manner such that
the underlying beneficial owners are not identified to the Transfer Agent.
However, the Transfer Agent will attempt to monitor overall purchase and
redemption activity in those accounts to seek to identify patterns that may
suggest excessive trading by the underlying owners. If evidence of possible
excessive trading activity is observed by the Transfer Agent, the financial
intermediary that is the registered owner will be asked to review account
activity, and to confirm to the Transfer Agent and the fund that appropriate
action has been taken to curtail any excessive trading activity. However, the
Transfer Agent's ability to monitor and deter excessive short-term trading in
omnibus or street name accounts ultimately depends on the capability and
cooperation of the financial intermediaries controlling those accounts.
Additional Policies and Procedures. The Fund's Board has adopted additional
policies and procedures to detect and prevent frequent and/or excessive
exchanges and purchase and redemption activity. Those additional policies and
procedures will take effect on June 20, 2005:
o 30-Day Limit. A direct shareholder may exchange some or all of the shares
of the Fund held in his or her account to another eligible Oppenheimer fund once
in a 30 calendar-day period. When shares are exchanged into a fund account, that
account will be "blocked" from further exchanges into another fund for a period
of 30 calendar days from the date of the exchange. The block will apply to the
full account balance and not just to the amount exchanged into the account. For
example, if a shareholder exchanged $1,000 from one fund into another fund in
which the shareholder already owned shares worth $10,000, then, following the
exchange, the full account balance ($11,000 in this example) would be blocked
from further exchanges into another fund for a period of 30 calendar days. A
"direct shareholder" is one whose account is registered on the Fund's books
showing the name, address and tax ID number of the beneficial owner.
o Exchanges Into Money Market Funds. A direct shareholder will be
permitted to exchange shares of a stock or bond fund for shares of a
money market fund at any time, even if the shareholder has exchanged
shares into the stock or bond fund during the prior 30 days. However,
all of the shares held in that money market fund would then be blocked
from further exchanges into another fund for 30 calendar days.
o Dividend Reinvestments/B Share Conversions. Reinvestment of dividends
or distributions from one fund to purchase shares of another fund and
the conversion of Class B shares into Class A shares will not be
considered exchanges for purposes of imposing the 30-day limit.
o Asset Allocation. Third-party asset allocation and rebalancing programs
will be subject to the 30-day limit described above. Asset allocation
firms that want to exchange shares held in accounts on behalf of their
customers must identify themselves to the Transfer Agent and execute an
acknowledgement and agreement to abide by these policies with respect
to their customers' accounts. "On-demand" exchanges outside the
parameters of portfolio rebalancing programs will be subject to the
30-day limit. However, investment programs by other Oppenheimer
"funds-of-funds" that entail rebalancing of investments in underlying
Oppenheimer funds will not be subject to these limits.
Automatic Exchange Plans. Accounts that receive exchange proceeds through
automatic or systematic exchange plans that are established through the
Transfer Agent will not be subject to the 30-day block as a result of
those automatic or systematic exchanges (but may be blocked from
exchanges, under the 30-day limit, if they receive proceeds from other
exchanges).
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information. A
$12 annual "Minimum Balance Fee" is assessed on each Fund account with a value
of less than $500. The fee is
automatically deducted from each applicable Fund account annually on or
about the second to last "regular business day" of September. See the
Statement of Additional Information to learn how you can avoid this fee
and for circumstances under which this fee will not be assessed.
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. The Fund
will provide you notice whenever it is required to do so by applicable
law. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer
representative of record for the account unless the Transfer Agent
receives cancellation instructions from an owner of the account.
The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm
that telephone instructions are genuine, by requiring callers to
provide tax identification numbers and other account data or by using
PINs, and by confirming such transactions in writing. The Transfer
Agent and the Fund will not be liable for losses or expenses arising
out of telephone instructions reasonably believed to be genuine.
Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.
Dealers that perform account transactions for their clients by participating in
NETWORKING through the National Securities Clearing Corporation are
responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders
of the Fund if the dealer performs any transaction erroneously or
improperly.
The redemption price for shares will vary from day to day because the value
of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for
each class of shares. The redemption value of your shares may be more
or less than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by
check, or through AccountLink or by Federal Funds wire (as elected by
the shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the
name of a broker-dealer, payment will normally be forwarded within
three business days after redemption.
The Transfer Agent may delay processing any type of redemption payment as
described under "How to Sell Shares" for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by Federal Funds wire or certified
check, or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $1,000 for reasons other than the fact that the
market value of shares has dropped. In some cases, involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack
of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from
the Fund's portfolio. If the Fund redeems your shares in kind, you may
bear transaction costs and will bear market risks until such time as
such securities are converted into cash.
Federal regulations may require the Fund to obtain your name, your date of
birth (for a natural person), your residential street address or
principal place of business and your Social Security Number, Employer
Identification Number or other government issued identification when
you open an account. Additional information may be required in certain
circumstances or to open corporate accounts. The Fund or the Transfer
Agent may use this information to attempt to verify your identity. The
Fund may not be able to establish an account if the necessary
information is not received. The Fund may also place limits on account
transactions while it is in the process of attempting to verify your
identity. Additionally, if the Fund is unable to verify your identity
after your account is established, the Fund may be required to redeem
your shares and close your account.
"Backup withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security
or Employer Identification Number when you sign your application, or if
you under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each prospectus, annual and semi-annual
report and annual notice of the Fund's privacy policy to shareholders
having the same last name and address on the Fund's records. The
consolidation of these mailings, called householding, benefits the Fund
through reduced mailing expense.
If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.225.5677. You may also notify the Transfer
Agent in writing. Individual copies of prospectuses, reports and
privacy notices will be sent to you commencing within 30 days after the
Transfer Agent receives your request to stop householding.
Dividends, Capital Gains and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for each class of
shares from net investment income each regular business day and pay those
dividends to shareholders monthly on a date selected by the Board of Trustees.
Daily dividends will not be declared or paid on newly purchased shares until
Federal Funds are available to the Fund from the purchase payment for shares.
Dividends and distributions paid to Class A and Class Y shares will generally be
higher than dividends for Class B, Class C and Class N shares, which normally
have higher expenses than Class A and Class Y shares. The Fund has no fixed
dividend rate and cannot guarantee that it will pay any dividends or
distributions.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options: Reinvest All Distributions in the Fund.
You can elect to reinvest all dividends and capital gains distributions
in additional shares of the Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your
bank through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
The Fund intends each year to qualify as a "regulated investment
company" under the Internal Revenue Code, but reserves the right not to qualify.
It qualified during its last fiscal year. The Fund, as a regulated investment
company, will not be subject to Federal income taxes on any of its income,
provided that it satisfies certain income, diversification and distribution
requirements.
Avoid "Buying a Distribution." If you buy shares on 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
capital gain.
Remember, There May be Taxes on Transactions. Because the Fund's share prices
fluctuate, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between
the price you paid for the shares and the price you received when you
sold them. Any capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If
that occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
the Fund's independent registered public accounting firm, whose report, along
with the Fund's financial statements, is included in the Statement of Additional
Information, which is available upon request.
CORE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED DECEMBER 31, 2004
2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.38 $
10.14 $ 9.74 $ 9.79 $ 9.97
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 1
..35 .54 .73 .73
Net realized and unrealized gain (loss) .12
..24 .40 (.05) (.18)
- ---------------------------------------------------------------------
Total from investment operations .50
..59 .94 .68 .55
- ------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.44)
(.35) (.54) (.73) (.73)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.44 $
10.38 $ 10.14 $ 9.74 $ 9.79
=====================================================================
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 4.90%
5.87% 10.06% 7.05% 5.80%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $344,205
$382,966 $356,480 $280,132 $202,833
- ------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $353,046
$382,420 $316,279 $237,232 $205,883
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.63%
3.39% 5.47% 7.31% 7.48%
Total expenses 1.10%
1.10% 1.10% 1.23% 1.31%
Expenses after payments and waivers and
reduction to custodian expenses 0.93% N/A
4,5 N/A 4 N/A 4 N/A 4
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 94% 6
111% 151% 162% 255%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an 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 less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$3,447,306,025 and $3,473,854,068, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CLASS B YEAR ENDED DECEMBER 31, 2004
2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.37 $
10.13 $ 9.73 $ 9.79 $ 9.96
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .30 1
..27 .47 .65 .66
Net realized and unrealized gain (loss) .13
..24 .40 (.05) (.17)
- --------------------------------------------------------------------
Total from investment operations .43
..51 .87 .60 .49
- -----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36)
(.27) (.47) (.66) (.66)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.44 $
10.37 $ 10.13 $ 9.73 $ 9.79
====================================================================
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 4.21%
5.05% 9.26% 6.14% 5.11%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $148,445
$197,774 $217,789 $161,998 $83,637
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $167,685
$216,853 $187,343 $118,521 $83,394
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.86%
2.61% 4.68% 6.60% 6.71%
Total expenses 1.91%
1.87% 1.85% 1.99% 2.07%
Expenses after payments and waivers
and reduction to custodian expenses 1.69% N/A
4,5 N/A 4 N/A 4 N/A 4
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 94% 6
111% 151% 162% 255%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an 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 less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$3,447,306,025 and $3,473,854,068, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED DECEMBER 31, 2004
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.39 $ 10.14
$ 9.74 $ 9.80 $ 9.97
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .30 1
..27 .47 .65 .66
Net realized and unrealized gain (loss) .12
..25 .40 (.05) (.17)
- --------------------------------------------------------------
Total from investment operations .42
..52 .87 .60 .49
- -------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36)
(.27) (.47) (.66) (.66)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.45 $ 10.39
$ 10.14 $ 9.74 $ 9.80
==============================================================
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 4.12%
5.18% 9.26% 6.14% 5.11%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $84,696 $90,583
$90,800 $57,049 $24,303
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $86,020 $96,361
$75,531 $36,886 $22,605
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.87%
2.64% 4.61% 6.65% 6.71%
Total expenses 1.87%
1.84% 1.83% 1.98% 2.07%
Expenses after payments and waivers and
reduction to custodian expenses 1.68% N/A
4,5 N/A 4 N/A 4 N/A 4
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 94% 6
111% 151% 162% 255%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an 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 less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$3,447,306,025 and $3,473,854,068, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CLASS N YEAR ENDED DECEMBER 31, 2004
2003 2002 2001 1
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.37 $ 10.13
$ 9.73 $10.02
- -----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 2
..31 .51 .61
Net realized and unrealized gain (loss) .13
..24 .40 (.29)
- --------------------------------------------------
Total from investment operations .48
..55 .91 .32
- -----------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.41)
(.31) (.51) (.61)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.44 $ 10.37
$ 10.13 $ 9.73
==================================================
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.71%
5.51% 9.73% 3.18%
- -----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $25,580 $17,732
$11,302 $2,176
- -----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $21,411 $15,338
$ 7,071 $ 768
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.38%
3.03% 4.76% 7.87%
Total expenses 1.51%
1.50% 1.44% 1.37%
Expenses after payments and waivers
and reduction to custodian expenses 1.20%
1.44% N/A 5 N/A 5
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 94% 6
111% 151% 162%
1. For the period from March 1, 2001 (inception of offering) to December 31,
2001.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an 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 less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares.
4. Annualized for periods of less than one full year.
5. Reduction to custodian expenses less than 0.01%.
6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$3,447,306,025 and $3,473,854,068, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS Y YEAR ENDED DECEMBER 31, 2004
2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.36 $ 10.12
$ 9.72 $ 9.78 $9.95
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .41 1
..39 .59 .76 .85
Net realized and unrealized gain (loss) .13
..24 .40 (.05) (.18)
- -------------------------------------------------------------
Total from investment operations .54
..63 .99 .71 .67
- ----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.47)
(.39) (.59) (.77) (.84)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.43 $ 10.36
$ 10.12 $ 9.72 $9.78
=============================================================
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 5.30%
6.35% 10.58% 7.30% 7.13%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $38,190 $43,215
$24,358 $4,067 $877
- ----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,333 $38,398
$10,243 $2,286 $340
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.92%
3.80% 5.53% 7.85% 7.92%
Total expenses 0.64%
0.63% 0.63% 0.94% 0.83%
Expenses after payments and waivers and
reduction to custodian expenses N/A 4 N/A
4 N/A 4 0.92% N/A 4
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 94% 5
111% 151% 162% 255%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an 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 less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$3,447,306,025 and $3,473,854,068, respectively.
INFORMATION AND SERVICES
For More Information on Oppenheimer Core Bond Fund
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy and other
information about the Fund or your account:
- ------------------------------------------- ---------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.CALL OPP (225.5677)
- ------------------------------------------- ---------------------------------------------------------------------
- ------------------------------------------- ---------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270 Denver, Colorado
80217-5270
- ------------------------------------------- ---------------------------------------------------------------------
- ------------------------------------------- ---------------------------------------------------------------------
On the Internet: You can request these documents by e-mail or through the
OppenheimerFunds website. You may also read or download certain
documents on the OppenheimerFunds website at:
www.oppenheimerfunds.com
- ------------------------------------------- ---------------------------------------------------------------------
Information about the Fund including the Statement of Additional Information can
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1.202.942.8090. Reports and other information about the Fund
are available on the EDGAR database on the SEC's Internet website at
www.sec.gov. Copies may be obtained after payment of a duplicating fee by
electronic request at the SEC's e-mail address: publicinfo@sec.gov or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's SEC File No.: 811-3420 The Fund's shares are distributed by:
PR0285.001.0305 [logo] OppenheimerFunds Distributor, Inc.
Printed on recycled paper
Appendix to Prospectus of
Oppenheimer Core Bond Fund
Graphic material included in the Prospectus of Oppenheimer Core Bond
Fund (the "Fund") under the heading "Annual Total Returns (Class A)(as of 12/31
each year)":
A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical investment in Class A shares of the
Fund for each of the last ten calendar years, without deducting sales charges.
Set forth below are the relevant data points that will appear in the bar chart:
----------------------------------- ---------------------------------
Calendar Year Ended Annual Total Returns
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/95 16.94%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/96 4.87%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/97 10.13%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/98 5.61%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/99 -1.65%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/00 5.80%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/01 7.05%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/02 10.06%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/03 5.87%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
12/31/04 4.90%
----------------------------------- ---------------------------------
Limited Term New York Municipal Fund Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited-Term Government Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund
Oppenheimer Core Bond Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Champion Income Fund Oppenheimer Portfolio Series
Oppenheimer Convertible Securities Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Developing Markets Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Disciplined Allocation Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Fund
Oppenheimer Dividend Growth Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Equity Fund, Inc. Oppenheimer Real Asset Fund
Oppenheimer Global Fund Oppenheimer Real Estate Fund
Oppenheimer Global Opportunities Fund Oppenheimer Rochester National Municipals
Oppenheimer Gold & Special Minerals Fund Oppenheimer Select Value Fund
Oppenheimer Growth Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer High Yield Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer International Bond Fund Oppenheimer Strategic Income Fund
Oppenheimer International Diversified Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Large-Cap Core Fund Oppenheimer Value Fund
Oppenheimer International Small Company Fund Rochester Fund Municipals
Oppenheimer International Value Fund
Oppenheimer Limited Term California Municipal
Fund
Supplement Dated August 16, 2005
to the Statement of Additional Information
This supplement amends the Statement of Additional Information ("SAI")
of each of the above-referenced Funds as follows and is in addition to any
existing supplements.
The following waiver is added at the end of the section titled "Waivers of
Initial and Contingent Deferred Sales Charges for Certain Purchasers" in the
Appendix to the SAI titled "OppenheimerFunds Special Sales Charge Arrangements
and Waivers."
|X| Clients of Edward D. Jones & Co., L.P. who purchase Class A shares of
the Fund between August 19, 2005 and November 16, 2005 with the proceeds of
shares redeemed from other mutual funds, as a part of the Edward Jones
"Free Switch" program, may purchase those shares at net asset value and no
concession will be paid by the Distributor on such purchases.
August 16, 2005 PX0000.017
Oppenheimer Balanced Fund Oppenheimer Capital Appreciation Fund Oppenheimer
Capital Income Fund Oppenheimer Cash Reserves Oppenheimer Champion Income Fund
Oppenheimer Convertible Securities Fund Oppenheimer Core Bond Fund Oppenheimer
Developing Markets Fund Oppenheimer Discovery Fund Oppenheimer Dividend Growth
Fund Oppenheimer Emerging Growth Fund Oppenheimer Emerging Technologies Fund
Oppenheimer Enterprise Fund Oppenheimer Equity Fund, Inc. Oppenheimer Global
Fund Oppenheimer Global Opportunities Fund Oppenheimer Gold & Special
Minerals Fund Oppenheimer Growth Fund Oppenheimer High Yield Fund Oppenheimer
International Bond Fund Oppenheimer International Diversified Fund Oppenheimer
International Growth Fund Oppenheimer International Large-Cap Core Fund
Oppenheimer International Small Company Fund Oppenheimer International Value
Fund Oppenheimer Limited-Term Government Fund Oppenheimer Main Street Fund
Oppenheimer Main Street Opportunity Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer MidCap Fund Oppenheimer Portfolio Series Oppenheimer Quest Balanced
Fund Oppenheimer Quest Capital Value Fund, Inc. Oppenheimer Quest International
Value Fund, Inc. Oppenheimer Quest Opportunity Value Fund Oppenheimer Quest
Value Fund, Inc. Oppenheimer Real Asset Fund Oppenheimer Real Estate Fund
Oppenheimer Select Value Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Strategic Income Fund Oppenheimer Total Return Bond Fund Oppenheimer
U.S. Government Trust Oppenheimer Value Fund
Supplement dated September 30, 2005
to Statement of Additional Information
This supplement amends the Statement of Additional Information (the "SAI") of
each of the Oppenheimer Funds referenced above and is in addition to any
existing supplements to a Fund's SAI.
In the section of the SAI titled "About Your Account--How to Buy Shares--Classes
of Shares--Availability of Class N Shares" to the list beginning "|X|
Availability of Class N Shares. In addition to the description of the types of
retirement plans which may purchase Class N shares . . ." the following bullet
point is added:
o to Retirement Plans with at least 100 eligible employees or $500,000 or
more in plan assets.
The Appendix to each SAI titled "OppenheimerFunds Special Sales Charge
Arrangements and Waivers" (the "Appendix") is amended as follows:
In the third paragraph of the Appendix, the first numbered item is deleted in
its entirety and replaced by the following:
1) plans created or qualified under Sections 401(a) or 401(k) of the
Internal Revenue Code,
In Section I of the Appendix, in the bullet point beginning "Purchases of Class
A shares by Retirement Plans that have any of the following record-keeping
arrangements,..." the second numbered paragraph is deleted in its entirety and
replaced by the following:
2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$5 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
In Section II of the Appendix, sub-section A titled "Waivers of Initial and
Contingent Deferred Sales Charges for Certain Purchasers" is amended by adding
the following bullet point:
|_| Effective October 1, 2005, taxable accounts established with
the proceeds of Required Minimum Distributions from
Retirement Plans.
In Section II of the Appendix, sub-section B is deleted in its entirety and
replaced by the following:
B. Waivers of the Class A Initial and Contingent Deferred Sales Charges in
Certain Transactions.
1. Class A shares issued or purchased in the following transactions are
not subject to sales charges (and no concessions are paid by the
Distributor on such purchases):
|_| Shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is
a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer
funds (other than Oppenheimer Cash Reserves) or unit
investment trusts for which reinvestment arrangements have
been made with the Distributor.
|_| Shares purchased by certain Retirement Plans that are part
of a retirement plan or platform offered by banks,
broker-dealers, financial advisors or insurance companies,
or serviced by recordkeepers.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
|_| Shares purchased in amounts of less than $5.
2. Class A shares issued and purchased in the following transactions
are not subject to sales charges (a dealer concession at the annual
rate of 0.25% is paid by the Distributor on purchases made within the
first 6 months of plan establishment):
|_| Retirement Plans that have $5 million or more in plan assets. |_| Retirement
Plans with a single plan sponsor that have $5 million or more in
aggregate assets invested in Oppenheimer funds.
In Section III of the Appendix, sub-section A titled "Waivers for Redemptions in
Certain Cases" is amended by deleting the third bullet point in its entirety and
replacing it with the following:
|_| The contingent deferred sales charges are generally not waived
following the death or disability of a grantor or trustee for a trust account.
The contingent deferred sales charges will only be waived in the limited case of
the death of the trustee of a grantor trust or revocable living trust for which
the trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must provide
evidence of a determination of disability (as defined in the Internal Revenue
Code)
September 30, 2005 PX0000.018
Oppenheimer Core Bond Fund
6803 South Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)
Statement of Additional Information dated March 11, 2005
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated March 11, 2005. It should be read together
with the Prospectus. You can obtain the Prospectus by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks..................................... 2
The Fund's Investment Policies....................................................................... 2
Other Investment Techniques and Strategies........................................................... 12
Investment Restrictions.............................................................................. 32
Disclosure of Portfolio Holdings..................................................................... 33
How the Fund is Managed .................................................................................. 37
Organization and History............................................................................. 37
Trustees and Officers................................................................................ 40
The Manager.......................................................................................... 48
Brokerage Policies of the Fund............................................................................ 53
Distribution and Service Plans............................................................................ 55
Performance of the Fund................................................................................... 60
About Your Account
How To Buy Shares......................................................................................... 66
How To Sell Shares........................................................................................ 77
How To Exchange Shares.................................................................................... 82
Dividends, Capital Gains and Taxes........................................................................ 86
Additional Information About the Fund..................................................................... 90
Financial Information About the Fund
Report of Independent Registered Public Accounting Firm................................................... 92
Financial Statements...................................................................................... 93
Appendix A: Ratings Definitions........................................................................... A-1
Appendix B: Industry Classifications...................................................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers................................................. C-1
ABOUT THE FUND
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks
of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objectives.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below in seeking its goal. It may
use some of the special investment techniques and strategies at some times or
not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. In the case of non-governmental issues, that process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer. In
the case of foreign issuers, the Manager may consider general economic
conditions, the conditions of a particular country's economy in relation to the
U.S. economy or other foreign economies, general political conditions in a
country or region, the effect of taxes, the efficiencies and costs of particular
markets (as well as their liquidity) and other factors.
|X| Debt Securities. The Fund can invest in a variety of debt securities to
seek its objective. Foreign debt securities are subject to the risks of foreign
securities described below. In general, debt securities are also subject to two
additional types of risk: credit risk and interest rate risk.
o Credit Risk. Credit risk relates to the ability of the issuer to meet interest
or principal payments or both as they become due. In general, lower-grade,
higher-yield bonds are subject to credit risk to a greater extent than
lower-yield, higher-quality bonds.
The Fund's investments primarily are investment-grade debt securities
and U.S. government securities. U.S. government securities, although unrated,
are generally considered to be equivalent to securities in the highest rating
categories. Investment-grade bonds are bonds rated at least "Baa" by Moody's
Investors Service, Inc., or at least "BBB" by Standard & Poor's Rating
Service or Fitch, Inc., or that have comparable ratings by another
nationally-recognized rating organization. The Fund can also buy
non-investment-grade debt securities (commonly referred to as "junk bonds").
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's credit-worthiness. If securities the Fund buys are
unrated, to be considered part of the Fund's holdings of investment-grade
securities, they must be judged by the Manager to be of comparable quality to
bonds rated as investment grade by a rating organization.
o Credit Derivatives. The Fund may enter into credit default swaps, both
directly ("unfunded swaps") and indirectly in the form of a swap embedded within
a structured note ("funded swaps"), to protect against the risk that a security
will default. Unfunded and funded credit default swaps may be on a single
security, or on a basket of securities. The Fund pays a fee to enter into the
swap and receives a fixed payment during the life of the swap. The Fund may take
a short position in the credit default swap (also known as "buying credit
protection"), or may take a long position in the credit default swap note (also
known as "selling credit protection").
The Fund would take a short position in a credit default swap (the
"unfunded swap") against a long portfolio position to decrease exposure to
specific high yield issuers. If the short credit default swap is against a
corporate issue, the Fund must own that corporate issue. However, if the short
credit default swap is against sovereign debt, the Fund may own either: (i) the
reference obligation, (ii) any sovereign debt of that foreign country, or (iii)
sovereign debt of any country that the Manager determines is closely correlated
as an inexact bona fide hedge.
If the Fund takes a short position in the credit default swap, and
there is a credit event (including bankruptcy, failure to timely pay interest or
principal, or a restructuring), the Fund will deliver the defaulted bonds and
the swap counterparty will pay the par amount of the bonds. An associated risk
is adverse pricing when purchasing bonds to satisfy the delivery obligation. If
the swap is on a basket of securities, the notional amount of the swap is
reduced by the par amount of the defaulted bond, and the fixed payments are then
made on the reduced notional amount.
Taking a long position in the credit default swap note (i.e.,
purchasing the "funded swap") would increase the Fund's exposure to specific
high yield corporate issuers. The goal would be to increase liquidity in that
market sector via the swap note and its associated increase in the number of
trading instruments, the number and type of market participants, and market
capitalization.
If the Fund takes a long position in the credit default swap note, and
there is a credit event, the Fund will pay the par amount of the bonds and the
swap counterparty will deliver the bonds. If the swap is on a basket of
securities, the notional amount of the swap is reduced by the par amount of the
defaulted bond, and the fixed payments are then made on the reduced notional
amount.
The Fund will invest no more than 25% of its total assets in "unfunded"
credit default swaps.
The Fund will limit its investments in "funded" credit default swap
notes to no more than 10% of its total assets.
Other risks of credit default swaps include the cost of paying for
credit protection if there are no credit events, pricing transparency when
assessing the cost of a credit default swap, counterparty risk, and the need to
fund the delivery obligation (either cash or the defaulted bonds, depending on
whether the Fund is long or short the swap, respectively).
o Interest Rate Risk. Interest rate risk refers to the fluctuations in value of
debt securities resulting from the inverse relationship between price and yield.
For example, an increase in general interest rates will tend to reduce the
market value of already-issued debt securities, and a decline in general
interest rates will tend to increase their value. In addition, debt securities
having longer maturities tend to offer higher yields, but are subject to
potentially greater fluctuations in value from changes in interest rates than
obligations having shorter maturities.
Fluctuations in the market value of debt securities after the Fund buys
them will not affect the interest income payable on those securities (unless the
security pays interest at a variable rate pegged to interest rate changes).
However, those price fluctuations will be reflected in the valuations of the
securities, and therefore the Fund's net asset values will be affected by those
fluctuations.
o Special Risks of Lower-Grade Debt Securities. The Fund can invest in
lower-grade debt securities. Because lower-grade securities tend to offer higher
yields than investment-grade securities, the Fund might invest in lower-grade
securities if the Manager is trying to achieve higher income.
"Lower-grade" debt securities are those rated below "investment grade,"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Fitch, Inc. or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
considered part of the Fund's portfolio of lower-grade securities.
Some of the special credit risks of lower-grade securities are
discussed below. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of
investment-grade securities. The issuer's low creditworthiness may increase the
potential for its insolvency. An overall decline in values in the high yield
bond market is also more likely during a period of a general economic downturn.
An economic downturn or an increase in interest rates could severely disrupt the
market for high yield bonds, adversely affecting the values of outstanding bonds
as well as the ability of issuers to pay interest or repay principal. In the
case of foreign high yield bonds, these risks are in addition to the special
risks of foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
To the extent they can be converted into stock, convertible securities
may be less subject to some of the risks of volatility than non-convertible high
yield bonds, since stock may be more liquid and less affected by some of these
risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard &
Poor's or Fitch, Inc. are investment grade and are not regarded as junk bonds,
those securities may be subject to special risks and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's,
Standard & Poor's, and Fitch, Inc. are included in Appendix A to this
Statement of Additional Information.
|X| Duration of the Fund's Portfolio. The Fund can invest in debt
securities of any maturity or duration but currently seeks to maintain a
dollar-weighted average effective portfolio duration of three to six years. The
goal is to try to manage the sensitivity of the Fund's portfolio to changes in
interest rates, and in doing so to manage the volatility of the Fund's share
prices in response to those changes. However, unanticipated events may change
the effective duration of a security after the Fund buys it, and there can be no
assurance that the Fund will achieve its targeted duration at all times.
The Manager determines the effective duration of debt obligations
purchased by the Fund considering various factors that apply to a particular
type of debt obligation, including those described below. Duration is a measure
of the expected life of a security on a current-value basis expressed in years,
using calculations that consider the security's yield, coupon interest payments,
final maturity and call features.
While a debt security's maturity can be used to measure the sensitivity
of the security's price to changes in interest rates, the term to maturity of a
security does not take into account the pattern (or expected pattern) of the
security's payments of interest or principal prior to maturity. Duration, on the
other hand, measures the length of the time interval from the present to the
time when the interest and principal payments are scheduled to be received (or,
in the case of a mortgage-related security, when the interest payments are
expected to be received). Duration calculations weigh them by the present value
of the cash to be received at each future point in time. If the interest
payments on a debt security occur prior to the repayment of principal, the
duration of the security is less than its stated maturity. For zero-coupon
securities, duration and term to maturity are equal.
Absent other factors, the lower the stated or coupon rate of interest
on a debt security or the longer the maturity or the lower the yield-to-maturity
of the debt security, the longer the duration of the security. Conversely, the
higher the stated or coupon rate of interest, the shorter the maturity or the
higher the yield-to-maturity of a debt security, the shorter the duration of the
security.
Futures, options and options on futures in general have durations that
are closely related to the duration of the securities that underlie them.
Holding long futures positions or call option positions (backed by liquid
assets) will tend to lengthen the portfolio's duration.
In some cases the standard effective duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years.
However, their exposure to interest rate changes corresponds to the frequency of
the times at which their interest coupon rate is reset. In the case of mortgage
pass-through securities, the stated final maturity of the security is typically
30 years, but current rates or prepayments are more important to determine the
security's interest rate exposure. In these and other similar situations, the
Manager will use other analytical techniques that consider the economic life of
the security as well as relevant macroeconomic factors (such as historical
prepayment rates) in determining the Fund's effective duration.
|X| Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies
or instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related
securities tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
sensitivity to interest rate changes would increase.
As with other debt securities, the values of mortgage-related
securities may be affected by changes in the market's perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and tax
policies.
o Collateralized Mortgage Obligations. Collateralized mortgage obligations
or "CMOs," are multi-class bonds that are backed by pools of mortgage loans or
mortgage pass-through certificates. They may be collateralized by: (1)
pass-through certificates issued or guaranteed by Government National Mortgage
Association (Ginnie Mae), Fannie Mae, or Freddie Mac, (2) unsecuritized mortgage
loans insured by the Federal Housing Administration or guaranteed by the
Department of Veterans' Affairs, (3) unsecuritized conventional mortgages, (4)
other mortgage-related securities, or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed by the
U.S. Treasury or other U.S. government agencies or federally-chartered corporate
entities referred to as "instrumentalities." The obligations of U.S. government
agencies or instrumentalities in which the Fund can invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States.
"Full faith and credit" means generally that the taxing power of the U.S.
government is pledged to the payment of interest and repayment of principal on a
security. If a security is not backed by the full faith and credit of the United
States, the owner of the security must look principally to the agency issuing
the obligation for repayment. The owner might not be able to assert a claim
against the United States if the issuing agency or instrumentality does not meet
its commitment.
o U.S. Treasury Obligations. These include Treasury bills (which have maturities
of one year or less when issued), Treasury notes (which have maturities of more
than one year and up to ten years when issued), and Treasury bonds (which have
maturities of more than ten years when issued). Treasury securities are backed
by the full faith and credit of the United States as to timely payments of
interest and repayments of principal. Other U.S. Treasury obligations the Fund
can buy include U. S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").
o Treasury Inflation-Protection Securities. The Fund can buy these TIPS, which
are designed to provide an investment vehicle that is not vulnerable to
inflation. The interest rate paid by TIPS is fixed. The principal value rises or
falls semi-annually based on changes in the published Consumer Price Index. If
inflation occurs, the principal and interest payments on TIPS are adjusted to
protect investors from inflationary loss. If deflation occurs, the principal and
interest payments will be adjusted downward, although the principal will not
fall below its face amount at maturity.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds. Others are supported only by the credit of the
entity that issued them, such as Federal Home Loan Mortgage Corporation
obligations.
o Mortgage-Related U.S. Government Securities. These include interests in pools
of residential or commercial mortgages, in the form of collateralized mortgage
obligations and other "pass-through" mortgage securities. CMOs that are U.S.
government securities have collateral to secure payment of interest and
principal. They may be issued in different series with different interest rates
and maturities. The collateral is either in the form of mortgage pass-through
certificates issued or guaranteed by a U.S. agency or instrumentality or
mortgage loans insured by a U.S. government agency. The Fund can have
significant amounts of its assets invested in mortgage-related U.S. government
securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO will be reduced.
Additionally, the Fund may have to reinvest the prepayment proceeds in other
securities paying interest at lower rates, which could reduce the Fund's yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These are the prepayment risks
described above and can make the prices of CMOs very volatile when interest
rates change. The prices of longer-term debt securities tend to fluctuate more
than those of shorter-term debt securities. That volatility will affect the
Fund's share prices.
o Commercial (Privately-Issued) Mortgage Related Securities. The Fund can invest
in commercial mortgage-related securities issued by private entities. Generally
these are multi-class debt or pass-through certificates secured by mortgage
loans on commercial properties. They are subject to the credit risk of the
issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
|X| Asset-Backed Securities. Asset-backed securities are fractional interests in
pools of assets, typically accounts receivable or consumer loans. They are
issued by trusts or special-purpose corporations. These securities are subject
to prepayment risks and the risk of default by the issuer as well as by the
borrowers of the underlying loans in the pool. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
interest or repayments of principal are not made, the Fund could suffer losses
on its investment or delays in receiving payment.
The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans by
the individual borrowers. As a purchaser of an asset-backed security, the Fund
would generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to prepayments,
which may shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as in the case of mortgage-backed
securities and CMOs, described above.
|X| Participation Interests. The Fund can invest in participation interests,
subject to the Fund's limitation on investments in illiquid investments. A
participation interest is an undivided interest in a loan made by the issuing
financial institution in the proportion that the buyer's participation interest
bears to the total principal amount of the loan. Not more than 5% of the Fund's
net assets can be invested in participation interests of the same borrower. The
issuing financial institution may have no obligation to the Fund other than to
pay the Fund the proportionate amount of the principal and interest payments it
receives.
Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan. There is a risk that a borrower
may have difficulty making payments. If a borrower fails to pay scheduled
interest or principal payments, the Fund could experience a reduction in its
income. The value of that participation interest might also decline, which could
affect the net asset value of the Fund's shares. If the issuing financial
institution fails to perform its obligations under the participation agreement,
the Fund might incur costs and delays in realizing payment and suffer a loss of
principal and/or interest.
|X| Foreign Securities. "Foreign securities" include equity and debt securities
issued or guaranteed by companies organized under the laws of countries other
than the United States and debt securities issued or guaranteed by governments
other than the U.S. government or by foreign supra-national entities, such as
the World Bank. Those securities may be traded on foreign securities exchanges
or in the foreign over-the-counter markets. Securities denominated in foreign
currencies issued by U.S. companies are also considered to be "foreign
securities." The Fund expects to have investments in foreign securities as part
of its normal investment strategy.
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.
American Depository Receipts ("ADR") facilities may be either
"sponsored" or "un-sponsored." While sponsored and un-sponsored ADR facilities
are similar, distinctions exist between the rights and duties of ADR holders and
market practices. Sponsored facilities have the backing or participation of the
underlying foreign issuers. Un-sponsored facilities do not have the
participation by or consent of the issuer of the deposited shares. Un-sponsored
facilities usually request a letter of non-objection from the issuer. Holders of
un-sponsored ADRs generally bear all the costs of such facility. The costs of
the facility can include deposit and withdrawal fees, currency conversion and
other service fees. The depository of an un-sponsored facility may not have a
duty to distribute shareholder communications from the issuer or to pass through
voting rights. Issuers of un-sponsored ADRs do not have an obligation to
disclose material information about the foreign issuers in the U.S. As a result,
the value of the un-sponsored ADR may not correlate with the value of the
underlying security trading abroad or any material information about the
security or the issuer disseminated abroad. Sponsored facilities enter into an
agreement with the issuer that sets out rights and duties of the issuer, the
depository and the ADR holder. The sponsored agreement also allocates fees among
the parties. Most sponsored agreements provide that the depository will
distribute shareholder notices, voting instructions and other communications.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer income 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 securities markets that do not move in a manner parallel to
U.S. markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
o Foreign Debt Obligations. The debt obligations of a foreign government and its
agencies and instrumentalities may or may not be supported by the full faith and
credit of the foreign government. The Fund can buy securities issued by certain
"supra-national" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. Examples are the
International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero-coupon obligations that have the same maturity as
the Brady Bonds. Brady Bonds can be viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity.
Those uncollateralized amounts constitute what is called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
o Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities. Some of these additional risks are: o reduction of income by foreign
taxes; o fluctuation in value of foreign investments due to changes in currency
rates or currency devaluation, or currency control regulations (for example,
currency blockage); o transaction charges for currency exchange; o lack of
public information about foreign issuers; o lack of uniform accounting, auditing
and financial reporting standards in foreign countries comparable to those
applicable to domestic issuers; o less volume on foreign exchanges than on U.S.
exchanges; o greater volatility and less liquidity on foreign markets than in
the U.S.; o less governmental regulation of foreign issuers, securities
exchanges and brokers than in the U.S.; o greater difficulties in commencing
lawsuits; o higher brokerage commission rates than in the U.S.; o increased
risks of delays in settlement of portfolio transactions or loss of certificates
for portfolio securities; o possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and o unfavorable differences between the U.S. economy
and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
o Special Risks of Emerging Markets. Emerging and developing markets abroad may
also offer special opportunities for investing but have greater risks than more
developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. There may be even less liquidity in their securities markets,
and settlements of purchases and sales of securities may be subject to
additional delays. They are subject to greater risks of limitations on the
repatriation of income and profits because of currency restrictions imposed by
local governments. Those countries may also be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. The Manager will consider these factors
when evaluating securities in these markets, and the Fund currently does not
expect to invest a substantial portion of its assets in emerging markets.
o Passive Foreign Investment Companies. Some securities of corporations
domiciled outside the U.S. which the Fund may purchase, may be considered
passive foreign investment companies ("PFICs") under U.S. tax laws. PFICs are
those foreign corporations which generate primarily passive income. They tend to
be growth companies or "start-up" companies. For federal tax purposes, a
corporation is deemed a PFIC if 75% or more of the foreign corporation's gross
income for the income year is passive income or if 50% or more of average
percent of its assets (as defined by IRC ss.1297(e)) held during the taxable
year are assets that produce or are held to produce passive income. Passive
income is further defined as any income to be considered foreign personal
holding company income within the subpart F provisions defined by IRC ss.954.
Investing in PFICs involves the risks associated with investing in
foreign securities, as described above. There are also the risks that the Fund
may not realize that a foreign corporation it invests in is a PFIC for federal
tax purposes. Federal tax laws impose severe tax penalties for failure to
properly report investment income from PFICs. Following industry standards, the
Fund makes every effort to ensure compliance with federal tax reporting of these
investments. PFICs are considered foreign securities for the purposes of the
Fund's minimum percentage requirements or limitations of investing in foreign
securities.
Subject to the limits under the Investment Company Act, the Fund may
also invest in foreign mutual funds which are also deemed PFICs (since nearly
all of the income of a mutual fund is generally passive income). Investing in
these types of PFICs may allow exposure to various countries because some
foreign countries limit, or prohibit, all direct foreign investment in the
securities of companies domiciled therein.
In addition to bearing their proportionate share of a fund's expenses
(management fees and operating expenses), shareholders will also indirectly bear
similar expenses of such entities. Additional risks of investing in other
investment companies are described below under "Investment in Other Investment
Companies."
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Zero-Coupon Securities. The Fund can buy zero-coupon and delayed-interest
securities, and "stripped" securities. Stripped securities are debt securities
whose interest coupons are separated from the security and sold separately. The
Fund can buy different types of zero-coupon or stripped securities, including,
among others, foreign debt securities and U.S. Treasury notes or bonds that have
been stripped of their interest coupons, U.S. Treasury bills issued without
interest coupons, and certificates representing interests in stripped
securities.
Zero-coupon securities do not make periodic interest payments and are
sold at a deep discount from their face value. The buyer recognizes a rate of
return determined by the gradual appreciation of the security, which is redeemed
at face value on a specified maturity date. This discount depends on the time
remaining until maturity, as well as prevailing interest rates, the liquidity of
the security and the credit quality of the issuer. In the absence of threats to
the issuer's credit quality, the discount typically decreases as the maturity
date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to
a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities. Their value may
fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| "Stripped" Mortgage-Related Securities. The Fund can invest in stripped
mortgage-related securities that are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities. Each has a specified percentage of the underlying security's
principal or interest payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one type
of security, known as an "interest-only" security, or "I/O," and all of the
principal is distributed to holders of another type of security, known as a
"principal-only" security or "P/O." Strips can be created for pass through
certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially. The market for some of these securities may be limited, making it
difficult for the Fund to dispose of its holding at an acceptable price.
|X| Floating Rate and Variable Rate Obligations. Variable rate obligations may
have a demand feature that allows the Fund to tender the obligation to the
issuer or a third party prior to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals. Generally, the changes in the
interest rate on such securities reduce the fluctuation in their market value.
As interest rates decrease or increase, the potential for capital appreciation
or depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate obligation meets the Fund's quality standards by reason of being backed by
a letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified intervals
not exceeding one year and upon no more than 30 days' notice. The issuer of that
type of note normally has a corresponding right in its discretion, after a given
period, to prepay the outstanding principal amount of the note plus accrued
interest. Generally the issuer must provide a specified number of days' notice
to the holder.
Step-coupon bonds have a coupon interest rate that changes periodically
during the life of the security on predetermined dates that are set when the
security is issued.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest in
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. The securities are
subject to change in value from market fluctuations during the period until
settlement. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by
the Manager before settlement will affect the value of such securities and may
cause a loss to the Fund. During the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund
from the investment until it receives the security at settlement. There is a
risk of loss to the Fund if the value of the security changes prior to the
settlement date, and there is the risk that the other party may not perform.
The Fund may engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time the
obligation is entered into. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity to
obtain the security at a price and yield the Manager considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies or for delivery pursuant to options
contracts it has entered into, and not for the purpose of investment leverage.
Although the Fund will enter into delayed-delivery or when-issued purchase
transactions to acquire securities, it may dispose of a commitment prior to
settlement. If the Fund chooses to dispose of the right to acquire a when-issued
security prior to its acquisition or to dispose of its right to delivery or
receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or delayed-delivery basis, it records the transaction
on its books and reflects the value of the security purchased in determining the
Fund's net asset value. In a sale transaction, it records the proceeds to be
received. The Fund will identify on its books liquid assets at least equal in
value to the value of the Fund's purchase commitments until the Fund pays for
the investment.
When-issued and delayed-delivery transactions can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase
agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Manager from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 15% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less for defensive purposes.
Repurchase agreements, considered "loans" under the Investment Company
Act of 1940 (the "Investment Company Act"), are collateralized by the underlying
security. The Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal or
exceed the repurchase price to fully collateralize the repayment obligation.
However, if the vendor fails to pay the resale price on the delivery date, the
Fund may incur costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. The Manager will monitor the
vendor's creditworthiness to confirm that the vendor is financially sound and
will continuously monitor the collateral's value.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Fund, along with other affiliated entities managed
by the Manager, may transfer uninvested cash balances into one or more joint
repurchase accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities that are pledged
as collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each joint repurchase arrangement requires that the market
value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default by the other party to the agreement,
retention or sale of the collateral may be subject to legal proceedings.
Investment in Other Investment Companies. The Fund can also invest in the
securities of other investment companies, which can include open-end funds,
closed-end funds and unit investment trusts, subject to the limits set forth in
the Investment Company Act that apply to those types of investments. For
example, the Fund can invest in Exchange-Traded Funds, which are typically
open-end funds or unit investment trusts, listed on a stock exchange. The Fund
might do so as a way of gaining exposure to the segments of the equity or
fixed-income markets represented by the Exchange-Traded Funds' portfolio, at
times when the Fund may not be able to buy those portfolio securities directly.
Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company's portfolio
securities and is subject to limitations under the Investment Company Act. The
Fund does not intend to invest in other investment companies unless the Manager
believes that the potential benefits of the investment justify the payment of
any premiums or sales charges. As a shareholder of an investment company, the
Fund would be subject to its ratable share of that investment company's
expenses, including its advisory and administration expenses. The Fund does not
anticipate investing a substantial amount of its net assets in shares of other
investment companies.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions may make it more difficult to value them, and might
limit the Fund's ability to dispose of the securities and might lower the amount
the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
|X| Forward Rolls. The Fund can enter into "forward roll" transactions with
respect to mortgage-related securities (also referred to as "mortgage dollar
rolls"). In this type of transaction, the Fund sells a mortgage-related security
to a buyer and simultaneously agrees to repurchase a similar security (the same
type of security, and having the same coupon and maturity) at a later date at a
set price. The securities that are repurchased will have the same interest rate
as the securities that are sold, but typically will be collateralized by
different pools of mortgages (with different prepayment histories) than the
securities that have been sold. Proceeds from the sale are invested in
short-term instruments, such as repurchase agreements. The income from those
investments, plus the fees from the forward roll transaction, are expected to
generate income to the Fund in excess of the yield on the securities that have
been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books liquid assets
in an amount equal to the payment obligation under the roll.
These transactions have risks. During the period between the sale and
the repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities.
|X| Investments in Equity Securities. Under normal market conditions the Fund
can invest a portion of assets in common stocks, preferred stocks, warrants
(which might be acquired as part of a "unit" of securities that includes debt
securities) and convertible debt securities, which in some cases are considered
"equity equivalents." However, it does not currently anticipate investing
significant amounts of its assets in equity securities as part of its normal
investment strategy. Certain equity securities may be selected because they may
provide dividend income.
o Risks of Investing in Stocks. Stocks fluctuate in price, and their short-term
volatility at times may be great. To the extent that the Fund invests in equity
securities, the value of the Fund's portfolio will be affected by changes in the
stock markets. Market risk can affect the Fund's net asset value per share,
which will fluctuate as the values of the Fund's portfolio securities change.
The prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer or
its industry.
The Fund can invest in securities of large companies and mid-size
companies, but may also buy stocks of small companies, which may have more
volatile stock prices than large companies.
o Convertible Securities. While some convertible securities are a form of debt
security, in certain cases their conversion feature (allowing conversion into
equity securities) causes them to be regarded by the Manager more as "equity
equivalents." As a result, the rating assigned to the security might have less
impact on the Manager's investment decision with respect to convertible
securities than in the case of non-convertible fixed-income securities.
Convertible debt securities are subject to the credit risks and interest rate
risks described above in "Debt Securities."
The value of a convertible security is a function of its
"investment value" and its "conversion value." If the investment value exceeds
the conversion value, the security will behave more like a debt security and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security. In that case, it will likely
sell at a premium over its conversion value and its price will tend to fluctuate
directly with the price of the underlying security.
To determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors:
(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its earnings per
share of common stock on a fully diluted basis (considering the
effect of conversion of the convertible securities), and
(3) the extent to which the convertible security may be a
defensive "equity substitute," providing the ability to
participate in any appreciation in the price of the issuer's
common stock.
|X| Rights and Warrants. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
|X| Preferred Stocks. Preferred stock, unlike common stock, has a stated
dividend rate payable from the corporation's earnings. Preferred stock dividends
may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before dividends can be paid on the issuer's common stock.
Preferred stock may be "participating" stock, which means that it may be
entitled to a dividend exceeding the stated dividend in certain cases.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as provisions allowing
calls or redemptions prior to maturity, which also have a negative impact on
prices when interest rates decline. The rights of preferred stock on
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation.
|X| Loans of Portfolio Securities. The Fund may lend its portfolio securities to
brokers, dealers and financial institutions pursuant to the Securities Lending
Agreement (the "Securities Lending Agreement") with JP Morgan Chase, subject to
the restrictions stated in the Prospectus. The Fund would lend such portfolio
securities to attempt to increase the Fund's income. Under the Securities
Lending Agreement and applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, be at least equal to
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), 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 to JP Morgan Chase, as agent, amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms of the letter of credit and the
issuing bank must be satisfactory to JP Morgan Chase and the Fund. The Fund will
receive, pursuant to the Securities Lending Agreement, 80% of all annual net
income (i.e., net of rebates to the Borrower) from securities lending
transactions. JP Morgan Chase has agreed, in general, to guarantee the
obligations of borrowers to return loaned securities and to be responsible for
expenses relating to securities lending. The Fund will be responsible, however,
for risks associated with the investment of cash collateral, including the risk
that the issuer of the security in which the cash collateral has been invested
defaults. The Securities Lending Agreement may be terminated by either JP Morgan
Chase or the Fund on 30 days' written notice. The terms of the Fund's loans must
also meet applicable tests under the Internal Revenue Code and permit the Fund
to reacquire loaned securities on five business days' notice or in time to vote
on any important matter. The Fund may lend securities in amounts up to 25% of
the value of the Fund's net assets.
|X| Money Market Instruments. The following is a brief description of the types
of the U.S. dollar denominated money market securities the Fund can invest in.
Money market securities are high-quality, short-term debt instruments that may
be issued by the U.S. government, corporations, banks or other entities. They
may have fixed, variable or floating interest rates.
o U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
described above.
o Bank Obligations. The Fund can buy time deposits, certificates of deposit
and bankers' acceptances. They must be: o obligations issued or guaranteed by a
domestic bank (including a foreign branch of a domestic bank) having total
assets of at least U.S. $1 billion, or o obligations of a foreign bank with
total assets of at least U.S. $1 billion.
|X| "Banks" include commercial banks, savings banks and savings and loan
associations, which may or may not be members of the Federal Deposit Insurance
Corporation.
o Commercial Paper. The Fund can invest in commercial paper if it is rated
within the top three rating categories of Standard & Poor's and Moody's or
other rating organizations.
If the paper is not rated, it may be purchased if the Manager
determines that it is comparable to rated commercial paper in the top three
rating categories of national rating organizations.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
o Variable Amount Master Demand Notes. Master demand notes are corporate
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest under direct arrangements between the Fund, as lender,
and the borrower. They permit daily changes in the amounts borrowed. The Fund
has the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount. The borrower
may prepay up to the full amount of the note without penalty. These notes may or
may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender
and borrower, it is not expected that there will be a trading market for them.
There is no secondary market for these notes, although they are redeemable (and
thus are immediately repayable by the borrower) at principal amount, plus
accrued interest, at any time. Accordingly, the Fund's right to redeem such
notes is dependent upon the ability of the borrower to pay principal and
interest on demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
Currently, the Fund does not intend that its investments in variable amount
master demand notes will exceed 5% of its total assets.
|X| Derivatives. The Fund can invest in a variety of derivative investments to
seek income or for hedging purposes. Some derivative investments the Fund can
use are the hedging instruments described below in this Statement of Additional
Information.
Among the derivative investments the Fund can invest in are
"index-linked" or "currency-linked" notes. Principal and/or interest payments on
index-linked notes depend on the performance of an underlying index.
Currency-indexed securities are typically short-term or intermediate-term debt
securities. Their value at maturity or the rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more foreign
currencies or an index. In some cases, these securities may pay an amount at
maturity based on a multiple of the amount of the relative currency movements.
This type of index security offers the potential for increased income or
principal payments but at a greater risk of loss than a typical debt security of
the same maturity and credit quality.
Other derivative investments the Fund can use include "debt
exchangeable for common stock" of an issuer or "equity-linked debt securities"
of an issuer. At maturity, the debt security is exchanged for common stock of
the issuer or it is payable in an amount based on the price of the issuer's
common stock at the time of maturity. Both alternatives present a risk that the
amount payable at maturity will be less than the principal amount of the debt
because the price of the issuer's common stock might not be as high as the
Manager expected.
|X| Hedging. The Fund can use hedging instruments although it is not obligated
to use them in seeking its objective. To attempt to protect against declines in
the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons, the Fund could:
o sell futures contracts,
o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls may
also be used to increase the Fund's income, but the Manager does
not expect to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In that
case, the Fund would normally seek to purchase the securities and then terminate
that hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to (1)
broadly-based bond or other security indices (these are referred to as
"financial futures"), (2) commodities (these are referred to as "commodity
futures"), (3) debt securities (these are referred to as "interest rate
futures"), (4) foreign currencies (these are referred to as "forward
contracts"), (5) an individual stock ("single stock futures") and (6) bond
indices (these are referred to as "bond index futures").
A broadly-based stock index is used as the basis for trading stock
index futures. In some cases, these futures may be based on stocks of issuers in
a particular industry or group of industries. A stock index assigns relative
values to the securities included in the index and its value fluctuates in
response to the changes in value of the underlying securities. A stock index
cannot be purchased or sold directly. Bond index futures are similar contracts
based on the future value of the basket of securities that comprise the index.
These contracts obligate the seller to deliver, and the purchaser to take, cash
to settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and
the purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting contract
to close out the position. Similarly, a single stock future obligates the seller
to deliver (and the purchaser to take) cash or a specified equity security to
settle the futures transaction. Either party could also enter into an offsetting
contract to close out the position. Single stock futures trade on a very limited
number of exchanges, with contracts typically not fungible among the exchanges.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No payment is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to
close out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o Put and Call Options. The Fund can buy and sell certain kinds of put options
("puts") and call options ("calls"). The Fund can buy and sell exchange-traded
and over-the-counter put and call options, including index options, securities
options, currency options, commodities options, and options on the other types
of futures described above.
o Writing Covered Call Options. The Fund can write (that is, sell) covered
calls. If the Fund sells a call option, it must be covered. That means the Fund
must own the security subject to the call while the call is outstanding, or, for
calls on futures and indices, the call may be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised.
Up to 50% of the Fund's total assets may be subject to calls.
When the Fund writes a call on a security, it receives cash (a
premium). The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium).
If the buyer of the call exercises it, the Fund will pay an amount of cash equal
to the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's custodian bank, or a securities depository acting for the
custodian bank, will act as the Fund's escrow agent, through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on it
books an equivalent dollar amount of liquid assets. The Fund will identify
additional liquid assets on its books to cover the call if the value of the
identified assets drops below 100% of the current value of the future. Because
of this asset coverage requirement, in no circumstances would the Fund's receipt
of an exercise notice as to that future require the Fund to deliver a futures
contract. It would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
o Writing Put Options. The Fund can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. A put option
on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to
pay for the underlying security the Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize
a profit on an outstanding put option it has written or to prevent the
underlying security from being put. Effecting a closing purchase transaction
will also permit the Fund to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments. The
Fund will realize a profit or loss from a closing purchase transaction depending
on whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls on securities,
broadly-based securities indices, foreign currencies and futures. It may do so
to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price.
The Fund benefits only if it sells the call at a profit or if, during
the call period, the market price of the underlying investment is above the sum
of the call price plus the transaction costs and the premium paid for the call
and the Fund exercises the call. If the Fund does not exercise the call or sell
it (whether or not at a profit), the call will become worthless at its
expiration date. In that case the Fund will have paid the premium but lost the
right to purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns the underlying
investment. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
Buying a put on an investment the Fund does not own (such as an index
or future) permits the Fund to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the Fund's
total assets.
o Buying and Selling Options on Foreign Currencies. The Fund can buy and sell
calls and puts on foreign currencies. They include puts and calls that trade on
a securities or commodities exchange or in the over-the-counter markets or are
quoted by major recognized dealers in such options. The Fund could use these
calls and puts to try to protect against declines in the dollar value of foreign
securities and increases in the dollar cost of foreign securities the Fund wants
to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by identifying liquid assets on its
books having a value equal to its obligation under the option.
o Risks of Hedging with Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Manager
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might cause
the Fund to sell related portfolio securities, thus increasing its turnover
rate. The exercise by the Fund of puts on securities will cause the sale of
underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within the Fund's control, holding a put
might cause the Fund to sell the related investments for reasons that would not
exist in the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be higher
on a relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment at
the call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Fund uses them to "lock in" the U.S. dollar price of a security
denominated in a foreign currency that the Fund has bought or sold, or to
protect against possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund may also use "cross-hedging" where the
Fund hedges against changes in currencies other than the currency in which a
security it holds is denominated.
Under a forward contract, one party agrees to purchase, and
another party agrees to sell, a specific currency at a future date. That date
may be any fixed number of days from the date of the contract agreed upon by the
parties. The transaction price is set at the time the contract is entered into.
These contracts are traded in the inter-bank market conducted directly among
currency traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate the risk of fluctuations in the prices of the underlying securities
the Fund owns or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts may reduce the risk of loss from a decline
in the value of the hedged currency, at the same time they limit any potential
gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying
to its custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund
may maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to
sell a currency, the Fund might sell a portfolio security and use the sale
proceeds to make delivery of the currency. In the alternative the Fund might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract the Fund will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund might close out a forward contract
requiring it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity date
of the first contract. The Fund would realize a gain or loss as a result of
entering into such an offsetting forward contract under either circumstance. The
gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and offsetting contract.
The costs to the Fund of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no brokerage fees or commissions are
involved. Because these contracts are not traded on an exchange, the Fund must
evaluate the credit and performance risk of the counterparty under each forward
contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest rate swap
agreements. In an interest rate swap, the Fund and another party exchange their
right to receive or their obligation to pay interest on a security. For example,
they might swap the right to receive floating rate payments for fixed rate
payments. The Fund can enter into swaps only on securities that it owns. The
Fund will not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will identify on its book liquid assets (such as cash or
U.S. government securities) to cover any amounts it could owe under swaps that
exceed the amounts it is entitled to receive, and it will adjust that amount
daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There
is a risk that, based on movements of interest rates in the future, the payments
made by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty may terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."
o Swaption Transactions. The Fund may enter into a swaption transaction, which
is a contract that grants the holder, in return for payment of the purchase
price (the "premium") of the option, the right, but not the obligation, to enter
into an interest rate swap at a preset rate within a specified period of time,
with the writer of the contract. The writer of the contract receives the premium
and bears the risk of unfavorable changes in the preset rate on the underlying
interest rate swap. Unrealized gains/losses on swaptions are reflected in
investment assets and investment liabilities in the Fund's statement of
financial condition.
o Regulatory Aspects of Hedging Instruments. The Commodities Futures Trading
Commission (the "CFTC") recently eliminated limitations on futures trading by
certain regulated entities including registered investment companies and
consequently registered investment companies may engage in unlimited futures
transactions and options thereon provided that the Fund claims an exclusion from
regulation as a commodity pool operator. The Fund has claimed such an exclusion
from registration as a commodity pool operator under the Commodity Exchange Act
("CEA"). The Fund may use futures and options for hedging and non-hedging
purposes to the extent consistent with its investment objective, internal risk
management guidelines adopted by the Fund's investment advisor (as they may be
amended from time to time), and as otherwise set forth in the Fund's prospectus
or this statement of additional information.
Transactions in options by the Fund are subject to limitations
established by the option exchanges. The exchanges limit the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert. Those limits apply regardless of whether the options were
written or purchased on the same or different exchanges or are held in one or
more accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same advisor as the Fund (or an advisor that is
an affiliate of the Fund's advisor). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain liquid assets in an amount equal to the market value of the
securities underlying the future, less the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Fund may invest are treated as "Section 1256 contracts"
under the Internal Revenue Code. In general, gains or losses relating to Section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from Section 1256 contracts that are forward contracts generally are
treated as ordinary income or loss. In addition, Section 1256 contracts held by
the Fund at the end of each taxable year are "marked-to-market," and unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of determining the excise tax applicable to
investment company distributions and for other purposes under rules prescribed
pursuant to the Internal Revenue Code. An election can be made by the Fund to
exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character and timing of gains (or losses) recognized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position making
up a straddle is allowed only to the extent that the loss exceeds any
unrecognized gain in the offsetting positions making up the straddle. Disallowed
loss is generally allowed at the point where there is no unrecognized gain in
the offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss: (1) gains or losses attributable to
fluctuations in exchange rates that occur
between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables
or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a
foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency
forward contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. The Fund's portfolio turnover rate will fluctuate
from year to year, and the Fund expects to have a portfolio turnover rate of
more than 100% annually.
Increased portfolio turnover may result in higher brokerage and
transaction costs for the Fund, which may reduce its overall performance.
Additionally, the realization of capital gains from selling portfolio securities
may result in distributions of taxable long-term capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized each
year, to avoid excise taxes under the Internal Revenue Code.
|X| Temporary Defensive and Interim Investments. In times of unstable or adverse
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments that are inconsistent with the Fund's principal
investment strategies. Generally, they would be cash equivalents (such as
commercial paper), money market instruments, short-term debt securities, U.S.
Government securities, or repurchase agreements. They could include other
investment-grade debt securities. The Fund might also hold these types of
securities pending the investment of proceeds from the sale of Fund shares or
portfolio securities or to meet anticipated redemptions of Fund shares. To the
extent the Fund invests defensively in these securities, it might not achieve
its investment objective of seeking total return.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of: o 67% or more of the shares present or represented by proxy at
a shareholder
meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
|X| The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following investment
restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or if
it would then own more than 10% of that issuer's voting securities. That
restriction applies to 75% of the Fund's total assets. The limit does not apply
to securities issued by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies.
o The Fund cannot concentrate its investments (that means it cannot invest 25%
or more of its total assets) in any one industry. Gas, water, electric and
telephone utilities are considered to be separate industries for this purpose.
o The Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an inter-fund lending program with other affiliated funds, and (d)
through repurchase agreements.
o The Fund cannot invest in real estate or real estate mortgage loans. However,
the Fund can purchase and sell securities issued or secured by companies that
invest in or deal in real estate or interests in real estate.
o The Fund cannot underwrite securities. A permitted exception is in case it is
deemed to be an underwriter under the Securities Act of 1933 when reselling any
securities held in its own portfolio.
o The Fund cannot borrow money in excess of 33 1/3% of the value of its total
assets. The Fund may borrow only from banks and/or affiliated investment
companies. With respect to this fundamental policy, the Fund can borrow only if
it maintains a 300% ratio of assets to borrowings at all times in the manner set
forth in the Investment Company Act.
o The Fund cannot issue "senior securities," but this does not prohibit certain
investment activities for which assets of the Fund are designated as segregated,
or margin, collateral or escrow arrangements are established, to cover the
related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
For purposes of the Fund's policy not to concentrate its investments,
the Fund has adopted the industry classifications set forth in Appendix B to
this Statement of Additional Information. That is not a fundamental policy.
Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Fund makes an investment (except in the case of borrowing
and investments in illiquid securities). The Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
|X| Does the Fund Have Additional Restrictions That Are Not "Fundamental"
Policies? The Fund has an additional operating policy that is not "fundamental,"
and which can be changed by the Board of Trustees without shareholder approval:
o The Fund cannot invest in the securities of other registered investment
companies or registered unit investment trusts in reliance on sub-paragraph (F)
or (G) of section 12(d)(1) of the Investment Company Act of 1940.
Disclosure of Portfolio Holdings. The Fund has adopted policies
and procedures concerning the dissemination by employees, officers and/or
directors of the Investment Advisor, Distributor, and Transfer Agent of
information about the portfolio securities holdings of the Funds. These policies
are designed to assure that dissemination of non-public information about
portfolio securities is distributed for a legitimate business purpose, and is
done in a manner that (a) conforms to applicable laws and regulations and (b) is
designed to prevent that information from being used in a way that could
negatively affect the Fund's investment program or enable third parties to use
that information in a manner that is harmful to a Fund.
Until publicly disclosed, a Fund's portfolio holdings are proprietary,
confidential business information. While recognizing the importance of providing
Fund shareholders with information about their Fund's investments and providing
portfolio information to a variety of third parties to assist with the
management, distribution and administrative process, such need for transparency
must be balanced against the risk that third parties who gain access to a Fund's
portfolio holdings information could attempt to use that information to trade
ahead of or against the Fund, which could negatively affect the prices the Fund
is able to obtain in portfolio transactions or the availability of the portfolio
securities that portfolio managers are trading in on a Fund's behalf.
The Investment Advisor and its subsidiaries and affiliates, employees, officers,
and directors, shall neither solicit nor accept any compensation or other
consideration (including any agreement to maintain assets in the Fund or in
other investment companies or accounts managed by the Investment Advisor or any
affiliated person of the Investment Advisor) in connection with the disclosure a
Fund's non-public portfolio holdings. The receipt of investment advisory fees or
other fees and compensation paid to the investment Advisor and their
subsidiaries pursuant to agreements approved by the Fund's Board shall not be
deemed to be "compensation" or "consideration" for these purposes. It is a
violation of the Code of Ethics for any covered person to release holdings in
contravention of portfolio holdings disclosure policies and procedures adopted
by the Fund.
A list of the top 10 or more portfolio securities holdings (based on invested
assets), listed by security or by issuer, as of the end of each month may be
disclosed to third parties (subject to the procedures below) no sooner than 15
days after month-end. The top 10 or more holdings also shall be posted on the
OppenheimerFunds' website at www.oppenheimerfunds.com in the "Fund Profiles"
section. Other general information about a Fund's portfolio investments, such as
portfolio composition by asset class, industry, country, currency, credit rating
or maturity, may also be posted with a 15-day lag.
Except under special limited circumstances discussed below, month-end lists of a
Fund's complete portfolio holdings may be disclosed no sooner than 30-days after
the relevant month-end, subject to the procedures below. If they have not been
disclosed publicly, they may be disclosed pursuant to special requests for
legitimate business reasons, provided that:
o The third-party recipient must first submit a request for release of
Fund portfolio holdings, explaining the business reason for the
request;
o Senior officers (a Senior Vice President or above) in the Investment
Advisor's Portfolio and Legal departments must approve the completed
request for release of Fund portfolio holdings; and
o The third-party recipient must sign the Investment Advisor's portfolio
holdings non-disclosure agreement before receiving the data, agreeing
to keep confidential information that is not publicly available
regarding a Fund's holdings and agreeing not to trade directly or
indirectly based on the information.
Complete Fund portfolio holdings positions may be released to the following
categories of entities or individuals on an ongoing basis, provided that such
entity or individual either (1) has signed an agreement to keep such information
confidential and not trade on the basis of such information or (2) is subject to
fiduciary obligations, as a member of the Fund's Board, or as an employee,
officer and/or director of the Investment Advisor, Distributor, or Transfer
Agent, or their respective legal counsel, not to disclose such information
except in conformity with these policies and procedures and not to trade for
his/her personal account on the basis of such information:
o Employees of the Fund's Investment Advisor, Distributor and Transfer
Agent who need to have access to such information (as determined by
senior officers of such entity),
o The Fund's certified public accountants and auditors, o Members of the Fund's
Board and the Board's legal counsel, o The Fund's custodian bank, o A proxy
voting service designated by the Fund and its Board, o Rating/ranking
organizations (such as Lipper and Morningstar), o Portfolio pricing services
retained by the Investment Advisor to provide
portfolio security prices, and
o Dealers, to obtain bids (price quotations, because securities are not
priced by the Fund's regular pricing services).
Portfolio holdings information of a Fund may be provided, under limited
circumstances, to brokers and dealers or with whom the Fund trades and/or
entities that provide investment coverage and/or analytical information
regarding the Fund's portfolio, provided that there is a legitimate investment
reason for providing the information to the broker or dealer or other entity.
Month-end portfolio holdings information may, under this procedure, be provided
to vendors providing research information and/or analytics to the fund, with at
least a 15-day delay after the month end, but in certain cases may be provided
to a broker or analytical vendor with a 1- 2 day lag to facilitate the provision
of requested investment information to the manager to facilitate a particular
trade or the portfolio manager's investment process for the Fund. Any third
party receiving such information must first sign the Investment Advisor's
portfolio holdings non-disclosure agreement as a pre-condition to receiving this
information.
Portfolio holdings information (which may include information on individual
securities positions or multiple securities) may be provided to the entities
listed below (1) by portfolio traders employed by the Investment Advisor in
connection with portfolio trading, and (2) by the members of the Investment
Advisor's Security Valuation Group and Accounting Departments in connection with
portfolio pricing or other portfolio evaluation purposes:
o Brokers and dealers in connection with portfolio transactions (purchases
and sales) o Brokers and dealers to obtain bids or bid and asked prices (if
securities held by a Fund are not priced by the fund's regular pricing services)
o Dealers to obtain price quotations where the fund is not identified as the
owner
Portfolio holdings information (which may include information on a
Fund's entire portfolio or individual securities therein) may be
provided by senior officers of the Investment Advisor or attorneys on
the legal staff of the Investment Advisor, Distributor, or Transfer
Agent, in the following circumstances:
o Response to legal process in litigation matters, such as responses to
subpoenas or in class action matters where the Fund may be part of the plaintiff
class (and seeks recovery for losses on a security) or a defendant, o Response
to regulatory requests for information (the SEC, NASD, state securities
regulators, and/or foreign securities authorities, including without limitation
requests for information in inspections or for position reporting purposes), o
To potential sub-advisors of portfolios (but only pursuant to confidentiality
agreements), o To consultants for retirement plans for plan sponsors/discussions
at due diligence meetings (if entire portfolio holdings are provided, however,
it shall be done only pursuant to a confidentiality agreement), o Investment
bankers in connection with merger discussions (but only pursuant to
confidentiality agreements)
Portfolio managers and analysts may, subject to the Investment Advisor's
policies on communications with the press and other media, discuss portfolio
information in interviews with members of the media, or in due diligence or
similar meetings with clients or prospective purchasers of Fund shares or their
financial intermediary representatives.
The Fund's shareholders may, under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions), receive redemption
proceeds of their Fund shares paid as pro rata shares of securities held in the
Fund's portfolio. In such circumstances, disclosure of the Fund's portfolio
holdings may be made to such shareholders.
The Chief Compliance Officer (the "CCO") of the Fund and the Investment Advisor,
Distributor, and Transfer Agent shall oversee the compliance by the Investment
Advisor, Distributor, Transfer Agent, and their personnel with these policies
and procedures. At least annually, the CCO shall report to the Fund Board on
such compliance oversight and on the categories of entities and individuals to
which disclosure of portfolio holdings of the Funds has been made during the
preceding year pursuant to these policies. The CCO shall report to the Fund
Board any material violation of these policies and procedures during the
previous calendar quarter and shall make recommendations to the Companies and to
the Boards as to any amendments that the CCO believes are necessary and
desirable to carry out or improve these policies and procedures.
The Investment Advisor and/or the Fund have entered into ongoing arrangements to
make available information about the Fund's portfolio holdings. One or more of
the Oppenheimer funds may currently disclose portfolio holdings information
based on ongoing arrangements to the following parties:
A.G. Edwards & Sons
ABG Securities
ABN AMRO
Advest
AG Edwards
American Technology Research Auerbach Grayson Banc of America Securities
Barclays Baseline Bear Stearns Belle Haven Bloomberg BNP Paribas BS Financial
Services Buckingham Research Group Caris & Co.
CIBC World Markets
Citigroup
Citigroup Global Markets
Collins Stewart
Craig-Hallum Capital Group LLC
Credit Agricole Cheuvreux N.A. Inc. Credit Suisse First Boston Daiwa Securities
Davy Deutsche Bank Deutsche Bank Securities Dresdner Kleinwort Wasserstein Emmet
& Co Empirical Research Enskilda Securities Essex Capital Markets Exane BNP
Paribas Factset Fidelity Capital Markets Fimat USA Inc.
First Albany
First Albany Corporation
Fixed Income Securities
Fortis Securities
Fox-Pitt, Kelton
Friedman, Billing, Ramsey
Fulcrum Global Partners
Garp Research
George K Baum & Co.
Goldman
Goldman Sachs
HSBC
HSBC Securities Inc
ING Barings
ISI Group
Janney Montgomery
Jefferies
Jeffries & Co.
JP Morgan
JP Morgan Securities
JPP Eurosecurities
Keefe, Bruyette & Woods Keijser Securities Kempen & Co. USA Inc.
Kepler Equities/Julius Baer Sec KeyBanc Capital Markets Leerink Swan Legg
Mason Lehman Lehman Brothers Lipper Loop Capital Markets MainFirst Bank
AG Makinson Cowell US Ltd Maxcor Financial Merrill Merrill Lynch Midwest
Research Mizuho Securities Morgan Stanley Morningstar Natexis
Bleichroeder Ned Davis Research Group Nomura Securities Pacific Crest
Pacific Crest Securities Pacific Growth Equities Petrie Parkman Pictet
Piper Jaffray Inc.
Plexus
Prager Sealy & Co.
Prudential Securities
Ramirez & Co.
Raymond James
RBC Capital Markets
RBC Dain Rauscher
Research Direct
Robert W. Baird
Roosevelt & Cross
Russell Mellon
Ryan Beck & Co.
Sanford C. Bernstein
Scotia Capital Markets
SG Cowen & Co.
SG Cowen Securities
Soleil Securities Group
Standard & Poors
Stone & Youngberg
SWS Group
Taylor Rafferty
Think Equity Partners
Thomas Weisel Partners
UBS
Wachovia
Wachovia Corp
Wachovia Securities
Wescott Financial
William Blair
Yieldbook
How the Fund is Managed
Organization and History. The Fund is a series of Oppenheimer Integrity Funds
(referred to as the Fund's parent Trust in this document). The Fund's parent
Trust was established in 1982 as MassMutual Liquid Assets Trust, an open-end
diversified management investment company, with an unlimited number of
authorized shares of beneficial interest. The Fund was reorganized from a
closed-end investment company called MassMutual Income Investors, Inc. into a
series of the Trust on April 15, 1988. The Fund and the Trust were originally
managed by Massachusetts Mutual Life Insurance Company, the Manager's indirect
parent company. On March 29, 1991, the Manager became the Fund's investment
advisor, and the Trust changed its name to Oppenheimer Integrity Funds. The Fund
was then called Oppenheimer Investment Grade Bond Fund and changed its name to
Oppenheimer Bond Fund on July 10, 1995. On January 21, 2005, the Fund changed
its name from Oppenheimer Bond Fund to Oppenheimer Core Bond Fund.
The Fund is governed by the Board of Trustees of its parent Trust. The
Board 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.
|X| Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares. The Trustees may
reclassify unissued shares of the Fund into additional series or classes of
shares. The Trustees also may divide or combine the shares of a class into a
greater or lesser number of shares without changing the proportionate beneficial
interest of a shareholder in the Fund. Shares do not have cumulative voting
rights or preemptive or subscription rights. Shares may be voted in person or by
proxy at shareholder meetings.
The Fund currently has five classes of shares: Class A, Class B, Class C,
Class N and Class Y. All classes invest in the same investment portfolio. Only
retirement plans may purchase Class N shares. Only certain institutional
investors may elect to purchase Class Y shares. Each class of shares: o has its
own dividends and distributions, o pays certain expenses which may be different
for the different classes, o may have a different net asset value, o may have
separate voting rights on matters in which interests of one class are different
from interests of another class, and o votes as a class on matters that affect
that class alone.
Shares are freely transferable, and each share of each class has one
vote at shareholder meetings, with fractional shares voting proportionally on
matters submitted to the vote of shareholders. Each share of the Fund represents
an interest in the Fund proportionately equal to the interest of each other
share of the same class.
|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not
required to hold, and does not plan to hold, regular annual meetings of
shareholders, but may do so from time to time on important matters or when
required to do so by the Investment Company Act or other applicable law.
Shareholders have the right, upon a vote or declaration in writing of two-thirds
of the outstanding shares of the Fund, to remove a Trustee or to take other
action described in the Fund's Declaration of Trust.
The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its
outstanding shares. If the Trustees receive a request from at least 10
shareholders stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make the
Fund's shareholder list available to the applicants or mail their communication
to all other shareholders at the applicants' expense. The shareholders making
the request must have been shareholders for at least six months and must hold
shares of the Fund valued at $25,000 or more or constituting at least 1% of the
Fund's outstanding shares. The Trustees may also take other action as permitted
by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust contains
an express disclaimer of shareholder or Trustee liability for the Fund's
obligations. It also provides for indemnification and reimbursement of expenses
out of the Fund's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Fund
shall assume the defense of any claim made against a shareholder for any act or
obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing
business with the Fund (and each shareholder of the Fund) agrees under its
Declaration of Trust to look solely to the assets of the Fund for satisfaction
of any claim or demand that may arise out of any dealings with the Fund.
Additionally, the Trustees shall have no personal liability to any such person,
to the extent permitted by law.
Board of Trustees and Oversight Committees. 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.
The Board of Trustees has an Audit Committee, a Review Committee and a
Governance Committee. The Audit Committee is comprised solely of Independent
Trustees. The members of the Audit Committee are Edward L. Cameron (Chairman),
George C. Bowen, Robert J. Malone and F. William Marshall, Jr. The Audit
Committee held 7 meetings during the fiscal year ended December 31, 2004. The
Audit Committee is in charge of the selection of the Fund's independent
registered public accounting firm. Other main functions of the Audit Committee
include, but are not limited to: (i) reviewing the scope and results of
financial statement audits and the audit fees charged; (ii) reviewing reports
from the Fund's independent registered public accounting firm regarding the
Fund's internal accounting procedures and controls; (iii) review reports from
the Manager's Internal Audit Department; (iv) maintaining a separate line of
communication between the Fund's independent registered public accounting firm
and its Independent Trustees; and (v) exercise all other functions outlined in
the Audit Committee Charter, including but not limited to reviewing the
independence of the Fund's independent registered public accounting firm and the
pre-approval of the performance by the Fund's independent registered public
accounting firm of any non-audit service, including tax service, for the Fund
and the Manager and certain affiliates of the Manager that is not prohibited by
the Sarbanes-Oxley Act.
The members of the Review Committee are Jon S. Fossel (Chairman),
Robert G. Avis, Sam Freedman, and Beverly Hamilton. Each member of the Review
Committee is independent, meaning each person is not an "interested person" as
defined in the Investment Company Act. The Review Committee held 6 meetings
during the fiscal year ended December 31, 2004. Among other functions, the
Review Committee reviews reports and makes recommendations to the Board
concerning the fees paid to the Fund's transfer agent and the Manager and the
services provided to the Fund by the transfer agent and the Manager. The Review
Committee also reviews the Fund's investment performance and policies and
procedures adopted by the Fund to comply with Investment Company Act and other
applicable law.
The members of the Governance Committee are Robert Malone (Chairman),
William Armstrong, Beverly Hamilton and F. William Marshall, Jr. Each member of
the Committee is independent, meaning each person is not an "interested person"
as defined in the Investment Company Act. The Governance Committee was
established in August 2004 and held 2 meetings during the Fund's fiscal year
ended December 31, 2004. The Governance Committee is expected to consider
general governance matters, including a formal process for shareholders to send
communications to the Board and the qualifications of candidates for board
positions including consideration of any candidate recommended by shareholders.
The Governance Committee has not yet adopted a charter, but anticipates
that it will do so by the end of the second calendar quarter of this calendar
year. The Committee has temporarily adopted the process previously adopted by
the Audit Committee regarding shareholder submission of nominees for board
positions. Shareholders may submit names of individuals, accompanied by complete
and properly supported resumes, for the Governance Committee's consideration by
mailing such information to the Committee in care of the Fund. The Committee may
consider such persons at such time as it meets to consider possible nominees.
The Committee, however, reserves solo discretion to determine the candidates for
trustees and independent trustees to recommend to the Board and/or shareholders
and may identify candidates other than those submitted by Shareholders. The
Committee may, but need not, consider the advice and recommendation of the
Manager and its affiliates in selecting nominees. The full Board elects new
trustees except for those instances when a shareholder vote is required.
Shareholders who desire to communicate with the Board should address
correspondence to the Board or to an individual Board member and may submit
their correspondence electronically at www.opppenheimerfunds.com under the
caption "contact us" or by mail to the Fund at the address above. The Governance
Committee will consider if a different process should be recommended to the
Board.
Trustees and Officers of the Fund. Except for Mr. Murphy, each of the
Trustees are "Independent Trustees" under the Investment Company Act. Mr. Murphy
is an "Interested Trustee," because he is affiliated with the Manager by virtue
of his positions as an officer and director of the Manager, and as a shareholder
of its parent company. Mr. Murphy was elected as a Trustee of the Fund with the
understanding that in the event he ceases to be the chief executive officer of
the Manager, he will resign as a trustee of the Fund and the other Board II
Funds (defined below) for which he is a trustee or director.
The Fund's Trustees and officers and their positions held with the Fund
and length of service in such position(s) and their principal occupations and
business affiliations during the past five years are listed in the chart below.
The information for the Trustees also includes the dollar range of shares of the
Fund as well as the aggregate dollar range of shares beneficially owned in any
of the Oppenheimer funds overseen by the Trustees. All of the Trustees are also
trustees or directors of the following Oppenheimer funds (except for Ms.
Hamilton and Mr. Malone, who are not Trustees of Oppenheimer Senior Floating
Rate Fund) (referred to as "Board II Funds"):
Oppenheimer Cash Reserves Oppenheimer Principal Protected Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund
Oppenheimer Capital Income Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc. Centennial California Tax Exempt Trust
Oppenheimer Main Street Opportunity Fund Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Principal Protected Trust Centennial Tax Exempt Trust
Oppenheimer Principal Protected Trust II
Present or former officers, directors, trustees and employees (and
their immediate family members) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees are permitted to
purchase Class A shares of the Fund and the other Oppenheimer funds at net asset
value without sales charge. The sales charges on Class A shares is waived for
that group because of the economies of sales efforts realized by the
Distributor.
Messrs. Gillespie, Manioudakis, Miao, Murphy, Petersen, Vottiero,
Wixted and Zack, and Mses. Bloomberg and Ives who are officers of the Fund,
respectively hold the same offices with one or more of the other Board II Funds
as with the Fund. As of March 2, 2005, the Trustees and officers of the Fund, as
a group, owned of record or beneficially less than 1% of each class of shares of
the Fund. The foregoing statement does not reflect ownership of shares held of
record by an employee benefit plan for employees of the Manager, other than the
shares beneficially owned under that plan by the officers of the Fund listed
above. In addition, each Independent Trustee (and his or her immediate family
members) do not own securities of either the Manager or Distributor of the Board
II Funds or any person directly or indirectly controlling, controlled by or
under common control with the Manager or Distributor.
The address of each Trustee in the chart below is 6803 S. Tucson Way,
Centennial, CO 80112-3924. Each Trustee serves for an indefinite term, until his
or her resignation, retirement, death or removal.
- ---------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Name, Principal Occupation(s) During Past 5 Years; Dollar Range Aggregate
Dollar Range
Of Shares
Beneficially
Owned in Any
of Shares of the
Position(s) Held with Fund, Other Trusteeships/Directorships Held by Trustee;
Beneficially Oppenheimer Length of Service, Number of Portfolios in Fund Complex
Currently Overseen Owned in the Funds Overseen Age by Trustee Fund by Trustee
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------------------------
As of December 31, 2004
- ------------------------------ ----------------------------------------------------------- --------------------------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
William L. Armstrong, Chairman of the following private mortgage banking None Over $100,000
Chairman of the Board since companies: Cherry Creek Mortgage Company (since 1991),
2003 and Trustee since 1999 Centennial State Mortgage Company (since 1994), The El
Age: 67 Paso Mortgage Company (since 1993), Transland Financial
Services, Inc. (since 1997); Chairman of the following
private companies: Great Frontier Insurance (insurance
agency) (since 1995), Ambassador Media Corporation and
Broadway Ventures (since 1984); a director of the
following public companies: Helmerich & Payne, Inc. (oil
and gas drilling/production company) (since 1992) and
UNUMProvident (insurance company) (since 1991). Mr.
Armstrong is also a Director/Trustee of Campus Crusade
for Christ and the Bradley Foundation. Formerly a
director of the following: Storage Technology Corporation
(a publicly-held computer equipment company)
(1991-February 2003), and International Family
Entertainment (television channel) (1992-1997), Frontier
Real Estate, Inc. (residential real estate brokerage)
(1994-1999), and Frontier Title (title insurance agency)
(1995-June 1999); a U.S. Senator (January 1979-January
1991). Oversees 38 portfolios in the OppenheimerFunds
complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Robert G. Avis, Formerly, Director and President of A.G. Edwards Capital, None $50,001-$100,000
Trustee since 1993 Inc. (General Partner of private equity funds) (until
Age: 73 February 2001); Chairman, President and Chief Executive
Officer of A.G. Edwards Capital, Inc. (until March 2000);
Vice Chairman and Director of A.G. Edwards, Inc. and Vice
Chairman of A.G. Edwards & Sons, Inc. (its brokerage
company subsidiary) (until March 1999); Chairman of A.G.
Edwards Trust Company and A.G.E. Asset Management
(investment advisor) (until March 1999); and a Director
(until March 2000) of A.G. Edwards & Sons and A.G.
Edwards Trust Company. Oversees 38 portfolios in the
OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
George C. Bowen, Formerly Assistant Secretary and a director (December $10,001-$50,000 Over $100,000
Trustee since 2001 1991-April 1999) of Centennial Asset Management
Age: 68 Corporation; President, Treasurer and a director (June
1989-April 1999) of Centennial Capital Corporation; Chief
Executive Officer and a director of MultiSource Services,
Inc. (March 1996-April 1999). Until April 1999 Mr. Bowen
held several positions in subsidiary or affiliated
companies of the Manager. Oversees 38 portfolios in the
OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Edward L. Cameron, A member of The Life Guard of Mount Vernon, George None Over $100,000
Trustee since 2001 Washington's home (since June 2000). Formerly Director
Age: 66 (March 2001-May 2002) of Genetic ID, Inc. and its
subsidiaries (a privately held biotech company);
a partner (July 1974-June 1999) with
PricewaterhouseCoopers LLP (an accounting firm);
and Chairman (July 1994-June 1998) of Price
Waterhouse LLP Global Investment Management
Industry Services Group. Oversees 38 portfolios
in the OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Jon S. Fossel, Director (since February 1998) of Rocky Mountain Elk None Over $100,000
Trustee since 1990 Foundation (a not-for-profit foundation); a director
Age: 63 (since 1997) of Putnam Lovell Finance (finance company);
a director (since June 2002) of UNUMProvident (an
insurance company). Formerly a director (October
1999-October 2003) of P.R. Pharmaceuticals (a privately
held company); Chairman and a director (until October
1996) and President and Chief Executive Officer (until
October 1995) of the Manager; President, Chief Executive
Officer and a director (until October 1995) of
Oppenheimer Acquisition Corp., Shareholders Services Inc.
and Shareholder Financial Services, Inc. Oversees 38
portfolios in the OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Sam Freedman, Director of Colorado Uplift (a non-profit charity) (since None Over $100,000
Trustee since 1996 September 1984). Formerly (until October 1994) Mr.
Age: 64 Freedman held several positions in subsidiary or
affiliated companies of the Manager. Oversees 38
portfolios in the OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Beverly L. Hamilton, Trustee of Monterey International Studies (an educational None None
Trustee since 2002 organization) (since February 2000); a director of The
Age: 58 California Endowment (a philanthropic organization)
(since April 2002) and of Community Hospital of
Monterey Peninsula (educational organization)
(since February 2002); a director of America
Funds Emerging Markets Growth Fund (since October
1991) (an investment company); an advisor to
Credit Suisse First Boston's Sprout venture
capital unit. Mrs. Hamilton also is a member of
the investment committees of the Rockefeller
Foundation and of the University of Michigan.
Formerly, Trustee of MassMutual Institutional
Funds (open-end investment company) (1996-May
2004); a director of MML Series Investment Fund
(April 1989-May 2004) and MML Services (April
1987-May 2004) (investment companies); member of
the investment committee (2000-2003) of Hartford
Hospital; an advisor (2000-2003) to Unilever
(Holland)'s pension fund; and President (February
1991-April 2000) of ARCO Investment Management
Company. Oversees 37 portfolios in the
OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Robert J. Malone, Chairman, Chief Executive Officer and Director of Steele None Over $100,000
Trustee since 2002 Street State Bank (a commercial banking entity) (since
Age: 60 August 2003); director of Colorado UpLIFT (a non-profit
organization) (since 1986); trustee (since 2000)
of the Gallagher Family Foundation (non-profit
organization). Formerly, Chairman of U.S.
Bank-Colorado (a subsidiary of U.S. Bancorp and
formerly Colorado National Bank,) (July
1996-April 1, 1999), a director of: Commercial
Assets, Inc. (a REIT) (1993-2000), Jones
Knowledge, Inc. (a privately held company)
(2001-July 2004) and U.S. Exploration, Inc. (oil
and gas exploration) (1997-February 2004).
Oversees 37 portfolios in the OppenheimerFunds
complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
F. William Marshall, Jr., Trustee of MassMutual Institutional Funds (since 1996) None Over $100,000
Trustee since 2001 and MML Series Investment Fund (since 1987) (both
Age: 62 open-end investment companies) and the Springfield
Library and Museum Association (since 1995)
(museums) and the Community Music School of
Springfield (music school) (since 1996); Trustee
(since 1987), Chairman of the Board (since 2003)
and Chairman of the investment committee (since
1994) for the Worcester Polytech Institute
(private university); and President and Treasurer
(since January 1999) of the SIS Fund (a private
not for profit charitable fund). Formerly, member
of the investment committee of the Community
Foundation of Western Massachusetts (1998 -
2003); Chairman (January 1999-July 1999) of SIS
& Family Bank, F.S.B. (formerly SIS Bank)
(commercial bank); and Executive Vice President
(January 1999-July 1999) of Peoples Heritage
Financial Group, Inc. (commercial bank). Oversees
38 portfolios in the OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
The address of Mr. Murphy in the chart below is Two World Financial Center,
225 Liberty Street, 11th Floor, New York, NY 10281-1008. Mr. Murphy serves for an
indefinite term, until his resignation, death or removal.
- ---------------------------------------------------------------------------------------------------------------------------
Interested Trustee and Officer
- ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
Name, Principal Occupation(s) During Past 5 Years; Dollar Range Aggregate
Dollar Range
Of Shares
Beneficially
Owned in
of Shares Any of the
Position(s) Held with Fund, Other Trusteeships/Directorships Held by Trustee;
Beneficially Oppenheimer Length of Service, Number of Portfolios in Fund Complex
Currently Overseen Owned in the Funds Overseen Age by Trustee Fund by Trustee
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
- ------------------------------ ----------------------------------------------------------- --------------------------------
As of December 31, 2004
- ------------------------------ ----------------------------------------------------------- --------------------------------
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
John V. Murphy, Chairman, Chief Executive Officer and director (since None Over $100,000
President and Trustee since June 2001) and President (since September 2000) of the
2001 Manager; President and a director or trustee of other
Age: 55 Oppenheimer funds; President and a director (since July
2001) of Oppenheimer Acquisition Corp. (the
Manager's parent holding company) and of
Oppenheimer Partnership Holdings, Inc. (a holding
company subsidiary of the Manager); a director
(since November 2001) of OppenheimerFunds
Distributor, Inc. (a subsidiary of the Manager);
Chairman and a director (since July 2001) of
Shareholder Services, Inc. and of Shareholder
Financial Services, Inc. (transfer agent
subsidiaries of the Manager); President and a
director (since July 2001) of OppenheimerFunds
Legacy Program (a charitable trust program
established by the Manager); a director of the
following investment advisory subsidiaries of the
Manager: OFI Institutional Asset Management,
Inc., Centennial Asset Management Corporation,
Trinity Investment Management Corporation and
Tremont Capital Management, Inc. (since November
2001), HarbourView Asset Management Corporation
and OFI Private Investments, Inc. (since July
2001); President (since November 1, 2001) and a
director (since July 2001) of Oppenheimer Real
Asset Management, Inc.; Executive Vice President
(since February 1997) of Massachusetts Mutual
Life Insurance Company (the Manager's parent
company); a director (since June 1995) of DLB
Acquisition Corporation (a holding company that
owns the shares of Babson Capital Management
LLC); a member of the Investment Company
Institute's Board of Governors (elected to serve
from October 3, 2003 through September 30, 2006).
Formerly, Chief Operating Officer (September
2000-June 2001) of the Manager; President and
trustee (November 1999-November 2001) of MML
Series Investment Fund and MassMutual
Institutional Funds (open-end investment
companies); a director (September 1999-August
2000) of C.M. Life Insurance Company; President,
Chief Executive Officer and director (September
1999-August 2000) of MML Bay State Life Insurance
Company; a director (June 1989-June 1998) of
Emerald Isle Bancorp and Hibernia Savings Bank (a
wholly-owned subsidiary of Emerald Isle Bancorp).
Oversees 62 portfolios as Trustee/Director and 21
additional portfolios as Officer in the
OppenheimerFunds complex.
- ------------------------------ ----------------------------------------------------------- --------------- ----------------
The address of the Officers in the chart below is as follows: for Messrs.
Manioudakis, Zack, Gillespie and Miao and Ms. Bloomberg, Two World Financial Center,
225 Liberty Street, New York, NY 10281-1008, for Messrs. Vandehey, Vottiero, Petersen
and Wixted and Ms. Ives, 6803 S. Tucson Way, Centennial, CO 80112-3924. Each Officer
serves for an annual term or until his or her earlier resignation, death or removal.
- ---------------------------------------------------------------------------------------------------------------------------
Officers of the Fund
- ---------------------------------------------------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Years
Position(s) Held with Fund
Length of Service,
Age
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Angelo Manioudakis, Senior Vice President of the Manager (since April 2002), of HarbourView Asset
Vice President and Portfolio Manager Management Corporation (since April, 2002) and of OFI Institutional Asset
since 2002 Management, Inc. (since June 2002); an officer of 15 portfolios in the
Age: 39 OppenheimerFunds complex. Formerly Executive Director and portfolio manager for
Miller, Anderson & Sherrerd, a
division of Morgan Stanley Investment
Management (August 1993-April 2002).
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer (since March 2004) of the
Vice President and Chief Compliance Manager; Vice President (since June 1983) of OppenheimerFunds Distributor, Inc.,
Officer since 2004 Centennial Asset Management Corporation and Shareholder Services, Inc. Formerly
Age: 54 (until February 2004) Vice President and Director of Internal Audit of the
Manager. An officer of 83 portfolios in
the Oppenheimer funds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer
Treasurer since 1999 of HarbourView Asset Management Corporation, Shareholder Financial Services,
Age: 45 Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management Corporation,
and Oppenheimer Partnership Holdings,
Inc. (since March 1999), of OFI Private
Investments, Inc. (since March 2000), of
OppenheimerFunds International Ltd. and
OppenheimerFunds plc (since May 2000),
of OFI Institutional Asset Management,
Inc. (since November 2000), and of
OppenheimerFunds Legacy Program (a
Colorado non-profit corporation) (since
June 2003); Treasurer and Chief
Financial Officer (since May 2000) of
OFI Trust Company (a trust company
subsidiary of the Manager); Assistant
Treasurer (since March 1999) of
Oppenheimer Acquisition Corp. Formerly
Assistant Treasurer of Centennial Asset
Management Corporation (March
1999-October 2003) and OppenheimerFunds
Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer
(March 1995-March 1999) at Bankers Trust
Company-Mutual Fund Services Division.
An officer of 83 portfolios in the
OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager since August 2002; formerly
Assistant Treasurer since 2004 Manager/Financial Product Accounting (November 1998-July 2002) of the Manager. An
Age: 34 officer of 83 portfolios in the OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Philip Vottiero, Vice President/Fund Accounting of the Manager since March 2002. Formerly Vice
Assistant Treasurer since 2002 President/Corporate Accounting of the Manager (July 1999-March 2002) prior to
Age: 41 which he was Chief Financial Officer at Sovlink Corporation (April 1996-June
1999). An officer of 83 portfolios in
the OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General Counsel (since February
Vice President & Secretary; 2002) of the Manager; General Counsel and a director (since November 2001) of the
since 2001 Distributor; General Counsel (since November 2001) of Centennial Asset Management
Age: 56 Corporation; Senior Vice President and General Counsel (since November 2001) of
HarbourView Asset Management
Corporation; Secretary and General
Counsel (since November 2001) of
Oppenheimer Acquisition Corp.; Assistant
Secretary and a director (since October
1997) of OppenheimerFunds International
Ltd. and OppenheimerFunds plc; Vice
President and a director (since November
2001) of Oppenheimer Partnership
Holdings, Inc.; a director (since
November 2001) of Oppenheimer Real Asset
Management, Inc.; Senior Vice President,
General Counsel and a director (since
November 2001) of Shareholder Financial
Services, Inc., Shareholder Services,
Inc., OFI Private Investments, Inc. and
OFI Trust Company; Vice President (since
November 2001) of OppenheimerFunds
Legacy Program; Senior Vice President
and General Counsel (since November
2001) of OFI Institutional Asset
Management, Inc.; a director (since June
2003) of OppenheimerFunds (Asia)
Limited. Formerly Senior Vice President
(May 1985-December 2003), Acting General
Counsel (November 2001-February 2002)
and Associate General Counsel (May
1981-October 2001) of the Manager;
Assistant Secretary of Shareholder
Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc.
(November 1989-November 2001); and
OppenheimerFunds International Ltd.
(October 1997-November 2001). An officer
of 83 portfolios in the OppenheimerFunds
complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and Assistant Secretary
Assistant Secretary since 2001 (since October 2003) of the Manager; Vice President (since 1999) and Assistant
Age: 39 Secretary (since October 2003) of the Distributor; Assistant Secretary (since
October 2003) of Centennial Asset
Management Corporation; Vice President
and Assistant Secretary (since 1999) of
Shareholder Services, Inc.; Assistant
Secretary (since December 2001) of
OppenheimerFunds Legacy Program and of
Shareholder Financial Services, Inc..
Formerly an Assistant Counsel (August
1994-October 2003) and Assistant Vice
President of the Manager (August
1997-June 1998). An officer of 83
portfolios in the OppenheimerFunds
complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager since May 2004; formerly
Assistant Secretary since 2004 First Vice President and Associate General Counsel of UBS Financial Services Inc.
Age: 37 (formerly, PaineWebber Incorporated) (May 1999 - April 2004) prior to which she
was an Associate at Skadden, Arps,
Slate, Meagher & Flom, LLP
(September 1996 - April 1999). An
officer of 83 portfolios in the
OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the Manager since September
Assistant Secretary since 2004 2004. Formerly Mr. Gillespie held the following positions at Merrill Lynch
Age: 41 Investment Management: First Vice President (2001-September 2004); Director (from
2000) and Vice President (1998-2000). An
officer of 83 portfolios in the
OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------------
Wayne Miao, Assistant Vice President and Assistant Counsel of the Manager since June 2004.
Assistant Secretary since 2004 Formerly an Associate with Sidley Austin Brown & Wood LLP (September 1999 - May
Age: 32 2004). An officer of 83 portfolios in the OppenheimerFunds complex.
- --------------------------------------- -----------------------------------------------------------------------------------
|X| Remuneration of Trustees. The officers of the Fund and Mr. Murphy (who is an
officer and Trustee of the Fund) are affiliated with the Manager and receive no
salary or fee from the Fund. The remaining Trustees of the Fund received the
compensation shown below from the Fund with respect to the Fund's fiscal year
ended December 31, 2004. The compensation from all 38 of the Board II Funds
(including the Fund) represents compensation received for serving as a director
or trustee and member of a committee (if applicable) of the boards of those
funds during the calendar year ended December 31, 2004.
- -------------------------------------------------- -------------------------------- -------------------------------
Trustee Name and Other Fund Position(s) (as Aggregate Compensation from Total Compensation From Fund
and Fund Complex Paid to
applicable) Fund(1) Trustees*
- -------------------------------------------------- -------------------------------- -------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
William L. Armstrong $2,629 $178,000
Chairman of the Board and
Governance Committee Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Robert G. Avis $1,750 $118,500
Review Committee Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
George C. Bowen $1,750 $118,500
Audit Committee Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Edward L. Cameron $2,009 $136,000
Audit Committee Chairman
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Jon S. Fossel $2,009 $136,000
Review Committee Chairman
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Sam Freedman $1,750 $118,500
Review Committee Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Beverly Hamilton(2) $1,714(3) $152,355(4)
Review Committee Member and Governance Committee
Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
Robert J. Malone(2) $1,798(3) $121,726
Governance Committee Chairman and
Audit Committee Member
- -------------------------------------------------- --------------------------------- ------------------------------
- -------------------------------------------------- --------------------------------- ------------------------------
F. William Marshall, Jr.
Audit Committee Member and Governance Committee $1,750 $167,500(5)
Member
- -------------------------------------------------- --------------------------------- ------------------------------
1. Aggregate Compensation from Fund includes fees and deferred compensation,
if any, for a Trustee.
2. a. Mrs. Hamilton and Mr. Malone were elected as Trustees of the Board II
Funds effective June 1, 2002. Compensation for Mrs. Hamilton and Mr. Malone
was paid by all of the Board II Funds, with the exception of Oppenheimer
Senior Floating Rate Fund for which they currently do not serve as Trustees
(total of 37 Oppenheimer funds at December 31, 2004).
b. Mrs. Hamilton and Mr. Malone elected to defer their compensation 100%
under Deferred Compensation Plan.
3. Includes $1,714 deferred for Mrs. Hamilton and $1,798 for Mr. Malone under
Deferred Compensation Plan.
4. Includes $36,354 compensation (of which 100% was deferred under a deferred
compensation plan) paid to Mrs. Hamilton for serving as a trustee by two
open-end investment companies (MassMutual Institutional Funds and MML
Series Investment Fund) the investment adviser for which is the indirect
parent company of the Fund's Manager. The Manager also serves as the
Sub-Advisor to the MassMutual International Equity Fund, a series of
MassMutual Institutional Funds.
5. Includes $49,000 compensation paid to Mr. Marshall for serving as a trustee
by two open-end investment companies (MassMutual Institutional Funds and
MML Series Investment Fund) the investment adviser for which is the
indirect parent company of the Fund's Manager. The Manager also serves as
the Sub-Advisor to the MassMutual International Equity Fund, a series of
MassMutual Institutional Funds.
* For purposes of this section only, "Fund Complex" includes the Oppenheimer
funds, MassMutual Institutional Funds and MML Series Investment Fund in
accordance with the instructions for Form N-1A. The Manager does not consider
MassMutual Institutional Funds and MML Series Investment Fund to be part of the
OppenheimerFunds "Fund Complex" as that term may be otherwise interpreted.
|X| Deferred Compensation Plan For Trustees. The Board of Trustees has adopted a
Deferred Compensation Plan for Independent Trustees that enables them to elect
to defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares
of one or more Oppenheimer funds selected by the Trustee. The amount paid to the
Trustee under the plan will be determined based upon the performance of the
selected funds.
Deferral of Trustee's fees under the plan will not materially affect
the Fund's assets, liabilities and net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any particular
level of compensation to any Trustee. Pursuant to an Order issued by the SEC,
the Fund may invest in the funds selected by the Trustee under the plan without
shareholder approval for the limited purpose of determining the value of the
Trustee's deferred fee account.
|X| Major Shareholders. As of March 2, 2005, the only persons who owned of
record or were known by the Fund to own beneficially 5% or more of any class of
the Fund's outstanding securities were:
New Mexico Savings Plan - SE, Conservative Portfolio, Attn: Amy Sullivan, P.O.
Box 5270, Denver, CO 80217-5270 which owned 3,187,781.541 Class A shares (8.59%
of the Class A shares then outstanding).
MLPF&S, Attn: Fund Admn, 4800 Deer Lake Drive E., Floor 3, Jacksonville, FL
32246-6484 which owned 184,217.731 Class N shares (7.41% of the Class N shares
then outstanding).
R E Svensk & M Reynolds TR, Exporters Insurance Services, 335 Madison
Avenue, New York, NY 10017-4611 which owned 145,145.086 Class N shares (5.84% of
the Class N shares then outstanding).
Oregon College Savings Plan, Conservative Portfolio, c/o OppenheimerFunds, Inc.,
Attn: Amy Sullivan, P.O. Box 5270, Denver, CO 80217-5270 which owned 917,943.231
Class Y shares (17.11% of the Class Y shares then outstanding).
Oregon College Savings Plan, Aggressive Portfolio, c/o OppenheimerFunds, Inc.,
Attn: Amy Sullivan, P.O. Box 5270, Denver, CO 80217-5270 which owned 896,251.294
Class Y shares (16.70% of the Class Y shares then outstanding).
Oregon College Savings Plan, Moderate Portfolio, c/o OppenheimerFunds, Inc.,
Attn: Amy Sullivan, P.O. Box 5270, Denver, CO 80217-5270 which owned 893,654.593
Class Y shares (16.65% of the Class Y shares then outstanding).
Oregon College Savings Plan, Balanced Portfolio, c/o OppenheimerFunds, Inc.,
Attn: Amy Sullivan, P.O. Box 5270, Denver, CO 80217-5270 which owned 869,231.935
Class Y shares (16.20% of the Class Y shares then outstanding).
New Mexico Savings Plan - TEP, Conservative Portfolio, Attn: Amy Sullivan, P.O.
Box 5270, Denver, CO 80217-5270 which owned 1,196,300.302 Class Y shares (22.30%
of the Class Y shares then outstanding).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp.,
a holding company controlled by Massachusetts Mutual Life Insurance Company, a
global, diversified insurance and financial services organization.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of
Ethics. It is designed to detect and prevent improper personal trading by
certain employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the SEC and can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. You can obtain information about the hours of operation
of the Public Reference Room by calling the SEC at 1.202.942.8090. The Code of
Ethics can also be viewed as part of the Fund's registration statement on the
SEC's EDGAR database at the SEC's Internet website at www.sec.gov. Copies may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: publicinfo@sec.gov., or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
|X| Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies
and Procedures under which the Fund votes proxies relating to securities
("portfolio proxies") held by the Fund. The Fund's primary consideration in
voting portfolio proxies is the financial interests of the Fund and its
shareholders. The Fund has retained an unaffiliated third-party as its agent to
vote portfolio proxies in accordance with the Fund's Portfolio Proxy Voting
Guidelines and to maintain records of such portfolio proxy voting. The Proxy
Voting Guidelines include provisions to address conflicts of interest that may
arise between the Fund and the Manager where a directly-controlled affiliate of
the Manager manages or administers the assets of a pension plan of a company
soliciting the proxy. The Fund's Portfolio Proxy Voting Guidelines on routine
and non-routine proxy proposals are summarized below.
o The Fund votes with the recommendation of the issuer's management on
routine matters, including election of directors nominated by management and
ratification of auditors, unless circumstances indicate otherwise. o In general,
the Fund opposes anti-takeover proposals and supports elimination of
anti-takeover proposals, absent unusual circumstances. o The Fund supports
shareholder proposals to reduce a super-majority vote requirement, and opposes
management proposals to add a super-majority vote requirement. o The Fund
opposes proposals to classify the board of directors. o The Fund supports
proposals to eliminate cumulative voting. o The Fund opposes re-pricing of stock
options. o The Fund generally considers executive compensation questions such as
stock option plans and bonus plans to be ordinary business activity. The Fund
analyzes stock option plans, paying particular attention to their dilutive
effect. While the Fund generally supports management proposals, the Fund opposes
plans it considers to be excessive.
The Fund is required to file new Form N-PX, with its complete proxy
voting record for the 12 months ended June 30th, no later than August 31st of
each year. The Fund's Form N-PX filing is available (i) without charge, upon
request, by calling the Fund toll-free at 1.800.525-7048 and (ii) on the SEC's
website at www.sec.gov.
|X| The Investment Advisory Agreement. The Manager provides investment advisory
and management services to the Fund under an investment advisory agreement
between the Manager and the Fund. The Manager selects securities for the Fund's
portfolio and handles its day-to-day business. The portfolio manager of the Fund
is employed by the Manager and is the person who is principally responsible for
the day-to-day management of the Fund's portfolio. Other members of the
Manager's Fixed Income Portfolio Team provide the portfolio managers with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class. The management fees paid by the Fund to the
Manager during its last three fiscal years were:
- --------------------------------------- -----------------------------------------------------------------------------
Fiscal Year ended 12/31: Management Fees Paid to OppenheimerFunds, Inc.
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2002 $3,389,414
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2003 $4,181,296
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2004 $3,796,106
- --------------------------------------- -----------------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss the Fund sustains for any
investment, adoption of any investment policy, or the purchase, sale or
retention of any security.
The agreement permits the Manager to act as investment advisor 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
advisor or general distributor. If the Manager shall no longer act as investment
advisor to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Until March 1991, Massachusetts Mutual Life Insurance Company was the
Fund's investment advisor. The Manager became the Fund's investment advisor
March 28, 1991, and the Manager engaged MassMutual as sub-advisor from March 28,
1991 until July 10, 1995.
|X| Annual Approval of Investment Advisory Agreement. Each year, the
Board of Trustees, including a majority of the Independent Trustees, is required
to approve the renewal of the investment advisory agreement. The Investment
Company Act requires that the Board request and evaluate and the Manager provide
such information as may be reasonably necessary to evaluate the terms of the
investment advisory agreement. The Board employs an independent consultant to
prepare a report that provides such information as the Board requests for this
purpose.
The Board also receives information about the 12b-1 distribution fees
the Fund pays. These distribution fees are reviewed and approved at a different
time of the year.
The Board reviewed the foregoing information in arriving at its
decision to renew the investment advisory agreement. Among other factors, the
Board considered: o The nature, cost, and quality of the services provided to
the Fund and its
shareholders;
o The profitability of the Fund to the Manager;
o The investment performance of the Fund in comparison to regular market
indices; o Economies of scale that may be available to the Fund from the
Manager; o Fees paid by other mutual funds for similar services; o The value and
quality of any other benefits or services received by the Fund
from its relationship with the Manager, and
o The direct and indirect benefits the Manager received from its
relationship with the Fund. These included services provided by
the Distributor and the Transfer Agent, and brokerage and soft
dollar arrangements permissible under Section 28(e) of the
Securities Exchange Act.
The Board considered that the Manager must be able to pay and retain
high quality personnel at competitive rates to provide services to the Fund. The
Board also considered that maintaining the financial viability of the Manager is
important so that the Manager will be able to continue to provide quality
services to the Fund and its shareholders in adverse times. The Board also
considered the investment performance of other mutual funds advised by the
Manager. The Board is aware that there are alternatives to the use of the
Manager.
These matters were also considered by the Independent Trustees meeting
separately from the full Board with experienced Counsel to the Fund and
experienced Counsel to the Independent Trustees who assisted the Board in its
deliberations. The Fund's Counsel and the Independent Trustees Counsel are
independent of the Manager within the meaning and intent of the SEC Rules
regarding the independence of counsel.
After careful deliberation, the Board, including the Independent
Trustees, concluded that it was in the best interest of shareholders to continue
the investment advisory agreement for another year. In arriving at a decision,
the Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board
judged the terms and conditions of the investment advisory agreement, including
the investment advisory fee, in light of all of the surrounding circumstances.
Portfolio Managers. The Fund's portfolio is managed by Angelo Manioudakis,
Benjamin Gord and Charles Moon (each is referred to as a "Portfolio
Manager" and collectively they are referred to as the "Portfolio
Managers"). They are the persons who are responsible for the day-to-day
management of the Fund’s investments.
Other Accounts Managed. In addition to managing the Fund's investment
portfolio, each Portfolio Manager also manages other investment portfolios and
other accounts, on behalf of the Manager or its affiliates. The following table
provides information, as of December 31, 2004, regarding the other portfolios
and accounts managed by a Portfolio Manager. No account has a performance-based
advisory fee:
Portfolio Manager Total Assets Total Assets in Total Assets
Registered in Registered Other Pooled Other Pooled
Investment Investment Investment Investment Other in Other
Companies Companies Vehicles Vehicles Accounts Accounts
Managed Managed* Managed Managed* Managed Managed*
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Angelo Manioudakis 15 $8,542.2 3 $116.0 1 $38.8
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Benjamin Gord 7 $4,857.2 3 $116.0 1 $38.8
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Charles Moon 7 $4,857.2 3 $116.0 1 $38.8
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
* In millions.
As indicated above, each of the Portfolio Managers also manages other
funds and accounts. Potentially, at times, those responsibilities could conflict
with the interests of the Fund. That may occur whether the investment strategies
of the other fund or account are the same as, or different from, the Fund's
investment objectives and strategies. For example the Portfolio Manager may need
to allocate investment opportunities between the Fund and another fund or
account having similar objectives or strategies, or he may need to execute
transactions for another fund or account that could have a negative impact on
the value of securities held by the Fund. Not all funds and accounts advised by
the Manager have the same management fee. If the management fee structure of
another fund or account is more advantageous to the Manager than the fee
structure of the Fund, the Manager could have an incentive to favor the other
fund or account. However, the Manager's compliance procedures and Code of Ethics
recognize the Manager's fiduciary obligations to treat all of its clients,
including the Fund, fairly and equitably, and are designed to preclude the
Portfolio Managers from favoring one client over another. It is possible, of
course, that those compliance procedures and the Code of Ethics may not always
be adequate to do so. At different times, one or more of the Fund's Portfolio
Managers may manage other funds or accounts with investment objectives and
strategies that are similar to those of the Fund, or may manage funds or
accounts with investment objectives and strategies that are different from those
of the Fund.
Compensation of the Portfolio Managers. The Fund's Portfolio Managers are
employed and compensated by the Manager, not the Fund. Under the Manager's
compensation program for its portfolio managers and portfolio analysts, their
compensation is based primarily on the investment performance results of the
funds and accounts they manage, rather than on the financial success of the
Manager. This is intended to align the portfolio managers and analysts interests
with the success of the funds and accounts and their investors. The Manager's
compensation structure is designed to attract and retain highly qualified
investment management professionals and to reward individual and team
contributions toward creating shareholder value. As of December 31, 2004 the
Portfolio Manager's compensation consisted of three elements: a base salary, an
annual discretionary bonus and eligibility to participate in long-term awards of
options and appreciation rights in regard to the common stock of the Manager's
holding company parent. Senior portfolio managers may also be eligible to
participate in the Manager's deferred compensation plan.
The base pay component of each portfolio manager is reviewed regularly
to ensure that it reflects the performance of the individual, is commensurate
with the requirements of the particular portfolio, reflects any specific
competence or specialty of the individual manager, and is competitive with other
comparable positions to help the Manager attract and retain talent. The annual
discretionary bonus is determined by senior management of the Manager and is
based on a number of factors, including a fund's pre-tax performance for periods
of up to five years, measured against the Lipper Corporate Debt A-rated
benchmark, an appropriate benchmark selected by management. Other factors
considered with respect to a portfolio manager's bonus include management
quality (such as style consistency, risk management, sector coverage, team
leadership and coaching) and organizational development. This compensation
structure is intended to be internally equitable and serve to reduce potential
conflicts of interest between the Fund and other funds and accounts managed by
the Portfolio Managers. The compensation structure of the other funds and
accounts managed by the Portfolio Managers is the same as the compensation
structure of the Fund, described above.
Share Ownership. As of December 31, 2004 each Portfolio Manager
beneficially owned shares of the Fund as follows:
Range of Shares Beneficially
Portfolio Manager Owned in the Fund
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Angelo Manioudakis None
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Benjamin Gord None
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Charles Moon None
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Rule 12b-1 under the Investment Company Act prohibits any fund from
compensating a broker or dealer for promoting or selling the fund's shares by
(1) directing to that broker or dealer any of the fund's portfolio transactions,
or (2) directing any other remuneration to that broker or dealer, such as
commissions, mark-ups, mark downs or other fees from the fund's portfolio
transactions, that were effected by another broker or dealer (these latter
arrangements are considered to be a type of "step-out" transaction). In other
words, a fund and its investment adviser cannot use the fund's brokerage for the
purpose of rewarding broker-dealers for selling the fund's shares.
However, the Rule permits funds to effect brokerage transactions
through firms that also sell fund shares, provided that certain procedures are
adopted to prevent a quid pro quo with respect to portfolio brokerage
allocations. As permitted by the Rule, the Manager has adopted procedures (and
the Fund's Board of Trustees has approved those procedures) that permit the Fund
to direct portfolio securities transactions to brokers or dealers that also
promote or sell shares of the Fund, subject to the "best execution"
considerations discussed above. Those procedures are designed to prevent: (1)
the Manager's personnel who effect the Fund's portfolio transactions from taking
into account a broker's or dealer's promotion or sales of the Fund shares when
allocating the Fund's portfolio transactions, and (2) the Fund, the Manager and
the Distributor from entering into agreements or understandings under which the
Manager directs or is expected to direct the Fund's brokerage directly, or
through a "step-out" arrangement, to any broker or dealer in consideration of
that broker's or dealer's promotion or sale of the Fund's shares or the shares
of any of the other Oppenheimer funds.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is
the primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise, brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, the Manager tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. The transactions under those combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. The investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by
a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use commissions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broaden the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
---------------------------------- -----------------------------------------------------------------
Fiscal Year Ended 12/31: Total Brokerage Commissions Paid by the Fund(1)
---------------------------------- -----------------------------------------------------------------
---------------------------------- -----------------------------------------------------------------
2002 $275,409
---------------------------------- -----------------------------------------------------------------
---------------------------------- -----------------------------------------------------------------
2003 $99,995
---------------------------------- -----------------------------------------------------------------
---------------------------------- -----------------------------------------------------------------
2004 $85,935(2)
---------------------------------- -----------------------------------------------------------------
1. Amounts do not include spreads or commissions on principal transactions
on a net trade basis.
2. In the fiscal year ended December 31, 2004, the amount of transactions
directed to brokers for research services was $0 and amount of the
commissions paid to broker-dealers for those services was $0.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's classes of shares. The Distributor bears the expenses
normally attributable to sales, including advertising and the cost of printing
and mailing prospectuses, other than those furnished to existing shareholders.
The Distributor is not obligated to sell a specific number of shares.
The sales charges and concessions paid to, or retained by, the
Distributor from the sale of shares and the contingent deferred sales charges
retained by the Distributor on the redemption of shares during the Fund's three
most recent fiscal years are shown in the tables below.
- --------------- ----------------------- -----------------------
Fiscal Year Aggregate Front-End Class A Front-End
Sales Charges
Ended 12/31: Sales Charges on Retained by
Class A Shares Distributor(1)
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2002 $1,617,689 $560,960
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2003 $1,149,874 $429,092
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2004 $1,102,190 $399,216
- --------------- ----------------------- -----------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
Fiscal Year Concessions on Class Concessions on Class Concessions on Class C Concessions on Class N
Ended 12/31: A Shares Advanced by B Shares Advanced by Shares Advanced by Shares Advanced by
Distributor(1) Distributor(1) Distributor(1) Distributor(1)
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2002 $160,349 $2,110,998 $306,867 $85,293(2)
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2003 $59,733 $1,109,974 $210,325 $82,084
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2004 $107,045 $502,881 $149,529 $96,389
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
1. The Distributor advances concession payments to financial intermediaries
for certain sales of Class A shares and for sales of Class B Class C and
Class N shares from its own resources at the time of sale.
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
Fiscal Year Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Deferred Sales Deferred Sales Deferred Sales
Ended 12/31: Charges Retained by Charges Retained by Deferred Sales Charges Charges Retained by
Distributor Distributor Retained by Distributor Distributor
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2002 $15,578 $903,519 $37,637 $29,346
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2003 $37,749 $773,520 $21,673 $49,744
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2004 $5,067 $600,703 $15,640 $26,286
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B, Class C and Class N
shares under Rule 12b-1 of the Investment Company Act. Under those plans the
Fund pays the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of the
particular class. Each plan has been approved by a vote of the Board of
Trustees, including a majority of the Independent Trustees(1), cast in person at
a meeting called for the purpose of voting on that plan.
Under the Plans, the Manager and the Distributor may make payments to
affiliates. In their sole discretion, they may also from time to time make
substantial payments from their own resources, which include the profits the
Manager derives from the advisory fees it receives from the Fund, to compensate
brokers, dealers, financial institutions and other intermediaries for providing
distribution assistance and/or administrative services or that otherwise promote
sales of the Fund's shares. These payments, some of which may be referred to as
"revenue sharing," may relate to the Fund's inclusion on a financial
intermediary's preferred list of funds offered to its clients.
Financial intermediaries, brokers and dealers may receive other
payments from the Distributor or the Manager from their own resources in
connection with the promotion and/or sale of shares of the Fund, including
payments to defray expenses incurred in connection with educational seminars and
meetings. The Manager or Distributor may share expenses incurred by financial
intermediaries in conducting training and educational meetings about aspects of
the Fund for employees of the intermediaries or for hosting client seminars or
meetings at which the Fund is discussed. In their sole discretion, the Manager
and/or the Distributor may increase or decrease the amount of payments they make
from their own resources for these purposes.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares 72 months after purchase, the Fund must obtain the
approval of both Class A and Class B shareholders for a proposed material
amendment to the Class A plan that would materially increase payments under the
plan. That approval must be by a majority of the shares of each class, voting
separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested persons" of the
Fund is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in the selection and nomination process as
long as the final decision as to selection or nomination is approved by a
majority of the Independent Trustees.
............Under the plans for a class, no payment will be made to any recipient
in any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. The Class A service plan
permits reimbursements to the Distributor at a rate of up to 0.25% of average
annual net assets of Class A shares. The Board has set the rate at that level.
The Distributor does not receive or retain the service fee on Class A shares in
accounts for which the Distributor has been listed as the broker-dealer of
record. While the plan permits the Board to authorize payments to the
Distributor to reimburse itself for services under the plan, the Board has not
yet done so, except in the case of the special arrangement described below,
regarding grandfathered retirement accounts. The Distributor makes payments to
recipients quarterly at an annual rate not to exceed 0.25% of the average annual
net assets consisting of Class A shares held in the accounts of the recipients
or their customers.
With respect to purchases of Class A shares subject to a contingent
deferred sales charge by certain retirement plans that purchased such shares
prior to March 1, 2001 ("grandfathered retirement accounts"), the Distributor
currently intends to pay the service fee to recipients in advance for the first
year after the shares are purchased. During the first year the shares are sold,
the Distributor retains the service fee to reimburse itself for the costs of
distributing the shares. After the first year shares are outstanding, the
Distributor makes service fee payments to recipients quarterly on those shares.
The advance payment is based on the net asset value of shares sold. Shares
purchased by exchange do not qualify for the advance service fee payment. If
Class A shares purchased by grandfathered retirement accounts are redeemed
during the first year after their purchase, the recipient of the service fees on
those shares will be obligated to repay the Distributor a pro rata portion of
the advance payment of the service fee made on those shares.
For the fiscal year ended December 31, 2004 payments under the Class A
plan totaled $870,851, of which $68,878 was retained by the Distributor under
the arrangement described above, regarding grandfathered retirement accounts,
and included $4,389 paid to an affiliate of the Distributor's parent company.
Any unreimbursed expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
|X| Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, distribution and service fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. Each plan provides for the Distributor
to be compensated at a flat rate, whether the Distributor's distribution
expenses are more or less than the amounts paid by the Fund under the plan
during the period for which the fee is paid. The types of services that
recipients provide are similar to the services provided under the Class A
service plan, described above.
Each plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after Class B,
Class C and Class N shares are purchased. After the first year Class B, Class C
or Class N shares are outstanding, after their purchase, the Distributor makes
service fee payments quarterly on those shares. The advance payment is based on
the net asset value of shares sold. Shares purchased by exchange do not qualify
for the advance service fee payment. If Class B, Class C or Class N shares are
redeemed during the first year after their purchase, the recipient of the
service fees on those shares will be obligated to repay the Distributor a pro
rata portion of the advance payment of the service fee made on those shares.
Class B, Class C or Class N shares may not be purchased by an investor directly
from the Distributor without the investor designating another broker-dealer of
record. If the investor no longer has another broker-dealer of record for an
existing account, the Distributor is automatically designated as the
broker-dealer of record, but solely for the purpose of acting as the investor's
agent to purchase the shares. In those cases, the Distributor retains the
asset-based sales charge paid on Class B, Class C and Class N shares, but does
not retain any service fees as to the assets represented by that account. The
Distributor does not receive or retain the service fee on Class B, Class C, or
Class N shares in accounts for which it is listed as the broker-dealer of
record.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.00% and the asset-based sales charge and service fees
increase Class N expenses by 0.50% of the net assets per year of the respective
classes.
The Distributor retains the asset-based sales charge on Class B and
Class N shares. The Distributor retains the asset-based sales charge on Class C
shares during the first year the shares are outstanding. It pays the asset-based
sales charge as an ongoing concession to the recipient on Class C shares
outstanding for a year or more. If a dealer has a special agreement with the
Distributor, the Distributor will pay the Class B, Class C or Class N service
fee and the asset-based sales charge to the dealer quarterly in lieu of paying
the sales concession and service fee in advance at the time of purchase.
The asset-based sales charge on Class B, Class C and Class N shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund pays the
asset-based sales charge to the Distributor for its services rendered in
distributing Class B, Class C and Class N shares. The payments are made to the
Distributor in recognition that the Distributor: o pays sales concessions to
authorized brokers and dealers at the time of sale and pays service fees as
described above, o may finance payment of sales concessions and/or the advance
of the service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate, o
employs personnel to support distribution of Class B, Class C and Class N
shares, o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses, o may not be able to
adequately compensate dealers that sell Class B, Class C and Class N shares
without receiving payment under the plans and therefore may not be able to offer
such Classes for sale absent the plans, o receives payments under the plans
consistent with the service fees and asset-based sales charges paid by other
non-proprietary funds that charge 12b-1 fees, o may use the payments under the
plan to include the Fund in various third-party distribution programs that may
increase sales of Fund shares, o may experience increased difficulty selling the
Fund's shares if payments under the plan are discontinued because most
competitor funds have plans that pay dealers for rendering distribution services
as much or more than the amounts currently being paid by the Fund, and o may not
be able to continue providing, at the same or at a lesser cost, the same quality
distribution sales efforts and services, or to obtain such services from brokers
and dealers, if the plan payments were to be discontinued.
The Distributor's actual expenses in selling Class B, Class C and Class
N shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and from the Fund under the plans. If
either the Class B, Class C or Class N plan is terminated by the Fund, the Board
of Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the plan was
terminated.
- ---------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Fiscal Year Ended 12/31/04
- ---------------------------------------------------------------------------------------------------------------------
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class: Total Payments Under Amount Retained by Distributor's Distributor's
Aggregate Unreimbursed Expenses
Unreimbursed Expenses as % of Net Assets of
Plan Distributor Under Plan Class
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class B Plan $1,677,194 $11,616(1) $3,522,475 2.37%
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class C Plan $860,147 $1,401,520(2) $1,649,652 1.95%
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class N Plan $106,918 $2,444,161(3) $447,604 1.75%
- -------------------- ----------------------- ------------------------ ----------------------- -----------------------
1. Includes $52,656 paid to an affiliate of the Distributor's parent company.
2. Includes $28,819 paid to an affiliate of the Distributor's parent company.
3. Includes $97,097 paid to an affiliate of the Distributor's parent company.
All payments under the Class B, Class C and Class N plans are subject
to the limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1.800.225.5677
or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the SEC. Those rules describe the types of performance data
that may be used and how it is to be calculated. In general, any advertisement
by the Fund of its performance data must include the average annual total
returns for the advertised class of shares of the Fund.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
o Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the
performance of each shareholder's account. Your account's
performance will vary from the model performance data if your
dividends are received in cash, or you buy or sell shares during
the period, or you bought your shares at a different time and
price than the shares used in the model.
o The Fund's performance returns may not reflect the effect of taxes
on dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, its yields and total
returns are not guaranteed and normally will fluctuate on a daily
basis.
o When an investor's shares are redeemed, they may be worth more or
less than their original cost.
o Yields and total returns for any given past period represent
historical performance information and are not, and should not be
considered, a prediction of future yields or returns.
The performance of each class of shares is shown separately, because
the performance of each class of shares will usually be different. That is
because of the different kinds of expenses each class bears. The yields and
total returns of each class of shares of the Fund are affected by market
conditions, the quality of the Fund's investments, the maturity of debt
investments, the types of investments the Fund holds, and its operating expenses
that are allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
o Standardized Yield. The "standardized yield" (sometimes referred to just as
"yield") is shown for a class of shares for a stated 30-day period. It is not
based on actual distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments for that period. It may therefore differ from
the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth
in rules adopted by the SEC, designed to assure uniformity in the way that all
funds calculate their yields:
Standardized Yield = 2[( a - b +1)(6) -1 ]
--------
cd
The symbols above represent the following factors: a = dividends and
interest earned during the 30-day period. b = expenses accrued for the period
(net of any expense assumptions). c = the average daily number of shares of that
class outstanding during the 30-day period that were entitled to receive
dividends. d = the maximum offering price per share of that class on the last
day of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized
yield for a 30-day period occurs at a constant rate for a six-month period
and is annualized at the end of the six-month period. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ for any
30-day period.
o Dividend Yield. The Fund may quote a "dividend yield" for each class of its
shares. Dividend yield is based on the dividends paid on a class of shares
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current
maximum initial sales charge. The maximum offering price for Class B, Class C
and Class N shares is the net asset value per share, without considering the
effect of contingent deferred sales charges. There is no sales charge on Class Y
shares. The Class A dividend yield may also be quoted without deducting the
maximum initial sales charge.
- ---------------------------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 12/31/04
- ---------------------------------------------------------------------------------------------------
- ----------------- --------------------------------------- -----------------------------------------
Class of Shares Standardized Yield Dividend Yield
- ----------------- --------------------------------------- -----------------------------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class A 3.85% 3.66% 10.33% 9.84%
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class B 3.10% N/A 9.58% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class C 3.10% N/A 9.58% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class N 3.60% N/A 10.07% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class Y 3.62% N/A 10.09% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
|X| Total Return Information. There are different types of "total
returns" to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering price) is
deducted from the initial investment ("P" in the formula below) (unless the
return is shown without sales charge, as described below). For Class B shares,
payment of the applicable contingent deferred sales charge is applied, depending
on the period for which the return is shown: 5.0% in the first year, 4.0% in the
second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in
the sixth year and none thereafter. For Class C shares, the 1.0% contingent
deferred sales charge is deducted for returns for the one-year period. For Class
N shares, the 1.0% contingent deferred sales charge is deducted for returns for
the one-year period, and total returns for the periods prior to 03/01/01 (the
inception date for Class N shares) are based on the Fund's Class A returns,
adjusted to reflect the higher Class N 12b-1 fees. There is no sales charge on
Class Y shares.
o Average Annual Total Return. The "average annual total return" of each class
is an average annual compounded rate of return for each year in a specified
number of years. It is the rate of return based on the change in value of a
hypothetical initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
ERV l/n - 1 Average Annual Total Return
P
o Average Annual Total Return (After Taxes on Distributions). The "average
annual total return (after taxes on distributions)" of Class A shares is an
average annual compounded rate of return for each year in a specified number of
years, adjusted to show the effect of federal taxes (calculated using the
highest individual marginal federal income tax rates in effect on any
reinvestment date) on any distributions made by the Fund during the specified
period. It is the rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a number of
years ("n" in the formula) to achieve an ending value ("ATVD" in the formula) of
that investment, after taking into account the effect of taxes on Fund
distributions, but not on the redemption of Fund shares, according to the
following formula:
ATVD l/n - 1 = Average Annual Total Return (After Taxes on Distributions)
- ---
P
o Average Annual Total Return (After Taxes on Distributions and Redemptions).
The "average annual total return (after taxes on distributions and redemptions)"
of Class A shares is an average annual compounded rate of return for each year
in a specified number of years, adjusted to show the effect of federal taxes
(calculated using the highest individual marginal federal income tax rates in
effect on any reinvestment date) on any distributions made by the Fund during
the specified period and the effect of capital gains taxes or capital loss tax
benefits (each calculated using the highest federal individual capital gains tax
rate in effect on the redemption date) resulting from the redemption of the
shares at the end of the period. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula below)
held for a number of years ("n" in the formula) to achieve an ending value
("ATVDR" in the formula) of that investment, after taking into account the
effect of taxes on Fund distributions and on the redemption of Fund shares,
according to the following formula:
ATVDR l/n - 1 = Average Annual Total Return (After Taxes on Distributions and Redemptions)
- ---
P
o Cumulative Total Return. The "cumulative total return" calculation measures
the change in value of a hypothetical investment of $1,000 over an entire period
of years. Its calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual basis.
Cumulative total return is determined as follows:
= Total Return
ERV - P
- ----------------
P
o Total Returns at Net Asset Value. From time to time the Fund may also quote a
cumulative or an average annual total return "at net asset value" (without
deducting sales charges) for Class A, Class B, Class C or Class N shares. There
is no sales charge on Class Y shares. Each is based on the difference in net
asset value per share at the beginning and the end of the period for a
hypothetical investment in that class of shares (without considering front-end
or contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions.
- ----------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 12/31/04
- ----------------------------------------------------------------------------------------------------------------------
- -------------- ------------------------- -----------------------------------------------------------------------------
Class of Cumulative Total
Returns (10 years or
Shares life-of-class) Average Annual Total Returns
- -------------- ------------------------- -----------------------------------------------------------------------------
- -------------- ------------------------- ------------------------- ------------------------- -------------------------
1-Year 5-Year 10-Year
(or life of class if (or life of class if
less) less)
- -------------- ------------------------- ------------------------- ------------------------- -------------------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class A(1) 84.94% 94.17% -0.08% 4.90% 5.69% 6.72% 6.34% 6.86%
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class B(2) 85.70% 85.70% -0.79% 4.21% 5.62% 5.94% 6.39% 6.39%
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class C(3) 61.08% 61.08% 3.12% 4.12% 5.95% 5.95% 5.16% 5.16%
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class N(4) 25.07% 25.07% 3.71% 4.71% 6.01% 6.01% N/A N/A
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class Y(5) 46.57% 46.57% 5.30% 5.30% 7.32% 7.32% 5.89% 5.89%
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1. Inception of Class A: 04/15/88 2. Inception of Class B: 05/03/93 3. Inception
of Class C: 07/11/95 4. Inception of Class N: 03/01/01 5. Inception of Class Y:
04/27/98
- ----------------------------------------------------------------------------------------------------------------
Average Annual Total Returns for Class A Shares (After Sales Charge)
For the Periods Ended 12/31/04
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------- ------------------------ ----------------------
1-Year 5-Year 10-Year
(or life of class if (or life of class if
less)
less)
- ------------------------------------------ --------------------- ------------------------ ----------------------
- ------------------------------------------ --------------------- ------------------------ ----------------------
After Taxes on Distributions -1.54% 3.47% 3.81%
- ------------------------------------------ --------------------- ------------------------ ----------------------
- ------------------------------------------ --------------------- ------------------------ ----------------------
After Taxes on Distributions and -0.07% 3.45% 3.81%
Redemption of Fund Shares
- ------------------------------------------ --------------------- ------------------------ ----------------------
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of shares by Lipper, Inc. ("Lipper"). Lipper
is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods in categories based on
investment styles. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|X| Morningstar Ratings. From time to time the Fund may publish the star
rating of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar rates mutual funds in
their specialized market sector. The Fund is rated among intermediate-term bond
funds.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. For each fund with at least a three-year history,
Morningstar calculates a Morningstar Rating(TM) based on a Morningstar
Risk-Adjusted Return measure that accounts for variation in a fund's monthly
performance (including the effects of sales charges, loads, and redemption
fees), placing more emphasis on downward variations and rewarding consistent
performance. The top 10% of funds in each category receive 5 stars, the next
22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2
stars, and the bottom 10% receive 1 star. (Each share class is counted as a
fraction of one fund within this scale and rated separately, which may cause
slight variations in the distribution percentages.) The Overall Morningstar
Rating for a fund is derived from a weighted average of the performance figures
associated with its three-, five-and ten-year (if applicable) Morningstar Rating
metrics.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share
classes to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the
Manager or Transfer Agent, and of the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder and
investor services by third parties may include comparisons of their services to
those provided by other mutual fund families selected by the rating or ranking
services. They may be based upon the opinions of the rating or ranking service
itself, using its research or judgment, or based upon surveys of investors,
brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales
literature the total return performance of a hypothetical investment account
that includes shares of the Fund and other Oppenheimer funds. The combined
account may be part of an illustration of an asset allocation model or similar
presentation. The account performance may combine total return performance of
the Fund and the total return performance of other Oppenheimer funds included in
the account. Additionally, from time to time, the Fund's advertisements and
sales literature may include, for illustrative or comparative purposes,
statistical data or other information about general or specific market and
economic conditions. That may include, for example, o information about the
performance of certain securities or commodities markets or segments of those
markets, o information about the performance of the economies of particular
countries or regions, o the earnings of companies included in segments of
particular industries, sectors, securities markets, countries or regions, o the
availability of different types of securities or offerings of securities, o
information relating to the gross national or gross domestic product of the
United States or other countries or regions, o comparisons of various market
sectors or indices to demonstrate performance, risk, or other characteristics of
the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
When you purchase shares of the Fund, your ownership interest in the shares of
the Fund will be recorded as a book entry on the records of the Fund. The Fund
will not issue or re-register physical share certificates.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $50 and shareholders must invest at least $500 before an Asset
Builder Plan (described below) can be established on a new account. Accounts
established prior to November 1, 2002 will remain at $25 for additional
purchases. Shares will be purchased on the regular business day the Distributor
is instructed to initiate the Automated Clearing House ("ACH") transfer to buy
the shares. Dividends will begin to accrue on shares purchased with the proceeds
of ACH transfers on the business day the Fund receives Federal Funds for the
purchase through the ACH system before the close of The New York Stock Exchange
(the "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 three days after the transfers are initiated. If
the proceeds of the ACH transfer are not received on a timely basis, the
Distributor reserves the right to cancel the purchase order. The Distributor and
the Fund are not responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which
the Distributor acts as the distributor and currently include the following:
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund
Oppenheimer Core Bond Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Convertible Securities Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Developing Markets Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest Balanced Fund
Oppenheimer Discovery Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Equity Fund, Inc. Oppenheimer Real Asset Fund
Oppenheimer Global Fund Oppenheimer Real Estate Fund
Oppenheimer Global Opportunities Fund Oppenheimer Rochester National Municipals
Oppenheimer Gold & Special Minerals Fund Oppenheimer Select Value Fund
Oppenheimer Growth Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer High Yield Fund Oppenheimer Small Cap Value Fund
Oppenheimer International Bond Fund Oppenheimer Strategic Income Fund
Oppenheimer International Growth Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Small Company Fund Oppenheimer U.S. Government Trust
Oppenheimer International Value Fund Oppenheimer Value Fund
Oppenheimer Limited Term California Municipal Fund Limited-Term New York Municipal Fund
Oppenheimer Limited-Term Government Fund Rochester Fund Municipals
And the following money market funds:
Oppenheimer Cash Reserves Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds described above except the money market funds.
Under certain circumstances described in this Statement of Additional
Information, redemption proceeds of certain money market fund shares may be
subject to a contingent deferred sales charge.
Letters of Intent. Under a Letter of Intent ("Letter"), you can reduce the sales
charge rate that applies to your purchases of Class A shares if you purchase
Class A, Class B or (effective March 18, 2005) Class C shares of the Fund or
other Oppenheimer funds during a 13-month period. The total amount of your
purchases of Class A, Class B and (effective March 18, 2005) Class C shares will
determine the sales charge rate that applies to your Class A share purchases
during that period. You can choose to include purchases that you made up to 90
days before the date of the Letter. Class A shares of Oppenheimer Money Market
Fund and Oppenheimer Cash Reserves on which you have not paid a sales charge and
any Class N shares you purchase, or may have purchased, will not be counted
towards satisfying the purchases specified in a Letter.
A Letter is an investor's statement in writing to the Distributor of
his or her intention to purchase a specified value of Class A, Class B and
(effective March 18, 2005) Class C shares of the Fund and other Oppenheimer
funds during a 13-month period (the "Letter period"). At the investor's request,
this may include purchases made up to 90 days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount of
purchases of shares which will equal or exceed the amount specified in the
Letter. Purchases made by reinvestment of dividends or capital gains
distributions and purchases made at net asset value (i.e. without a sales
charge) do not count toward satisfying the amount of the Letter.
Each purchase of Class A shares under the Letter will be made at the
offering price (including the sales charge) that would apply to a single
lump-sum purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter period,
when added to the value (at offering price) of the investor's holdings of shares
on the last day of that period, do not equal or exceed the intended purchase
amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow,"
below (those terms may be amended by the Distributor from time to time). The
investor agrees that shares equal in value to 5% of the intended purchase amount
will be held in escrow by the Transfer Agent subject to the Terms of Escrow.
Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the application used for a Letter. If
those terms are amended, as they may be from time to time by the Fund, the
investor agrees to be bound by the amended terms and that those amendments will
apply automatically to existing Letters.
If the total eligible purchases made during the Letter period do not
equal or exceed the intended purchase amount, the concessions previously paid to
the dealer of record for the account and the amount of sales charge retained by
the Distributor will be adjusted to the rates applicable to actual total
purchases. If total eligible purchases during the Letter period exceed the
intended purchase amount and exceed the amount needed to qualify for the next
sales charge rate reduction set forth in the Prospectus, the sales charges paid
will be adjusted to the lower rate. That adjustment will be made only if and
when the dealer returns to the Distributor the excess of the amount of
concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of
shares of the Fund and other Oppenheimer funds by OppenheimerFunds prototype
401(k) plans under a Letter. If the intended purchase amount under a Letter
entered into by an OppenheimerFunds prototype 401(k) plan is not purchased by
the plan by the end of the Letter period, there will be no adjustment of
concessions paid to the broker-dealer or financial institution of record for
accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter when placing any purchase
orders for the investor during the Letter period. All of such purchases must be
made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by
the Transfer Agent. For example, if the intended purchase amount is
$50,000, the escrow shall be shares valued in the amount of $2,500
(computed at the offering price adjusted for a $50,000 purchase). Any
dividends and capital gains distributions on the escrowed shares will be
credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the 13-month Letter period, the escrowed shares will be promptly
released to the investor.
3. If, at the end of the 13-month Letter period the total purchases
pursuant to the Letter are less than the intended purchase amount specified
in the Letter, the investor must remit to the Distributor an amount equal
to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days
after a request from the Distributor or the dealer, the Distributor will,
within sixty days of the expiration of the Letter, redeem the number of
escrowed shares necessary to realize such difference in sales charges. Full
and fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to the
payment of such additional sales charge, the sales charge will be withheld
from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints
the Transfer Agent as attorney-in-fact to surrender for redemption any or
all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject
to a Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1)
Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred
sales charge or (2) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "How to Exchange Shares" and the
escrow will be transferred to that other fund.
Asset Builder Plans. As explained in the Prospectus, you must initially
establish your account with $500. Subsequently, you can establish an Asset
Builder Plan to automatically purchase additional shares directly from a bank
account for as little as $50. For those accounts established prior to November
1, 2002 and which have previously established Asset Builder Plans, additional
purchases will remain at $25. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans are available only if
your bank is an ACH member. Asset Builder Plans may not be used to buy shares
for OppenheimerFunds employer-sponsored qualified retirement accounts. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use their
fund account to make monthly automatic purchases of shares of up to four other
Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend or discontinue offering Asset
Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charges or at reduced sales charge rates, as
described in an Appendix to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. ("Merrill Lynch") or an independent record
keeper that has a contract or special arrangement with Merrill Lynch. If on the
date the plan sponsor signed the Merrill Lynch record keeping service agreement
the plan has less than $1 million in assets invested in applicable investments
(other than assets invested in money market funds), then the retirement plan may
purchase only Class C shares of the Oppenheimer funds. If on the date the plan
sponsor signed the Merrill Lynch record keeping service agreement the plan has
$1 million or more in assets but less than $5 million in assets invested in
applicable investments (other than assets invested in money market funds), then
the retirement plan may purchase only Class N shares of the Oppenheimer funds.
If on the date the plan sponsor signed the Merrill Lynch record keeping service
agreement the plan has $5 million or more in assets invested in applicable
investments (other than assets invested in money market funds), then the
retirement plan may purchase only Class A shares of the Oppenheimer funds.
OppenheimerFunds has entered into arrangements with certain record
keepers whereby the Transfer Agent compensates the record keeper for its record
keeping and account servicing functions that it performs on behalf of the
participant level accounts of a retirement plan. While such compensation may act
to reduce the record keeping fees charged by the retirement plan's record
keeper, that compensation arrangement may be terminated at any time, potentially
affecting the record keeping fees charged by the retirement plan's record
keeper.
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 values of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B,
Class C or Class N shares and the dividends payable on Class B, Class C or Class
N shares will be reduced by incremental expenses borne solely by that class.
Those expenses include the asset-based sales charges to which Class B, Class C
and Class N shares are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B,
Class C and Class N shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B, Class C and Class
N shares is the same as that of the initial sales charge on Class A shares - to
compensate the Distributor and brokers, dealers and financial institutions that
sell shares of the Fund. A salesperson who is entitled to receive compensation
from his or her firm for selling Fund shares may receive different levels of
compensation for selling one class of shares rather than another.
The Distributor will not accept purchase order of $100,000 or more for
Class B shares or a purchase order of $1 million or more to purchase Class C
shares on behalf of a single investor (not including dealer "street name" or
omnibus accounts).
|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases
of Class A shares at net asset value whether or not subject to a contingent
deferred sales charge as described in the Prospectus, no sales concessions will
be paid to the broker-dealer of record, as described in the Prospectus, on sales
of Class A shares purchased with the redemption proceeds of shares of another
mutual fund offered as an investment option in a retirement plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor, if the purchase occurs more than 30 days after
the Oppenheimer funds are added as an investment option under that plan.
Additionally, that concession will not be paid on purchases of Class A shares by
a retirement plan made with the redemption proceeds of Class N shares of one or
more Oppenheimer funds held by the plan for more than 18 months.
|X| Class B Conversion. Under current interpretations of applicable
federal income tax law by the Internal Revenue Service, the conversion of Class
B shares to Class A shares 72 months after purchase is not treated as a taxable
event for the shareholder. If those laws or the IRS interpretation of those laws
should change, the automatic conversion feature may be suspended. In that event,
no further conversions of Class B shares would occur while that suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the shareholder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer than six
years.
|X| Availability of Class N Shares. In addition to the description of the
types of retirement plans which may purchase Class N shares contained in the
prospectus, Class N shares also are offered to the following: o to all rollover
IRAs (including SEP IRAs and SIMPLE IRAs), o to all rollover contributions made
to Individual 401(k) plans, Profit-Sharing Plans and Money Purchase Pension
Plans, o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and
Ascender retirement plans, o to all trustee-to-trustee IRA transfers, o to all
90-24 type 403(b) transfers, o to Group Retirement Plans (as defined in Appendix
C to this Statement of Additional Information) which have entered into a special
agreement with the Distributor for that purpose, o to Retirement Plans qualified
under Sections 401(a) or 401(k) of the Internal Revenue Code, the recordkeeper
or the plan sponsor for which has entered into a special agreement with the
Distributor, o to Retirement Plans of a plan sponsor where the aggregate assets
of all such plans invested in the Oppenheimer funds is $500,000 or more, o to
OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with
the redemption proceeds of Class A shares of one or more Oppenheimer funds, and
o to certain customers of broker-dealers and financial advisors that are
identified in a special agreement between the broker-dealer or financial advisor
and the Distributor for that purpose.
The sales concession and the advance of the service fee, as described
in the Prospectus, will not be paid to dealers of record on sales of Class N
shares on:
purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class A shares of one or more Oppenheimer funds
(other than rollovers from an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan to any IRA invested in the
Oppenheimer funds),
purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class C shares of one or more Oppenheimer funds
held by the plan for more than one year (other than rollovers
from an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k)
plan to any IRA invested in the Oppenheimer funds), and
on purchases of Class N shares by an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan made with the redemption
proceeds of Class A shares of one or more Oppenheimer funds.
No sales concessions will be paid to the broker-dealer of record, as
described in the Prospectus, on sales of Class N shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset values of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Fund Account Fees. As stated in the Prospectus, a $12 annual "Minimum Balance
Fee" is assessed on each Fund account with a share balance valued under $500.
The Minimum Balance Fee is automatically deducted from each such Fund account on
or about the second to last business day of September.
Listed below are certain cases in which the Fund has elected, in its
discretion, not to assess the Fund Account Fees. These exceptions are subject to
change: o A fund account whose shares were acquired after September 30th of the
prior year; o A fund account that has a balance below $500 due to the automatic
conversion of shares from Class B to Class A shares. However, once all Class B
shares held in the account have been converted to Class A shares the new account
balance may become subject to the Minimum Balance Fee; o Accounts of
shareholders who elect to access their account documents electronically via eDoc
Direct; o A fund account that has only certificated shares and, has a balance
below $500 and is being escheated; o Accounts of shareholders that are held by
broker-dealers under the NSCC Fund/SERV system; o Accounts held under the
Oppenheimer Legacy Program and/or holding certain Oppenheimer Variable Account
Funds; o Omnibus accounts holding shares pursuant to the Pinnacle, Ascender,
Custom Plus, Recordkeeper Pro and Pension Alliance Retirement Plan programs; and
o A fund account that falls below the $500 minimum solely due to market
fluctuations within the 12-month period preceding the date the fee is deducted.
To access account documents electronically via eDocs Direct, please
visit the Service Center on our website at www.oppenheimerfunds.com or call
1.888.470.0862 for instructions.
The Fund reserves the authority to modify Fund Account Fees in its
discretion.
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
the Exchange on each day that the Exchange is open. The calculation is done by
dividing the value of the Fund's net assets attributable to a class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., Eastern time, but may close earlier on some other days (for
example, in case of weather emergencies or on days falling before a U.S.
holiday). All references to time in this Statement of Additional Information
mean "Eastern time." The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values 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. Additionally, trading on European and Asian stock
exchanges and over-the-counter markets normally is completed before the close of
the Exchange.
Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those securities
are determined, but before the close of the Exchange, will not be reflected in
the Fund's calculation of its net asset values that day unless the Manager
determines that the event is likely to effect a material change in the value of
the security. The Manager, or an internal valuation committee established by the
Manager, as applicable, may establish a valuation, under procedures established
by the Board and subject to the approval, ratification and confirmation by the
Board at its next ensuing meeting
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows: o Equity securities traded on a U.S. securities
exchange or on Nasdaq(R) are valued as follows: (1) if last sale information is
regularly reported, they are valued at the last reported sale price on the
principal exchange on which they are traded or on Nasdaq(R), as applicable, on
that day, or (2) if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the valuation date if
it is within the spread of the closing "bid" and "asked" prices on the valuation
date or, if not, at the closing "bid" price on the valuation date. o Equity
securities traded on a foreign securities exchange generally are valued in one
of the following ways: (1) at the last sale price available to the pricing
service approved by the Board of Trustees, or (2) at the last sale price
obtained by the Manager from the report of the principal exchange on which the
security is traded at its last trading session on or immediately before the
valuation date, or (3) at the mean between the "bid" and "asked" prices obtained
from the principal exchange on which the security is traded or, on the basis of
reasonable inquiry, from two market makers in the security. o Long-term debt
securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "asked" prices determined by a portfolio pricing
service approved by the Fund's Board of Trustees or obtained by the Manager from
two active market makers in the security on the basis of reasonable inquiry. o
The following securities are valued at the mean between the "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of Trustees
or obtained by the Manager from two active market makers in the security on the
basis of reasonable inquiry: (1) debt instruments that have a maturity of more
than 397 days when issued, (2) debt instruments that had a maturity of 397 days
or less when issued and have a remaining maturity of more than 60 days, and (3)
non-money market debt instruments that had a maturity of 397 days or less when
issued and which have a remaining maturity of 60 days or less. o The following
securities are valued at cost, adjusted for amortization of premiums and
accretion of discounts: (1) money market debt securities held by a non-money
market fund that had a maturity of less than 397 days when issued that have a
remaining maturity of 60 days or less, and (2) debt instruments held by a money
market fund that have a remaining maturity of 397 days or less. o Securities
(including restricted securities) not having readily-available market quotations
are valued at fair value determined under the Board's procedures. If the Manager
is unable to locate two market makers willing to give quotes, a security may be
priced at the mean between the "bid" and "asked" prices provided by a single
active market maker (which in certain cases may be the "bid" price if no "asked"
price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer or
pricing service that the Manager has determined to be reliable are used to value
foreign currency, including forward contracts, and to convert to U.S. dollars
securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on Nasdaq(R), as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on Nasdaq(R) on the
valuation date. If not, the value shall be the closing bid price on the
principal exchange or on Nasdaq(R) on the valuation date. If the put, call or
future is not traded on an exchange or on Nasdaq(R), it shall be valued by the
mean between "bid" and "asked" prices obtained by the Manager from two active
market makers. In certain cases that may be at the "bid" price if no "asked"
price is available.
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares
set forth in the Prospectus.
Checkwriting. When a check is presented to United Missouri Bank (the "Bank") for
clearance, the Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check.
This enables the shareholder to continue receiving dividends on those shares
until the check is presented to the Fund. Checks may not be presented for
payment at the offices of the Bank or the Fund's custodian bank. This limitation
does not affect the use of checks for the payment of bills or to obtain cash at
other banks. The Fund reserves the right to amend, suspend or discontinue
offering checkwriting privileges at any time. The Fund will provide you notice
whenever it is required to do so by applicable law.
In choosing to take advantage of the Checkwriting privilege, by signing
the account application or by completing a Checkwriting card, each individual
who signs: (1) for individual accounts, represents that they are the registered
owner(s) of
the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other
entities, represents that they are an officer, general partner,
trustee or other fiduciary or agent, as applicable, duly
authorized to act on behalf of the registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which
the Fund's drafts (checks) are payable to pay all checks drawn on
the Fund account of such person(s) and to redeem a sufficient
amount of shares from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to
be honored if there is a single signature on checks drawn against
joint accounts, or accounts for corporations, partnerships, trusts
or other entities, the signature of any one signatory on a check
will be sufficient to authorize payment of that check and
redemption from the account, even if that account is registered in
the names of more than one person or more than one authorized
signature appears on the Checkwriting card or the application, as
applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall
incur any liability for that amendment or termination of
checkwriting privileges or for redeeming shares to pay checks
reasonably believed by them to be genuine, or for returning or not
paying checks that have not been accepted for any reason.
Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of
redemption proceeds may be delayed if the Fund's custodian bank is not open for
business on a day when the Fund would normally authorize the wire to be made,
which is usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next bank
business day on which the Fund is open for business. No dividends will be paid
on the proceeds of redeemed shares awaiting transfer by Federal Funds wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of: o Class A shares purchased
subject to an initial sales charge or Class A shares
on which a contingent deferred sales charge was paid, or o Class B
shares that were subject to the Class B contingent deferred sales
charge when redeemed.
The reinvestment may be made without sales charge only in Class A
shares of the Fund or any of the other Oppenheimer funds into which shares of
the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C, Class N or Class Y shares. The Fund may amend, suspend or
cease offering this reinvestment privilege at any time as to shares redeemed
after the date of such amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, under certain circumstances, the
Board of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash. In that case, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of liquid
securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $1,000 or such lesser amount as the
Board may fix. The Board will not cause the involuntary redemption of shares in
an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some
but not all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities described in
the Prospectus under "How to Buy Shares" for the imposition of the Class B,
Class C and Class N 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, SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial
plans, 401(k) plans or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its
address listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution
is premature; and
(3) conform to the requirements of the plan and the Fund's other
redemption requirements.
Participants (other than self-employed plan sponsors) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to
special requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed and submitted to the
Transfer Agent before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the Internal
Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be
submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer
Agent with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the Distributor, and the
Transfer Agent assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws and will not be responsible for
any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of the Exchange on a
regular business day, it will be processed at that day's net asset value if the
order was received by the dealer or broker from its customers prior to the time
the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may do so
earlier on some days. Additionally, the order must have been transmitted to and
received by the Distributor prior to its close of business that day (normally
5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this
procedure, payment will be made within three business days after the shares have
been redeemed upon the Distributor's receipt of the required redemption
documents in proper form. The signature(s) of the registered owners on the
redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic
Withdrawal Plan payments transferred to the bank account designated on the
account application or by signature-guaranteed instructions sent to the Transfer
Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the
account application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested.
The Fund reserves the right to amend, suspend or discontinue offering these
plans at any time without prior notice. Because of the sales charge assessed on
Class A share purchases, shareholders should not make regular additional Class A
share purchases while participating in an Automatic Withdrawal Plan. Class B,
Class C and Class N shareholders should not establish automatic withdrawal
plans, because of the potential imposition of the contingent deferred sales
charge on such withdrawals (except where the Class B, Class C or Class N
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $50.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the plan application so that the shares represented by the certificate may be
held under the plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset
value per share determined on the redemption date. Checks or AccountLink
payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment, according to the choice specified in writing by the Planholder. Receipt
of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a plan at any time by writing to the
Transfer Agent. The Fund may also give directions to the Transfer Agent to
terminate a plan. The Transfer Agent will also terminate a plan upon its receipt
of evidence satisfactory to it that the Planholder has died or is legally
incapacitated. Upon termination of a plan by the Transfer Agent or the Fund,
shares that have not been redeemed will be held in uncertificated form in the
name of the Planholder. The account will continue as a dividend-reinvestment,
uncertificated account unless and until proper instructions are received from
the Planholder, his or her executor or guardian, or another authorized person.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a
single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
of shares by calling the Distributor.
o All of the Oppenheimer funds currently offer Class A, B, C, N and Y
shares with the following exceptions:
The following funds only offer Class A shares:
Centennial California Tax Exempt Trust Centennial New York Tax Exempt Trust
Centennial Government Trust Centennial Tax Exempt Trust
Centennial Money Market Trust
The following funds do not offer Class N shares:
Limited Term New York Municipal Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main Street Fund II
Oppenheimer AMT-Free New York Municipals Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Rochester National Municipals
Oppenheimer International Value Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Limited Term California Municipal Fund Rochester Fund Municipals
Oppenheimer Limited Term Municipal Fund
Oppenheimer Money Market Fund, Inc.
The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer International Small Company Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Rochester National Municipals
Oppenheimer Developing Markets Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Small Cap Value Fund
Oppenheimer International Growth Fund Oppenheimer Total Return Bond Fund
o Oppenheimer Money Market Fund, Inc. only offers Class A and Class Y shares.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for shares
of any other fund.
o Class B, Class C and Class N shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of
other Oppenheimer funds or through OppenheimerFunds-sponsored 401(k)
plans.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
o Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares
of any money market fund purchased without a sales charge may be
exchanged for shares of Oppenheimer funds offered with a sales charge
upon payment of the sales charge. They may also be used to purchase
shares of Oppenheimer funds subject to an early withdrawal charge or
contingent deferred sales charge.
o Shares of the Fund acquired by reinvestment of dividends or
distributions from any of the other Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made
with the Distributor may be exchanged at net asset value for shares of
any of the Oppenheimer funds.
o Shares of Oppenheimer Principal Protected Main Street Fund may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund until after the expiration of the warranty period
(8/5/2010).
o Shares of Oppenheimer Principal Protected Main Street Fund II may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund II until after the expiration of the warranty period
(2/4/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund III until after the expiration of the warranty period
(12/6/2011).
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days' notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No
contingent deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge, with the following
exceptions:
o When Class A shares of any Oppenheimer fund (other than Rochester National
Municipals and Rochester Fund Municipals) acquired by exchange of Class A shares
of any Oppenheimer fund purchased subject to a Class A contingent deferred sales
charge are redeemed within 18 months measured from the beginning 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.
o When Class A shares of Rochester National Municipals and Rochester Fund
Municipals acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within 24 months of the beginning 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.
o If any Class A shares of another Oppenheimer fund that are exchanged for Class
A shares of Oppenheimer Senior Floating Rate Fund are subject to the Class A
contingent deferred sales charge of the other Oppenheimer fund at the time of
exchange, the holding period for that Class A contingent deferred sales charge
will carry over to the Class A shares of Oppenheimer Senior Floating Rate Fund
acquired in the exchange. The Class A shares of Oppenheimer Senior Floating Rate
Fund acquired in that exchange will be subject to the Class A Early Withdrawal
Charge of Oppenheimer Senior Floating Rate Fund if they are repurchased before
the expiration of the holding period.
o When Class A shares of Oppenheimer Cash Reserves and Oppenheimer Money Market
Fund, Inc. acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within the Class A holding period of the fund from which the shares were
exchanged, the Class A contingent deferred sales charge of the fund from which
the shares were exchanged is imposed on the redeemed shares.
o With respect to Class B shares (other than Limited-Term Government Fund,
Limited Term Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer
Capital Preservation Fund and Oppenheimer Senior Floating Rate Fund), the Class
B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within six years of the initial purchase of the
exchanged Class B shares.
o With respect to Class B shares of Limited-Term Government Fund, Limited Term
Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer Capital
Preservation Fund and Oppenheimer Senior Floating Rate Fund, the Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 5 years of the initial purchase of the
exchanged Class B shares.
o With respect to Class C 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.
o With respect to Class N shares, a 1% contingent deferred sales charge will be
imposed if the retirement plan (not including IRAs and 403(b) plans) is
terminated or Class N shares of all Oppenheimer funds are terminated as an
investment option of the plan and Class N shares are redeemed within 18 months
after the plan's first purchase of Class N shares of any Oppenheimer fund or
with respect to an individual retirement plan or 403(b) plan, Class N shares are
redeemed within 18 months of the plan's first purchase of Class N shares of any
Oppenheimer fund.
o When Class B, Class C or Class N 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, Class C or Class N contingent deferred sales charge
will be followed in determining the order in which the shares are exchanged.
Before exchanging shares, shareholders should take into account how the exchange
may affect any contingent deferred sales charge that might be imposed in the
subsequent redemption of remaining shares.
Shareholders owning shares of more than one class must specify which
class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a prospectus of that fund
before the exchange request may be submitted. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.
When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B, Class C and Class N
shares are expected to be lower than dividends on Class A and Class Y shares.
That is because of the effect of the asset-based sales charge on Class B, Class
C and Class N shares. Those dividends will also differ in amount as a
consequence of any difference in the net asset values of the different classes
of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The
federal tax treatment of the Fund's dividends and capital gains distributions is
briefly highlighted in the Prospectus. The following is only a summary of
certain additional tax considerations generally affecting the Fund and its
shareholders.
The tax discussion in the Prospectus and this Statement of Additional
Information is based on tax law in effect on the date of the Prospectus and this
Statement of Additional Information. Those laws and regulations may be changed
by legislative, judicial, or administrative action, sometimes with retroactive
effect. State and local tax treatment of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the treatment
under the Internal Revenue Code described below. Potential purchasers of shares
of the Fund are urged to consult their tax advisers with specific reference to
their own tax circumstances as well as the consequences of federal, state and
local tax rules affecting an investment in the Fund.
|X| Qualification as a Regulated Investment Company. The Fund has elected to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, the Fund is
not subject to federal income tax on the portion of its net investment income
(that is, taxable interest, dividends, and other taxable ordinary income, net of
expenses) and capital gain net income (that is, the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders. 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 their Fund shares are held in a retirement account or the
shareholder is otherwise exempt from tax).
The Internal Revenue Code contains a number of complex tests relating
to qualification that the Fund might not meet in a particular year. If it did
not qualify as a regulated investment company, the Fund would be treated for tax
purposes as an ordinary corporation and would receive no tax deduction for
payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute
at least 90% of its investment company taxable income (in brief, net investment
income and the excess of net short-term capital gain over net long-term capital
loss) for the taxable year. The Fund must also satisfy certain other
requirements of the Internal Revenue Code, some of which are described below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within 12 months after the close of the taxable year, will be
considered distributions of income and gains for the taxable year and will
therefore count toward satisfaction of the above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies (to the extent such currency gains are
directly related to the regulated investment company's principal business of
investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under that test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items (including receivables), U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers. As to each of those issuers, the Fund must not have invested more than
5% of the value of the Fund's total assets in securities of each such issuer and
the Fund must not hold more than 10% of the outstanding voting securities of
each such issuer. No more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. For purposes of this test, obligations issued or
guaranteed by certain agencies or instrumentalities of the U.S. government are
treated as U.S. government securities.
|X| Excise Tax on Regulated Investment Companies. Under the Internal Revenue
Code, by December 31 each year, the Fund must distribute 98% of its taxable
investment income earned from January 1 through December 31 of that year and 98%
of its capital gains realized in the period from November 1 of the prior year
through October 31 of the current year. If it does not, the Fund must pay an
excise tax on the amounts not distributed. It is presently anticipated that the
Fund will meet those requirements. To meet this requirement, in certain
circumstances the Fund might be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability. However, the Board
of Trustees and the Manager might determine in a particular year that it would
be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
|X| Taxation of Fund Distributions. The Fund anticipates distributing
substantially all of its investment company taxable income for each taxable
year. Those distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility
of the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to distribute any
such amounts. If net long term capital gains are distributed and designated as a
capital gain distribution, it will be taxable to shareholders as a long-term
capital gain and will be properly identified in reports sent to shareholders in
January of each year. Such treatment will apply no matter how long the
shareholder has held his or her shares or whether that gain was recognized by
the Fund before the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be
subject to tax on it at the 35% corporate tax rate. If the Fund elects to retain
its net capital gain, the Fund will provide to shareholders of record on the
last day of its taxable year information regarding their pro rata share of the
gain and tax paid. As a result, each shareholder will be required to report his
or her pro rata share of such gain on their tax return as long-term capital
gain, will receive a refundable tax credit for his/her pro rata share of tax
paid by the Fund on the gain, and will increase the tax basis for his/her shares
by an amount equal to the deemed distribution less the tax credit.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain distributions will be treated as a return of capital
to the extent of the shareholder's tax basis in their shares. Any excess will be
treated as gain from the sale of those shares, as discussed below. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year. If prior distributions made
by the Fund must be re-characterized as a non-taxable return of capital at the
end of the fiscal year as a result of the effect of the Fund's investment
policies, they will be identified as such in notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above
regardless of whether the distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
The Fund will be required in certain cases to withhold 28% of ordinary
income dividends, capital gains distributions and the proceeds of the redemption
of shares, paid to any shareholder (1) who has failed to provide a correct
taxpayer identification number or to properly certify that number when required,
(2) who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that the shareholder is not subject to backup withholding or is an "exempt
recipient" (such as a corporation). Any tax withheld by the Fund is remitted by
the Fund to the U.S. Treasury and all income and any tax withheld is identified
in reports mailed to shareholders in January of each year with a copy sent to
the IRS.
|X| Tax Effects of Redemptions of Shares. If a shareholder redeems all or a
portion of his/her shares, the shareholder will recognize a gain or loss on the
redeemed shares in an amount equal to the difference between the proceeds of the
redeemed shares and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss recognized in that manner may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the redemption.
In general, any gain or loss arising from the redemption of shares of
the Fund will be considered capital gain or loss, if the shares were held as a
capital asset. It will be long-term capital gain or loss if the shares were held
for more than one year. However, any capital loss arising from the redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on those shares.
Special holding period rules under the Internal Revenue Code apply in this case
to determine the holding period of shares and there are limits on the
deductibility of capital losses in any year.
|X| Foreign Shareholders. Under U.S. tax law, taxation of a shareholder who is a
foreign person (to include, but not limited to, a nonresident alien individual,
a foreign trust, a foreign estate, a foreign corporation, or a foreign
partnership) primarily depends on whether the foreign person's income from the
Fund is effectively connected with the conduct of a U.S. trade or business.
Typically, ordinary income dividends paid from a mutual fund are not considered
"effectively connected" income.
Ordinary income dividends that are paid by the Fund (and are deemed not
"effectively connected income") to foreign persons will be subject to a U.S. tax
withheld by the Fund at a rate of 30%, provided the Fund obtains a properly
completed and signed Certificate of Foreign Status. The tax rate may be reduced
if the foreign person's country of residence has a tax treaty with the U.S.
allowing for a reduced tax rate on ordinary income dividends paid by the Fund.
Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and
all income and any tax withheld is identified in reports mailed to shareholders
in March of each year with a copy sent to the IRS.
If the ordinary income dividends from the Fund are effectively
connected with the conduct of a U.S. trade or business, then the foreign person
may claim an exemption from the U.S. tax described above provided the Fund
obtains a properly completed and signed Certificate of Foreign Status. If the
foreign person fails to provide a certification of his/her foreign status, the
Fund will be required to withhold U.S. tax at a rate of 28% on ordinary income
dividends, capital gains distributions and the proceeds of the redemption of
shares, paid to any foreign person. All income and any tax withheld (in this
situation) by the Fund is remitted by the Fund to the U.S. Treasury and is
identified in reports mailed to shareholders in January of each year with a copy
sent to the IRS.
The tax consequences to foreign persons entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisors or the U.S.
Internal Revenue Service with respect to the particular tax consequences to them
of an investment in the Fund, including the applicability of the U.S.
withholding taxes described above.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It serves as the Transfer Agent for an
annual per account fee. It also acts as shareholder servicing agent for the
other Oppenheimer funds. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown on the
back cover.
The Custodian. J.P. Morgan Chase Bank is the custodian of the Fund's assets. The
custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It is 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 Registered Public Accounting Firm. Deloitte & Touche LLP serves
as the Independent Registered Public Accounting Firm for the Fund. Deloitte
& Touche LLP audits the Fund's financial statements and performs other
related audit services. Deloitte & Touche LLP also acts as the independent
registered public accounting firm for certain other funds advised by the Manager
and its affiliates. Audit and non-audit services provided by Deloitte &
Touche LLP to the Fund must be pre-approved by the Audit Committee.
CORE BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CORE BOND FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Core Bond Fund, formerly known as Oppenheimer Bond Fund, a series
of Oppenheimer Integrity Funds, including the statement of investments, as of
December 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods presented.
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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. 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 as of
December 31, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Core Bond Fund as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
/S/DELOITTE & TOUCHE LLP
- --------------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
February 11, 2005
STATEMENT OF INVESTMENTS December 31, 2004
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--12.5%
- ---------------------------------------------------------------------------------------------------------------------
Bank One Auto Securitization Trust, Automobile Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%,
8/21/06 $ 1,368,308 $
1,365,878
- ---------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates,
Series 2004-A, Cl. A2, 1.88%,
10/25/06 3,482,827
3,471,658
- ---------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.,
Series 2004-2, Cl. A3, 3.58%,
1/15/09 2,850,000
2,846,438
- ---------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2003-C, Cl. AF1, 2.14%,
7/25/18 397,815
397,372
Series 2004-A, Cl. AF1, 2.03%,
6/25/19 848,582
845,315
Series 2004-D, Cl. AF1, 2.98%, 4/25/20
1 1,480,930 1,476,129
- ---------------------------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%,
4/25/23 468,681
468,712
Series 2003-1, Cl. 1A3, 3.14%,
7/25/23 1,362,177
1,361,468
Series 2003-4, Cl. 1A1, 2.538%, 9/25/17
2 369,857 370,056
Series 2003-4, Cl. 1A2, 2.138%,
7/25/18 1,140,000
1,136,171
- ---------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.24%,
9/15/08
718,735 723,232
Series 2003-B, Cl. A2, 1.28%,
3/15/06
393,946 393,727
- ---------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06
1 2,360,000 2,349,954
- ---------------------------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc.,
Home Equity Collateralized Mtg. Obligations:
Series 2003-2, Cl. AF1, 2.518%, 5/25/33
2 218,559 218,700
Series 2003-3, Cl. AF1, 2.538%, 8/25/33
2 918,390 919,005
- ---------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Home Equity Mtg. Obligations,
Series 2004-OPT1, Cl. A1B, 2.388%, 9/1/34
1 574,247 573,529
- ---------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc.,
Home Equity Asset-Backed Certificates, Series 2002-4, Cl. A1, 2.788%, 2/25/33
2 528,170 531,557
- ---------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.52%,
12/8/05 1,145,579
1,145,462
Series 2003-B, Cl. A2, 1.61%,
7/10/06 4,328,023
4,320,749
Series 2004-B, Cl. A2, 2.48%, 2/8/07
1 1,200,000
1,197,122
Series 2004-C, Cl. A2, 2.62%,
6/8/07 4,240,000
4,226,984
- ---------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates,
Series 2004-A, Cl. A2, 2.13%,
10/15/06 2,000,000
1,992,213
- ---------------------------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%,
1/15/08 2,576,136
2,567,035
- ---------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2003-3, Cl. A2, 1.52%,
4/21/06 2,714,067
2,709,521
Series 2003-4, Cl. A2, 1.58%,
7/17/06 3,532,235
3,524,355
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- ---------------------------------------------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%,
12/18/06 $ 1,462,954 $
1,460,064
- ---------------------------------------------------------------------------------------------------------------------
Lease Investment Flight Trust, Collateralized Aviation Obligations,
Series 1A, Cl. D2, 8%, 7/15/31
1 2,884,389
270,411
- ---------------------------------------------------------------------------------------------------------------------
Litigation Settlement Monetized Fee Trust, Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31
1 2,188,366 2,260,801
- ---------------------------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%,
10/22/07 1,545,143
1,544,928
Series 2003-1, Cl. A2, 1.60%,
7/20/06 2,370,037
2,366,616
- ---------------------------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable Obligations,
Series 2004-A, Cl. A2, 1.50%,
2/15/07 1,400,107
1,395,180
- ---------------------------------------------------------------------------------------------------------------------
NC Finance Trust, Collateralized Mtg. Obligations, Series 1999-I, Cl. ECFD,
8.75%, 1/25/29
1
1,750,658 467,207
- ---------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations:
Series 2003-A, Cl. A2, 1.69%,
12/15/05
222,243 222,243
Series 2004-A, Cl. A2, 2.55%,
1/15/07 2,020,000
2,018,629
- ---------------------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.,
Series 2002-A, Cl. A4, 4.28%,
10/16/06
570,216 573,092
- ---------------------------------------------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 2.568%, 11/25/34 1,
2 1,438,783 1,439,709
- ---------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through
Certificates, Series 2004-5, Cl. A F2, 3.735%, 11/10/34
1 780,000 777,404
- ---------------------------------------------------------------------------------------------------------------------
Tobacco Settlement Authority, Asset-Backed Securities,
Series 2001-A, 6.79%,
6/1/10
1,285,000 1,281,453
- ---------------------------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed Obligations:
Series 2002-B, Cl. A3, 3.76%,
6/15/06
260,366 260,742
Series 2003-B, Cl. A2, 1.43%,
2/15/06 1,002,452
1,001,840
- ---------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2001-2, Cl. A4, 3.91%,
4/16/07
556,513 557,626
Series 2002-1, Cl. A3, 2.41%,
10/16/06
632,641 632,619
Series 2004-2, Cl. A2, 2.41%,
2/15/07 2,750,000
2,741,311
Series 2004-3, Cl. A2, 2.79%,
6/15/07 1,960,000
1,956,133
- ---------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities,
Series 2004-A, Cl. A2, 2.47%,
1/22/07 2,780,000
2,767,295
- ---------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust,
Automobile Loan Receivable Certificates:
Series 2003-1, Cl. A2, 1.11%,
12/20/05
163,265 163,210
Series 2003-2, Cl. A2, 1.55%,
6/20/06 1,920,457
1,916,727
- ---------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts.,
Series 2004-B, Cl. A2, 2.40%,
5/21/07 1,940,000
1,932,016
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- ---------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%,
9/25/18 $ 4,026,292 $
4,007,006
- ---------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates:
Series 2003-1, Cl. A2A, 1.40%,
4/15/06 2,439,461
2,434,887
Series 2004-1, Cl. A2A, 2.59%,
5/15/07 2,550,000
2,540,616
- --------------
Total Asset-Backed Securities (Cost
$83,432,803)
80,122,107
- ---------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--58.9%
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--47.7%
- ---------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--47.4%
Fannie Mae Whole Loan, Collateralized Mtg. Obligations Pass-Through
Certificates, Trust 2004-W9, Cl. 2A2, 7%, 2/25/44
3 3,382,682 3,586,691
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 1/1/35
3
2,444,000 2,427,198
5.50%, 1/1/35
3
4,545,000 4,617,438
6%,
7/1/24
677,303 704,240
6.50%,
7/1/28-4/1/34
1,926,044 2,024,701
7%,
3/1/31-11/1/34
21,161,977 22,443,664
7%, 4/1/32-1/1/35
3
4,854,000 5,142,206
8%,
4/1/16
1,367,361 1,451,876
9%,
3/1/17-5/1/25
392,464 436,389
12.50%,
4/1/14
2,516 2,858
13.50%,
11/1/10
6,269 7,105
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Pass-Through Participation Certificates, Series 151, Cl. F, 9%,
5/15/21
72,045 72,086
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 2075, Cl. D , 6.50%,
8/15/28
859,583 894,825
Series 2500, Cl. FD , 2.903%, 3/15/32
2 900,105 903,636
Series 2526, Cl. FE , 2.803%, 6/15/29
2 1,165,072 1,169,265
Series 2551, Cl. FD , 2.803%, 1/15/33
2 935,478 941,889
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, (0.21)%, 6/1/26
4 1,452,554
271,199
Series 183, Cl. IO, (1.41)%, 4/1/27
4 2,313,094
448,455
Series 184, Cl. IO , 1.83%, 12/1/26
4 2,354,574
437,836
Series 192, Cl. IO , 3.27%, 2/1/28
4 568,246
105,603
Series 200, Cl. IO , 2.89%, 1/1/29
4 694,329
133,114
Series 206, Cl. IO, (16.54)%, 12/1/29
4 901,409 163,865
Series 2130, Cl. SC , 12.38%, 3/15/29
4 1,570,167 164,027
Series 2134, Cl. SB , 5.30%, 3/15/29
4 1,734,724
158,893
Series 2796, Cl. SD , 19.10%, 7/15/26
4 2,414,325 244,044
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 6.97%, 6/1/26
5 616,103 537,514
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.:
4.50%, 1/1/20
3 $
15,658,000 $ 15,609,069
5%, 1/1/20-1/1/35
3
49,846,000 49,779,769
5.50%,
3/1/33-1/1/34
16,942,597 17,220,350
5.50%, 1/1/35
3
31,287,000 31,766,067
6%,
8/1/24-9/1/24
9,655,550 10,049,582
6%, 1/1/35
3
28,542,000 29,514,198
6.50%, 1/1/35
3
48,582,000 50,950,373
7%,
1/1/09-8/1/34
17,847,776 18,934,133
7%, 1/1/35
3
6,829,000 7,236,609
7.50%,
2/1/08-3/1/08
33,490 34,789
8%,
8/1/17
17,268 18,173
8.50%,
7/1/32
208,511 226,521
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Trust 2002-T1, Cl. A2, 7%,
11/25/31
3,531,303 3,744,276
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1992-34, Cl. G, 8%,
3/25/22
57,374 59,313
Trust 1993-87, Cl. Z, 6.50%,
6/25/23
662,449 695,602
Trust 2001-70, Cl. LR, 6%,
9/25/30
1,321,148 1,347,050
Trust 2001-72, Cl. NH, 6%,
4/25/30
1,063,068 1,087,176
Trust 2001-74, Cl. PD, 6%,
5/25/30
449,338 455,435
Trust 2002-50, Cl. PD, 6%,
9/25/27
737,203 737,697
Trust 2002-77, Cl. WF, 2.81%, 12/18/32
2 1,500,802 1,509,668
Trust 2003-81, Cl. PA, 5%,
2/25/12
685,221 687,741
Trust 2004-101, Cl. BG, 5%,
1/25/20
2,417,000 2,438,149
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Interest-Only Stripped Mtg.-Backed Security:
Trust 319, Cl. 2, (3.08)%, 2/1/32
4 1,162,379
223,423
Trust 2002-38, Cl. SO, 19.60%, 4/25/32
4 817,786 65,750
Trust 2002-47, Cl. NS, 9.28%, 4/25/32
4 3,117,170 326,712
Trust 2002-51, Cl. S, 9.56%, 8/25/32
4 2,862,235
300,297
Trust 2002-77, Cl. IS, 15.90%, 12/18/32
4 1,393,265 146,895
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, (2.13)%, 6/1/23
4 4,452,564
829,579
Trust 240, Cl. 2, (1.13)%, 9/1/23
4 5,131,662
977,277
Trust 252, Cl. 2, (3.44)%, 11/1/23
4 3,544,545
696,285
Trust 254, Cl. 2, (0.11)%, 1/1/24
4 1,746,204
360,839
Trust 273, Cl. 2, 0.09%, 7/1/26
4 1,054,530
194,839
Trust 301, Cl. 2, (3.70)%, 4/1/29
4 2,947,428
559,433
Trust 303, Cl. IO, (13.36)%, 11/1/29
4 385,187
75,237
Trust 321, Cl. 2, (5.55)%, 3/1/32
4 6,722,616
1,335,954
Trust 324, Cl. 2, (9.38)%, 6/1/32
4 5,990,626
1,219,696
Trust 333, Cl. 2, 1.93%, 3/1/33
4 4,856,308
1,050,278
Trust 334, Cl. 17, (16.18)%, 2/1/33
4 474,536
95,132
Trust 2001-81, Cl. S, 13.68%, 1/25/32
4 1,262,236 153,950
Trust 2002-52, Cl. SD, 8.85%, 9/25/32
4 3,649,528 377,343
Trust 2002-77, Cl. SH, 21.15%, 12/18/32
4 1,584,246 160,434
Trust 2004-54, Cl. DS, 20.40%, 11/25/30
4 569,816 51,928
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 9.71%, 9/25/23
5 $ 1,224,260 $ 1,060,232
- --------------
303,853,870
- ---------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.3%
Government National Mortgage Assn.:
3.75%,
7/20/25-7/20/27
46,877 47,583
7%,
7/15/09
33,761 35,717
8%,
6/15/05-10/15/06
35,194 36,016
8.50%,
8/15/17-12/15/17
487,544 537,050
9%,
2/15/09-6/15/09
22,669 24,626
10%,
11/15/09
24,751 26,882
10.50%,
12/15/17-5/15/21
59,351 66,870
11%,
10/20/19
87,087 97,763
12%,
5/15/14
713 813
- ---------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 14.94%, 1/16/27
4 2,811,532 268,898
Series 2002-15, Cl. SM, 9.39%, 2/16/32
4 2,804,382 270,380
Series 2002-76, Cl. SY, 9.35%, 12/16/26
4 1,137,976 116,082
Series 2004-11, Cl. SM, 10.64%, 1/17/30
4 451,467 40,594
- --------------
1,569,274
- ---------------------------------------------------------------------------------------------------------------------
PRIVATE--11.2%
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL--10.8%
Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates,
Series 1996-MD6, Cl. A3, 7.405%, 11/13/29
2 800,000 865,832
- ---------------------------------------------------------------------------------------------------------------------
Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security
Collateralized Mtg. Obligations, Series 1997-D4, Cl. PS1, 5.54%, 4/14/29
4 42,978,868 1,596,437
- ---------------------------------------------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc., Commercial Mtg. Pass-Through
Certificates, Series 2004-6, Cl. A3, 4.512%,
12/10/42 2,160,000 2,160,000
- ---------------------------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%,
7/20/32 4,112,714
4,201,760
Series 2004-8, Cl. 5A1, 6.50%,
5/25/32 3,437,461
3,571,738
Series 2004-E, Cl. 2A9, 3.712%,
6/25/34 2,403,778
2,405,296
Series 2004-G, Cl. 2A1, 2.469%,
8/25/34 1,657,862
1,654,594
- ---------------------------------------------------------------------------------------------------------------------
Capital Lease Funding Securitization LP, Interest-Only Corporate-Backed
Pass-Through Certificates, Series 1997-CTL1, 9.22%, 6/22/24
4 10,695,219 405,849
- ---------------------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1, 2.598%, 10/25/34
2 3,178,148 3,181,804
- ---------------------------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Commercial Mtg. Obligations,
Series 1996-CF1, Cl. A3, 7.904%, 3/13/28
2 711,193 723,130
- ---------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%,
11/18/35 1,770,000 1,904,098
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL Continued
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations,
Series 2004-C3, Cl. A2, 4.433%,
7/10/39 $ 1,730,000 $
1,752,974
- ---------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2004-C3, Cl. A4, 4.547%,
12/10/41 1,410,000 1,413,710
- ---------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. A3, 6.869%,
7/15/29 1,390,121 1,471,539
- ---------------------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%,
10/10/28 1,618,799
1,601,204
Series 2004-GG2, Cl. A3, 4.602%,
8/10/38 1,100,000
1,122,312
- ---------------------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1, 4.593%, 12/25/34
1,2 4,821,147 4,827,787
- ---------------------------------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp., Commercial Mtg.
Obligations, Series 2000-C9, Cl. A2, 7.77%,
10/15/32 5,000,000 5,734,263
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only
Stripped Mtg.-Backed Security, Series 1998-C1, Cl. IO, 9.87%, 2/18/30
4 12,463,811 402,060
- ---------------------------------------------------------------------------------------------------------------------
Lehman Structured Securities Corp., Collateralized Mtg. Obligations,
Series 2002-GE1, Cl. A, 2.514%, 7/26/24
1 282,801 260,618
- ---------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg. Obligations,
Series 2004-6, Cl. 10A1, 6%,
7/25/34 4,461,714
4,607,130
- ---------------------------------------------------------------------------------------------------------------------
Mastr Asset Securitization Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3, 4.70%,
8/25/34 3,427,696 3,430,472
- ---------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65, 6.50%, 12/1/34
3 6,351,000 6,540,538
- ---------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 1998-D6, Cl. A1B, 6.59%,
3/15/30 2,010,000
2,175,394
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc., Interest-Only Commercial
Mtg. Pass-Through Certificates, Series 1999-C1, Cl. X, 7.79%, 5/18/32
4 253,290,634 1,025,548
- ---------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-DD, Cl. 2A1, 4.548%,
1/25/35 3,220,000
3,225,283
Series 2004-N, Cl. A10, 3.803%, 8/25/34
1 4,325,048 4,339,274
Series 2004-W, Cl. A2, 4.635%, 11/25/34
2 2,495,639 2,502,529
- --------------
69,103,173
- ---------------------------------------------------------------------------------------------------------------------
OTHER--0.0%
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2003-EF1, Cl. A2, 1.49%,
12/20/05 246,967
247,017
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI, Inc., Interest-Only Stripped
Mtg.-Backed Security, Series 1987-3, Cl. B, (11.79)%, 10/23/17
4 24,848 5,917
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI, Inc., Principal-Only Stripped
Mtg.-Backed Security, Series1987-3, Cl. A, 2.28%, 10/23/17
5 36,775 33,828
- --------------
286,762
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.4%
Salomon Brothers Mortgage Securities VII, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-B, Cl. 1, 4.357%, 4/25/26
1,2 $ 28,840 $ 26,622
- ---------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2002-AL1, Cl. B2, 3.45%,
2/25/32 2,842,033 2,529,899
- --------------
2,556,521
- --------------
Total Mortgage-Backed Obligations (Cost
$376,427,879) 377,369,600
- ---------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.7%
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
6.625%,
9/15/09
6,855,000 7,674,035
6.875%,
9/15/10
7,600,000 8,686,526
- ---------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
2.50%,
6/15/06
3,055,000 3,029,097
3.01%,
6/2/06
6,600,000 6,573,019
4.25%,
7/15/07
6,690,000 6,834,290
6.625%,
9/15/09
7,630,000 8,528,143
7.25%,
5/15/30
2,180,000 2,796,314
- ---------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%,
11/13/08
2,000,000 2,122,864
7.125%,
5/1/30
2,689,000 3,355,705
Series A, 6.79%,
5/23/12
14,531,000 16,756,626
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%,
2/15/31
2,739,000 2,962,615
5.50%, 8/15/28
6
13,954,000 15,107,396
8.875%,
8/15/17
6,664,000 9,445,700
STRIPS, 2.99%, 2/15/10
7
2,490,000 2,063,067
STRIPS, 3.29%, 2/15/11
7
13,121,000 10,335,254
STRIPS, 3.86%, 2/15/13
7
5,360,000 3,812,991
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.25%,
11/15/13-11/15/14
1,372,000 1,376,575
5.75%,
8/15/10
1,885,000 2,075,932
- --------------
Total U.S. Government Obligations (Cost
$114,190,817) 113,536,149
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.4%
- ---------------------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost
$2,390,219) 2,370,000 2,693,505
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--36.3%
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--10.7%
- ---------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS--1.0%
Delphi Automotive Systems Corp., 6.50% Nts.,
5/1/09 3,045,000 3,132,696
- ---------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B,
5/15/09 2,660,000 3,019,645
- --------------
6,152,341
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
AUTOMOBILES--2.9%
American Honda Finance Corp., 3.85% Nts., 11/6/08
8 $ 1,970,000 $ 1,966,245
- ---------------------------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 4.75% Unsec. Nts.,
1/15/08 3,895,000 3,980,951
- ---------------------------------------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec. Unsub. Debs.,
3/1/30 590,000 693,786
- ---------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375% Nts.,
10/28/09 620,000
669,452
- ---------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.25% Nts.,
3/2/11 1,500,000 1,572,387
- ---------------------------------------------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs.,
7/15/33 2,335,000 2,425,953
- ---------------------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts.,
6/15/10 3,750,000
3,847,718
- ---------------------------------------------------------------------------------------------------------------------
Volkswagen Credit, Inc., 2.33% Nts., 7/21/05
2,8 3,270,000 3,270,275
- --------------
18,426,767
- ---------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.9%
Hilton Hotels Corp., 7.95% Sr. Nts.,
4/15/07 1,200,000
1,305,902
- ---------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts.,
5/1/07 1,015,000 1,087,319
- ---------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts.,
4/15/06 3,269,000 3,473,682
- --------------
5,866,903
- ---------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.1%
Beazer Homes USA, Inc., 8.625% Sr. Unsec. Nts.,
5/15/11 1,685,000 1,845,075
- ---------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts.,
1/15/14 1,660,000
1,718,100
- ---------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts.,
3/1/13 1,535,000
1,628,194
- ---------------------------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts.,
12/1/11 1,685,000
1,870,350
- --------------
7,061,719
- ---------------------------------------------------------------------------------------------------------------------
MEDIA--3.5%
Chancellor Media CCU, 8% Sr. Unsec. Nts.,
11/1/08 3,070,000 3,449,817
- ---------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.875% Unsec. Nts.,
8/15/09 2,050,000 2,328,991
- ---------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts.,
9/25/06 1,810,000
1,800,688
- ---------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs.,
2/1/12 2,990,000 3,859,271
- ---------------------------------------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs.,
1/15/13 3,080,000 3,965,408
- ---------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts.,
5/1/12 1,037,000 1,362,309
- ---------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts.,
10/15/06
433,000 427,448
3.50% Sr. Unsec. Nts.,
10/15/07
2,255,000 2,229,852
- ---------------------------------------------------------------------------------------------------------------------
Walt Disney Co. (The), 5.375% Sr. Unsec. Nts.,
6/1/07 3,140,000 3,265,886
- --------------
22,689,670
- ---------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--1.0%
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts.,
9/1/08 2,165,000 2,358,819
- ---------------------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., 8% Nts.,
3/1/10 3,085,000
3,540,038
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL Continued
May Department Stores Co., 3.95% Nts.,
7/15/07 $ 216,000 $ 216,494
- --------------
6,115,351
- ---------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.3%
Gap, Inc. (The):
6.90% Nts., 9/15/07
1
1,268,000 1,369,440
10.55% Unsub. Nts.,
12/15/08
507,000 619,808
- --------------
1,989,248
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.9%
- ---------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.6%
Food Lion, Inc., 7.55% Nts.,
4/15/07 2,125,000
2,308,912
- ---------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts.,
8/15/07 4,645,000
5,097,149
- ---------------------------------------------------------------------------------------------------------------------
Real Time Data Co., 11% Disc. Nts., 5/31/09
1,9,10,11 476,601 --
- ---------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.80% Sr. Unsec. Nts.,
7/16/07 3,060,000 3,134,327
- --------------
10,540,388
- ---------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--1.3%
ConAgra Foods, Inc., 6% Nts.,
9/15/06 1,615,000
1,682,215
- ---------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts.,
11/30/07 2,515,000
2,524,761
- ---------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts.,
6/1/07 3,835,000
3,974,824
- --------------
8,181,800
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--1.2%
- ---------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.0%
Ocean Rig Norway AS, 10.25% Sr. Sec. Nts.,
6/1/08 200,000 207,000
- ---------------------------------------------------------------------------------------------------------------------
OIL & GAS--1.2%
Chesapeake Energy Corp., 7.50% Sr. Nts.,
6/15/14 1,665,000 1,827,338
- ---------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts.,
9/1/12 1,880,000 2,069,594
- ---------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts.,
9/15/27 1,570,000 1,974,275
- ---------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13
8 1,622,225 1,575,140
- --------------
7,446,347
- ---------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.2%
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.3%
Bank of America Corp., 4.875% Sr. Unsec. Nts.,
1/15/13 41,000 41,781
- ---------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts.,
12/15/11 216,000
237,797
- ---------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts.,
10/15/08
1,680,000 1,696,961
7.75% Unsec. Sub. Nts.,
5/1/10
150,000 174,407
- --------------
2,150,946
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3%
Household Finance Corp., 8.875% Sr. Unsec. Nts.,
2/15/06 $ 1,815,000 $ 1,921,840
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.0%
American Express Centurion Bank, 4.375% Nts.,
7/30/09 1,155,000 1,174,598
- ---------------------------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts.,
4/2/12 3,205,000 3,799,169
- ---------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts.,
4/15/08 1,500,000 1,497,602
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts.,
2/1/08 2,030,000 2,219,494
- ---------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts.,
2/15/08 325,000 351,146
- ---------------------------------------------------------------------------------------------------------------------
MBNA America Bank NA, 5.375% Nts.,
1/15/08 2,488,000
2,600,371
- ---------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125% Nts.,
9/10/09 3,310,000 3,311,228
- ---------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts.,
4/1/12
3,580,000 3,998,649
- --------------
18,952,257
- ---------------------------------------------------------------------------------------------------------------------
INSURANCE--3.9%
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08
8 635,000 643,019
- ---------------------------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts.,
7/30/07 860,000 856,895
- ---------------------------------------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts.,
12/15/30 2,730,000
3,596,262
- ---------------------------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375% Nts.,
6/1/06 1,275,000 1,252,118
- ---------------------------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10
8 2,487,000 2,915,276
- ---------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.375% Nts.,
7/15/14 647,000 633,322
- ---------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts.,
7/1/12 2,985,000 3,156,820
- ---------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23
8 4,820,000 6,136,487
- ---------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25
8 4,680,000 5,992,745
- --------------
25,182,944
- ---------------------------------------------------------------------------------------------------------------------
REAL ESTATE--1.7%
EOP Operating LP, 6.763% Sr. Unsec. Nts.,
6/15/07 560,000 596,060
- ---------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B,
1/15/09 1,445,000
1,468,032
8.75% Sr. Unsec. Nts.,
8/15/08
1,060,000 1,209,691
- ---------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts.,
8/15/14 1,625,000 1,672,707
- ---------------------------------------------------------------------------------------------------------------------
Spieker Properties LP, 6.75% Unsec. Unsub. Nts.,
1/15/08 2,400,000 2,603,052
- ---------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts.,
6/15/07 3,160,000 3,282,668
- ---------------------------------------------------------------------------------------------------------------------
10,832,210
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.1%
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.1%
Aetna, Inc., 7.375% Sr. Unsec. Nts.,
3/1/06 3,200,000
3,332,189
- ---------------------------------------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts.,
5/15/07 3,750,000
4,030,901
- --------------
7,363,090
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--3.2%
- ---------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.6%
Boeing Capital Corp., 5.65% Sr. Unsec. Nts.,
5/15/06 $ 451,000 $ 465,206
- ---------------------------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875% Unsec. Unsub. Nts.,
11/1/06 429,000 454,290
- ---------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts.,
2/15/11 2,270,000 2,608,359
- ---------------------------------------------------------------------------------------------------------------------
Raytheon Co., 6.50% Unsec. Nts.,
7/15/05 224,000
228,031
- --------------
3,755,886
- ---------------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.5%
FedEx Corp., 2.65% Unsec. Nts.,
4/1/07 3,490,000
3,420,036
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B,
4/1/08 1,570,000 1,687,750
- ---------------------------------------------------------------------------------------------------------------------
Hydrochem Industrial Services, Inc., 10.375% Sr. Sub. Nts., 8/1/07
1 150,000 151,875
- ---------------------------------------------------------------------------------------------------------------------
Protection One, Inc./Protection One Alarm Monitoring, Inc.,
7.375% Sr. Unsec. Nts.,
8/15/05
100,000 101,500
- ---------------------------------------------------------------------------------------------------------------------
Waste Management, Inc.:
7% Sr. Nts.,
7/15/28
700,000 791,932
7.125% Sr. Unsec. Nts.,
10/1/07
1,890,000 2,054,005
- --------------
4,787,062
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.9%
Hutchison Whampoa International Ltd., 7.45% Sr. Bonds, 11/24/33
8 1,765,000 1,963,698
- ---------------------------------------------------------------------------------------------------------------------
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts.,
2/15/06 2,225,000
2,299,753
6.75% Sr. Unsub. Nts.,
2/15/11
1,140,000 1,279,316
- --------------
5,542,767
- ---------------------------------------------------------------------------------------------------------------------
MARINE--0.0%
Navigator Gas Transport plc, 10.50% First Priority Ship Mtg. Nts., 6/30/07
1,9,10 300,000 226,875
- ---------------------------------------------------------------------------------------------------------------------
ROAD & RAIL--0.4%
Canadian National Railway Co., 4.25% Nts.,
8/1/09 434,000 437,903
- ---------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts.,
10/15/08 2,175,000
2,347,012
- --------------
2,784,915
- ---------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.0%
- ---------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.0%
Orion Network Systems, Inc., 12.50% Sr. Unsub. Disc. Nts., 1/15/07
1,9,10 200,000 105,000
- ---------------------------------------------------------------------------------------------------------------------
MATERIALS--0.2%
- ---------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.0%
Morton International, Inc., 9.65% Credit Sensitive Nts.,
6/1/20 85,000 120,152
- ---------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.2%
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts.,
3/15/05 943,000 947,388
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.1%
- ---------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--2.6%
British Telecommunications plc:
7.875% Nts.,
12/15/05 $
2,740,000 $ 2,858,442
8.125% Nts.,
12/15/10
550,000 661,267
- ---------------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts.,
5/15/11 1,029,000 1,209,075
- ---------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts.,
6/15/10 2,800,000 3,339,568
- ---------------------------------------------------------------------------------------------------------------------
France Telecom SA:
7.95% Sr. Unsec. Nts.,
3/1/06
1,675,000 1,759,179
9.25% Sr. Unsec. Nts., 3/1/31
2 1,270,000
1,726,692
- ---------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts.,
1/30/06
1,595,000 1,659,412
8.75% Nts.,
3/15/32
1,410,000 1,884,338
- ---------------------------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts.,
11/19/08 1,905,000 1,922,457
- --------------
17,020,430
- ---------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.5%
AT&T Wireless Services, Inc., 7.50% Sr. Unsec. Nts.,
5/1/07 2,745,000 2,983,107
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--4.7%
- ---------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.9%
CenterPoint Energy, Inc.:
5.875% Sr. Nts.,
6/1/08
2,655,000 2,780,300
8.125% Unsec. Nts., Series B,
7/15/05
840,000 862,237
- ---------------------------------------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts., Series B,
6/1/05 460,000 463,782
- ---------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts.,
6/15/10 3,175,000 3,741,277
- ---------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts.,
6/1/06 1,035,000 1,077,797
- ---------------------------------------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts.,
8/15/14 1,650,000
1,705,701
- ---------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A,
11/15/06 1,260,000
1,301,307
7.375% Sr. Unsub. Nts., Series C,
11/15/31 1,455,000
1,666,803
- ---------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08
1,2 1,435,000 1,621,550
- ---------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts.,
10/1/12 3,975,000 4,218,632
- ---------------------------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07
1 1,810,000 1,923,125
- ---------------------------------------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts.,
12/1/07 1,795,000 2,077,713
- ---------------------------------------------------------------------------------------------------------------------
TXU Corp., 4.80% Nts., 11/15/09
8 1,480,000
1,484,242
- --------------
24,924,466
- ---------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.8%
NiSource Finance Corp., 7.875% Sr. Unsec. Nts.,
11/15/10 4,230,000 4,978,666
- --------------
Total Corporate Bonds and Notes (Cost
$225,097,369) 232,677,571
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--0.0%
- ---------------------------------------------------------------------------------------------------------------------
Chesapeake Energy
Corp.
181 $ 2,987
- ---------------------------------------------------------------------------------------------------------------------
Geotek Communications, Inc., Series B, Escrow Shares
1,10,12 25 --
- --------------
Total Common Stocks (Cost
$109)
2,987
- ---------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ---------------------------------------------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp. 12/15/07
1,10 50 --
- ---------------------------------------------------------------------------------------------------------------------
e.spire Communications, Inc. Wts., Exp. 11/1/05
1,10 300 3
- ---------------------------------------------------------------------------------------------------------------------
HF Holdings, Inc. Wts., Exp. 9/27/09
1,10 1,063
11
- ---------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05
1,10 1,980 20
- ---------------------------------------------------------------------------------------------------------------------
Long Distance International, Inc. Wts., Exp. 4/13/08
1,10 150 --
- ---------------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp. 1/15/07
1,10 200 2
- ---------------------------------------------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts., Exp. 9/19/10
10 2,028 406
- --------------
Total Rights, Warrants and Certificates (Cost
$25,015) 442
PRINCIPAL
AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--2.3%
- ---------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit Linked Nts., Series 2003-1,
3.78%, 1/7/05 1,2 (Cost
$14,500,000) $
14,500,000 14,456,500
- ---------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.8%
- ---------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.37% in joint repurchase agreement (Principal
Amount/Value $1,443,703,000, with a maturity value of $1,443,962,867) with UBS
Warburg LLC, 2.16%, dated 12/31/04, to be repurchased at $5,389,970 on 1/3/05,
collateralized by Federal National Mortgage Assn.,
5%--6%, 4/1/34--10/1/34, with a value of $1,474,609,071 (Cost
$5,389,000) 5,389,000 5,389,000
- ---------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments Purchased
with Cash Collateral from Securities Loaned) (Cost
$821,453,211) 826,247,861
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--7.3%
- ---------------------------------------------------------------------------------------------------------------------
ASSET-BACKED FLOATING NOTES--0.8%
Money Market Trust, Series A-2, 2.478% Nts., 1/18/05
13 2,000,000 2,000,000
- ---------------------------------------------------------------------------------------------------------------------
Whitehawk CDO Funding Corp., 2.56%, 3/15/05
13 3,000,000 3,000,000
- --------------
5,000,000
- ---------------------------------------------------------------------------------------------------------------------
FUNDING AGREEMENT/GIC--0.6%
Allstate Life Insurance, 2.47%, 1/3/05
13 2,000,000 2,000,000
- ---------------------------------------------------------------------------------------------------------------------
Protective Life Insurance Co., 2.25%, 1/31/05
13 2,000,000 2,000,000
- --------------
4,000,000
- ---------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.6%
Bear Stearns, 2.493%, 1/3/05
13 4,000,000
4,000,000
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------
MEDIUM-TERM FLOATING NOTES--0.6%
American Express Credit Corp., 2.432% Sr. Nts., 1/18/05
13 $ 1,902,676 $ 1,902,676
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--5.0%
Undivided interest of 4.64% in joint repurchase agreement (Principal
Amount/Value $155,205,723, with a maturity value of $155,232,367) with Credit
Suisse First Boston LLC, 2.06%, dated 12/31/04, to be repurchased at
$7,205,076
on 1/3/05, collateralized by AA Corporate Bonds, 0%-15.73%,
1/1/06-7/16/44, with a value of $158,312,640
13 7,203,839 7,203,839
- ---------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.89% in joint repurchase agreement (Principal
Amount/Value $2,800,000,000, with a maturity value of $2,800,550,669) with
Nomura Securities, 2.36%, dated 12/31/04, to be repurchased at
$24,925,743 on 1/3/05, collateralized by U.S. Government Mortgage
Agencies, 2.58%-7.50%, 1/15/08-10/15/44, with a value of $2,908,566,289
13 24,920,842 24,920,842
- --------------
32,124,681
- --------------
Total Investments Purchased with Cash Collateral from Securities Loaned
(Cost
$47,027,357)
47,027,357
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$868,480,568) 136.2%
873,275,218
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (36.2)
(232,159,218)
- ------------------------------
NET
ASSETS
100.0% $ 641,116,000
===============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $40,120,968, which represents
6.26% of the Fund's net assets, none of which is considered restricted. See Note
8 of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. When-issued security or forward commitment to be delivered and settled
after December 31, 2004. See Note 1 of Notes to Financial Statements.
4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $15,460,082 or 2.41% of the Fund's net assets
as of December 31, 2004.
5. Principal-Only Strips represent the right to receive the monthly
principal payments on an underlying pool of mortgage loans. The value of these
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. Interest rates disclosed represent
current yields based upon the current cost basis and estimated timing of future
cash flows. These securities amount to $1,631,574 or 0.25% of the Fund's net
assets as of December 31, 2004.
6. All or a portion of the security is held in collateralized accounts to
cover initial margin requirements on open futures sales contracts with an
aggregate market value of $757,860. See Note 5 of Notes to Financial Statements.
7. Zero coupon bond reflects effective yield on the date of purchase.
8. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $25,947,127 or 4.05% of the Fund's net
assets as of December 31, 2004.
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
9. Issue is in default. See Note 1 of Notes to Financial Statements.
10. Non-income producing security.
11. Interest or dividend is paid-in-kind.
12. Received as the result of issuer reorganization.
13. The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 9 of Notes to Financial
Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES December 31, 2004
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $94,771,672)
(cost $868,480,568)--see accompanying statement of investments
$
873,275,218
- ----------------------------------------------------------------------------------------
Cash
810,036
- ----------------------------------------------------------------------------------------
Collateral for securities loaned
49,436,365
- ----------------------------------------------------------------------------------------
Unrealized appreciation on swap
contracts 11,788
- ----------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold on a when-issued basis or forward commitment
79,045,414
Interest
6,459,288
Shares of beneficial interest
sold 938,764
Futures
margins
154,297
Other
10,730
- ---------------
Total assets
1,010,141,900
- ----------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------
Return of collateral for securities loaned
96,463,722
- ----------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment
271,135,027
Shares of beneficial interest
redeemed 731,066
Distribution and service plan
fees 375,810
Transfer and shareholder servicing agent
fees 159,419
Shareholder
communications 109,157
Trustees'
compensation 14,249
Other
37,450
- ---------------
Total liabilities
369,025,900
- ----------------------------------------------------------------------------------------
NET ASSETS $
641,116,000
===============
- ----------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------
Par value of shares of beneficial interest
$ 61,418
- ----------------------------------------------------------------------------------------
Additional paid-in capital
639,532,264
- ----------------------------------------------------------------------------------------
Accumulated net investment loss
(1,366,730)
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investments
(2,584,773)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation on investments
5,473,821
- ---------------
NET ASSETS $
641,116,000
===============
STATEMENT OF ASSETS AND LIABILITIES Continued
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- -----------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$344,205,598 and 32,970,332 shares of beneficial interest
outstanding) $10.44
Maximum offering price per share (net asset value plus sales charge of 4.75%
of offering price) $10.96
- -----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $148,444,668 and
14,225,317 shares of beneficial interest outstanding) $10.44
- -----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $84,695,628
and 8,107,638 shares of beneficial interest outstanding) $10.45
- -----------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales
charge) and offering price per share (based on net assets of $25,579,594
and 2,451,078 shares of beneficial interest
outstanding) $10.44
- -----------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $38,190,512 and 3,663,197 shares of beneficial interest
outstanding) $10.43
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $
24,883,635
- --------------------------------------------------------------------------------
Fee Income
5,650,959
- --------------------------------------------------------------------------------
Portfolio lending fees
141,160
- --------------------------------------------------------------------------------
Dividends
31
- -------------
Total investment income
30,675,785
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees
3,796,106
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A
870,851
Class B
1,677,194
Class C
860,147
Class N
106,918
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A
866,756
Class B
480,055
Class C
223,066
Class N
90,624
Class Y
27,705
- --------------------------------------------------------------------------------
Shareholder communications:
Class A
106,590
Class B
73,187
Class C
25,779
Class N
2,823
- --------------------------------------------------------------------------------
Custodian fees and expenses
39,054
- --------------------------------------------------------------------------------
Trustees' compensation
17,176
- --------------------------------------------------------------------------------
Other
38,781
- -------------
Total expenses
9,302,812
Less reduction to custodian expenses
(12,985)
Less payments and waivers of expenses
(1,182,607)
- -------------
Net expenses
8,107,220
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
22,568,565
STATEMENT OF OPERATIONS For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on:
Investments
$11,031,252
Closing of futures contracts
2,349,123
Swap contracts
407,953
- ------------
Net realized gain
13,788,328
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments
(6,637,878)
Futures contracts
(40,038)
Swap contracts
(2,517)
- ------------
Net change in unrealized appreciation
(6,680,433)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$29,676,460
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
2004 2003
- -----------------------------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment
income $
22,568,565 $ 23,088,580
- -----------------------------------------------------------------------------------------------------------------
Net realized
gain
13,788,328 22,128,287
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation (6,680,433)
(4,851,650)
- -------------------------------
Net increase in net assets resulting from
operations 29,676,460 40,365,217
- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
Dividends from net investment
income:
Class
A
(14,770,071) (12,883,312)
Class
B
(5,647,015) (5,633,516)
Class
C
(2,956,677) (2,529,340)
Class
N
(870,216) (458,521)
Class
Y
(2,000,794) (1,457,612)
- -----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class
A
(40,358,244) 17,502,933
Class
B
(50,192,314) (24,959,463)
Class
C
(6,332,036) (2,398,431)
Class
N
7,706,597 6,099,045
Class
Y
(5,409,686) 17,894,037
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Total increase
(decrease)
(91,153,996) 31,541,037
- -----------------------------------------------------------------------------------------------------------------
Beginning of
period
732,269,996 700,728,959
- -------------------------------
End of period (including accumulated net investment
loss of $1,366,730 and $153,625,
respectively) $641,116,000
$732,269,996
===============================
A-7
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly available information provided by the rating organizations.
Moody's Investors Service, Inc. ("Moody's")
LONG-TERM RATINGS: BONDS AND PREFERRED STOCK ISSUER RATINGS
Aaa: Bonds and preferred stock rated "Aaa" are judged to be the best quality.
They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, the changes
that can be expected are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds and preferred stock 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 risk appear somewhat larger than that of "Aaa"
securities.
A: Bonds and preferred stock 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 some time in the
future.
Baa: Bonds and preferred stock rated "Baa" are considered medium-grade
obligations; that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well.
Ba: Bonds and preferred stock 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 thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds and preferred stock rated "B" generally lack characteristics of the
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 and preferred stock rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds and preferred stock rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds and preferred stock rated "C" are the lowest class of rated bonds and
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa." The modifier "1" indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and the modifier "3" indicates a ranking in
the lower end of that generic rating category. Advanced refunded issues that are
secured by certain assets are identified with a # symbol.
PRIME RATING SYSTEM (SHORT-TERM RATINGS - TAXABLE DEBT)
These ratings are opinions of the ability of issuers to honor senior financial
obligations and contracts. Such obligations generally have an original maturity
not exceeding one year, unless explicitly noted.
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Ratings Services ("Standard & Poor's"), a division of
The McGraw-Hill Companies, Inc.
LONG-TERM ISSUE CREDIT RATINGS Issue credit ratings are based in varying
degrees, on the following considerations: o Likelihood of payment-capacity and
willingness of the obligor to meet its financial commitment on an obligation in
accordance with the terms of the obligation; o Nature of and provisions of the
obligation; and o Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights. The
issue ratings definitions are expressed in terms of default risk. As such, they
pertain to senior obligations of an entity. Junior obligations are typically
rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
AAA: An obligation rated "AAA" have the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated "AA" differ from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated "A" are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated "BBB" exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
An obligation rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated "BB" are less vulnerable to nonpayment than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated "B" are more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated "CCC" are currently vulnerable to nonpayment, and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated "CC" are currently highly vulnerable to nonpayment.
C: Subordinated debt or preferred stock obligations rated "C" are currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A "C" also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
D: An obligation rated "D" are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
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.
c: The `c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.
p: The letter `p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor's receipt of
an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
r: The `r' highlights derivative, hybrid, and certain other obligations that
Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an `r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories (`AAA', `AA', `A', `BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general.
SHORT-TERM ISSUE CREDIT RATINGS
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days-including
commercial paper.
A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
NOTES:
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:
o Amortization schedule-the larger the final maturity relative to other
maturities, the more likely it will
be treated as a note; and
o Source of payment-the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
International credit ratings assess the capacity to meet foreign currency or
local currency commitments. Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local currency rating measures
the probability of payment within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency rating, does not take
account of the possibility of foreign exchange controls limiting transfer into
foreign currency.
INTERNATIONAL LONG-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings.
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit
risk. They are assigned only in the case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit
risk. They indicate a very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is present,
but a limited margin of safety remains. Financial commitments are currently being met.
However, capacity for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the "AAA" category or to categories below "CCC," nor to short-term
ratings other than "F1" (see below).
INTERNATIONAL SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings. A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added "+" to denote any exceptionally strong credit
feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is
adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
Appendix B
Industry Classifications
Aerospace & Defense Household Products
Air Freight & Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet & Catalog Retail
Automobiles Internet Software & Services
Beverages IT Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals & Mining
Commercial Services & Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers & Peripherals Office Electronics
Construction & Engineering Oil & Gas
Construction Materials Paper & Forest Products
Containers & Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Services Road & Rail
Electric Utilities Semiconductors and Semiconductor Equipment
Electrical Equipment Software
Electronic Equipment & Instruments Specialty Retail
Energy Equipment & Services Textiles, Apparel & Luxury Goods
Food & Staples Retailing Thrifts & Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies & Distributors
Health Care Equipment & Supplies Transportation Infrastructure
Health Care Providers & Services Water Utilities
Hotels Restaurants & Leisure Wireless Telecommunication Services
Household Durables
(1) In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees/Director" in this Statement of Additional Information
refers to those Trustees who are not "interested persons" of the Fund and who do
not have any direct or indirect financial interest in the operation of the
distribution plan or any agreement under the plan.
(1) Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund. (2) In the case of Oppenheimer Senior Floating Rate Fund, a
continuously-offered closed-end fund, references to contingent deferred sales
charges mean the Fund's Early Withdrawal Charges and references to "redemptions"
mean "repurchases" of shares. (3) An "employee benefit plan" means any plan or
arrangement, whether or not it is "qualified" under the Internal Revenue Code,
under which Class N shares of an Oppenheimer fund or funds are purchased by a
fiduciary or other administrator for the account of participants who are
employees of a single employer or of affiliated employers. These may include,
for example, medical savings accounts, payroll deduction plans or similar plans.
The fund accounts must be registered in the name of the fiduciary or
administrator purchasing the shares for the benefit of participants in the plan.
(4) The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship, members
and employees of a partnership or association or other organized group of
persons (the members of which may include other groups), if the group has made
special arrangements with the Distributor and all members of the group
participating in (or who are eligible to participate in) the plan purchase
shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution designated by the group. Such plans
include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans other than
plans for public school employees. The term "Group Retirement Plan" also
includes qualified retirement plans and non-qualified deferred compensation
plans and IRAs that purchase shares of an Oppenheimer fund or funds through a
single investment dealer, broker or other financial institution that has made
special arrangements with the Distributor.
(5) However, that concession will not be paid on purchases of shares in amounts
of $1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
(6) This provision does not apply to IRAs.
(7) This provision only applies to qualified retirement plans and 403(b)(7)
custodial plans after your separation from service in or after the year you
reached age 55. (8) The distribution must be requested prior to Plan termination
or the elimination of the Oppenheimer funds as an investment option under the
Plan. (9) This provision does not apply to IRAs.
(10) This provision does not apply to loans from 403(b)(7) custodial plans and
loans from the OppenheimerFunds-sponsored Single K retirement plan. (11) This
provision does not apply to 403(b)(7) custodial plans if the participant is less
than age 55, nor to IRAs.
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares(1) of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.(2) That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans:
1) plans qualified under Sections 401(a) or 401(k) of the
Internal Revenue Code,
2) non-qualified deferred compensation plans, 3) employee benefit
plans(3) 4) Group Retirement Plans(4) 5) 403(b)(7) custodial
plan accounts
6) Individual Retirement Accounts ("IRAs"), including traditional
IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request. I.
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- ----------------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months (24 months in the case of Oppenheimer Rochester National Municipals and
Rochester Fund Municipals) of the beginning of the calendar month of their
purchase, as described in the Prospectus (unless a waiver described elsewhere in
this Appendix applies to the redemption). Additionally, on shares purchased
under these waivers that are subject to the Class A contingent deferred sales
charge, the Distributor will pay the applicable concession described in the
Prospectus under "Class A Contingent Deferred Sales Charge."(5) This waiver
provision applies to: |_| Purchases of Class A shares aggregating $1 million or
more. |_| Purchases of Class A shares by a Retirement Plan that was permitted to
purchase such shares at net asset value but subject to a contingent deferred
sales charge prior to March 1, 2001. That included plans (other than IRA or
403(b)(7) Custodial Plans) that: 1) bought shares costing $500,000 or more, 2)
had at the time of purchase 100 or more eligible employees or total plan assets
of $500,000 or more, or 3) certified to the Distributor that it projects to have
annual plan purchases of $200,000 or more. |_| Purchases by an
OppenheimerFunds-sponsored Rollover IRA, if the purchases are made: 1) through a
broker, dealer, bank or registered investment adviser that has made special
arrangements with the Distributor for those purchases, or 2) by a direct
rollover of a distribution from a qualified Retirement Plan if the administrator
of that Plan has made special arrangements with the Distributor for those
purchases. |_| Purchases of Class A shares by Retirement Plans that have any of
the following record-keeping arrangements: 1) The record keeping is performed by
Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch") on a daily
valuation basis for the Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan must have $3
million or more of its assets invested in (a) mutual funds, other than those
advised or managed by Merrill Lynch Investment Management, L.P. ("MLIM"), that
are made available under a Service Agreement between Merrill Lynch and the
mutual fund's principal underwriter or distributor, and (b) funds advised or
managed by MLIM (the funds described in (a) and (b) are referred to as
"Applicable Investments"). 2) The record keeping for the Retirement Plan is
performed on a daily valuation basis by a record keeper whose services are
provided under a contract or arrangement between the Retirement Plan and Merrill
Lynch. On the date the plan sponsor signs the record keeping service agreement
with Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in Applicable
Investments. 3) The record keeping for a Retirement Plan is handled under a
service agreement with Merrill Lynch and on the date the plan sponsor signs that
agreement, the Plan has 500 or more eligible employees (as determined by the
Merrill Lynch plan conversion manager). II.
Waivers of Class A Sales Charges of Oppenheimer Funds
- ----------------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no concessions are paid by the Distributor on such
purchases): |_| The Manager or its affiliates. |_| Present or former officers,
directors, trustees and employees (and their "immediate families") of the Fund,
the Manager and its affiliates, and retirement plans established by them for
their employees. The term "immediate family" refers to one's spouse, children,
grandchildren, grandparents, parents, parents-in-law, brothers and sisters,
sons- and daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included. |_| Registered management investment
companies, or separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose. |_| Dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for their
own accounts or for retirement plans for their employees. |_| Employees and
registered representatives (and their spouses) of dealers or brokers described
above or financial institutions that have entered into sales arrangements with
such dealers or brokers (and which are identified as such to the Distributor) or
with the Distributor. The purchaser must certify to the Distributor at the time
of purchase that the purchase is for the purchaser's own account (or for the
benefit of such employee's spouse or minor children). |_| Dealers, brokers,
banks or registered investment advisors that have entered into an agreement with
the Distributor providing specifically for the use of shares of the Fund in
particular investment products made available to their clients. Those clients
may be charged a transaction fee by their dealer, broker, bank or advisor for
the purchase or sale of Fund shares. |_| Investment advisors and financial
planners who have entered into an agreement for this purpose with the
Distributor and who charge an advisory, consulting or other fee for their
services and buy shares for their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases are
made through a broker or agent or other financial intermediary that has made
special arrangements with the Distributor for those purchases. |_| Clients of
investment advisors or financial planners (that have entered into an agreement
for this purpose with the Distributor) who buy shares for their own accounts may
also purchase shares without sales charge but only if their accounts are linked
to a master account of their investment advisor or financial planner on the
books and records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these investors may be
charged a fee by the broker, agent or financial intermediary for purchasing
shares. |_| Directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the investment
advisor (the Distributor must be advised of this arrangement) and persons who
are directors or trustees of the company or trust which is the beneficial owner
of such accounts. |_| A unit investment trust that has entered into an
appropriate agreement with the Distributor. |_| Dealers, brokers, banks, or
registered investment advisers that have entered into an agreement with the
Distributor to sell shares to defined contribution employee retirement plans for
which the dealer, broker or investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under sections
401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each case if
those purchases are made through a broker, agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases. |_|
A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors) whose
Class B or Class C shares of a Former Quest for Value Fund were exchanged for
Class A shares of that Fund due to the termination of the Class B and Class C
TRAC-2000 program on November 24, 1995. |_| A qualified Retirement Plan that had
agreed with the former Quest for Value Advisors to purchase shares of any of the
Former Quest for Value Funds at net asset value, with such shares to be held
through DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no concessions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions
and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
|_| Shares purchased in amounts of less than $5.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
|_| To make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the account value adjusted
annually.
|_| Involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (please refer to
"Shareholder Account Rules and Policies," in the applicable fund
Prospectus).
|_| For distributions from Retirement Plans, deferred compensation
plans or other employee benefit plans for any of the following
purposes: 1) Following the death or disability (as defined in the
Internal Revenue
Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
2) To return excess contributions.
3) To return contributions made due to a mistake of fact. 4)
Hardship withdrawals, as defined in the plan.(6)
5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the
Internal Revenue Code.
6) To meet the minimum distribution requirements of the Internal
Revenue Code.
7) To make "substantially equal periodic payments" as described
in Section 72(t) of the Internal Revenue Code.
8) For loans to participants or beneficiaries. 9) Separation from
service.(7)
10) Participant-directed redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) if the plan has made special
arrangements with the Distributor.
11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from 401(k) plans sponsored by broker-dealers
that have entered into a special agreement with the Distributor
allowing this waiver.
|_| For distributions from retirement plans that have $10 million or
more in plan assets and that have entered into a special agreement
with the Distributor.
|_| For distributions from retirement plans which are part of a
retirement plan product or platform offered by certain banks,
broker-dealers, financial advisors, insurance companies or record
keepers which have entered into a special agreement with the
Distributor.
III. Waivers of Class B, Class C and Class N Sales Charges of Oppenheimer Funds
- ----------------------------------------------------------------------------------------
The Class B, Class C and Class N contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B, Class C and Class N contingent deferred sales charges will be
waived for redemptions of shares in the following cases: |_| Shares redeemed
involuntarily, as described in "Shareholder Account Rules and Policies," in the
applicable Prospectus. |_| Redemptions from accounts other than Retirement Plans
following the death or disability of the last surviving shareholder. The death
or disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by the
Social Security Administration. |_| The contingent deferred sales charges are
generally not waived following the death or disability of a grantor or trustee
for a trust account. The contingent deferred sales charges will only be waived
in the limited case of the death of the trustee of a grantor trust or revocable
living trust for which the trustee is also the sole beneficiary. The death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by the
Social Security Administration. |_| Distributions from accounts for which the
broker-dealer of record has entered into a special agreement with the
Distributor allowing this waiver. |_| Redemptions of Class B shares held by
Retirement Plans whose records are maintained on a daily valuation basis by
Merrill Lynch or an independent record keeper under a contract with Merrill
Lynch. |_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose. |_| Redemptions of
Class C shares of an Oppenheimer fund in amounts of $1 million or more requested
in writing by a Retirement Plan sponsor and submitted more than 12 months after
the Retirement Plan's first purchase of Class C shares, if the redemption
proceeds are invested to purchase Class N shares of one or more Oppenheimer
funds. |_| Distributions(8) from Retirement Plans or other employee benefit
plans for any of the following purposes: 1) Following the death or disability
(as defined in the Internal Revenue Code) of the participant or beneficiary. The
death or disability must occur after the participant's account was established
in an Oppenheimer fund. 2) To return excess contributions made to a
participant's account. 3) To return contributions made due to a mistake of fact.
4) To make hardship withdrawals, as defined in the plan.(9) 5) To make
distributions required under a Qualified Domestic Relations Order or, in the
case of an IRA, a divorce or separation agreement described in Section 71(b) of
the Internal Revenue Code. 6) To meet the minimum distribution requirements of
the Internal Revenue Code. 7) To make "substantially equal periodic payments" as
described in Section 72(t) of the Internal Revenue Code. 8) For loans to
participants or beneficiaries.(10) 9) On account of the participant's separation
from service.(11) 10) Participant-directed redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if the plan has
made special arrangements with the Distributor. 11) Distributions made on
account of a plan termination or "in-service" distributions, if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA. 12) For
distributions from a participant's account under an Automatic Withdrawal Plan
after the participant reaches age 59 1/2, as long as the aggregate value of the
distributions does not exceed 10% of the account's value, adjusted annually. 13)
Redemptions of Class B shares under an Automatic Withdrawal Plan for an account
other than a Retirement Plan, if the aggregate value of the redeemed shares does
not exceed 10% of the account's value, adjusted annually. 14) For distributions
from 401(k) plans sponsored by broker-dealers that have entered into a special
arrangement with the Distributor allowing this waiver. |_| Redemptions of Class
B shares or Class C shares under an Automatic Withdrawal Plan from an account
other than a Retirement Plan if the aggregate value of the redeemed shares does
not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases: |_| Shares sold to the Manager or
its affiliates.
|_| Shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party. |_|
Shares sold to present or former officers, directors, trustees or employees
(and their "immediate families" as defined above in Section I.A.)
of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
- -----------------------------------------------------------------------------------------
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Small Cap Value Fund
Oppenheimer Quest Balanced Fund Oppenheimer Quest
International Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds
when they merged (were reorganized) into various Oppenheimer funds on November
24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York
Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value National
Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: |_| acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds,
or |_| purchased by such shareholder by exchange of shares of another
Oppenheimer
fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- -------------------------------- ---------------------------- --------------------------------- ---------------------
Number of Eligible Employees Initial Sales Charge as a Initial Sales Charge as a % of Concession as % of
or Members % of Offering Price Net Amount Invested Offering Price
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- -------------------------------- ---------------------------- --------------------------------- ---------------------
9 or Fewer 2.50% 2.56% 2.00%
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- -------------------------------- ---------------------------- --------------------------------- ---------------------
At least 10 but not more than 2.00% 2.04% 1.60%
49
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- ----------------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
the sales charge rate in the table based on the number of members of an
Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales charge rates,
upon request to the Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A shares
purchased by the following investors are not subject to any Class A initial or
contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds
on February 28, 1991 and who acquired shares of any of the
Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value
Fund by merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions.
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares purchased by the following investors who were shareholders of any
Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the
following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
o withdrawals under an automatic withdrawal plan holding only
either Class B or Class C shares if the annual withdrawal does
not exceed 10% of the initial value of the account value,
adjusted annually, and
o liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the
required minimum value of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: o redemptions following the
death or disability of the shareholder(s) (as evidenced by a determination of
total disability by the U.S. Social Security Administration); o withdrawals
under an automatic withdrawal plan (but only for Class B or Class C shares)
where the annual withdrawals do not exceed 10% of the initial value of the
account value; adjusted annually, and o liquidation of a shareholder's account
if the aggregate net asset value of shares held in the account is less than the
required minimum account value. A shareholder's account will be credited with
the amount of any contingent deferred sales charge paid on the redemption of any
Class A, Class B or Class C shares of the Oppenheimer fund described in this
section if the proceeds are invested in the same Class of shares in that fund or
another Oppenheimer fund within 90 days after redemption. V. Special Sales
Charge Arrangements for Shareholders of Certain Oppenheimer Funds Who Were
Shareholders of Connecticut Mutual Investment Accounts, Inc.
- ------------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
Oppenheimer U. S. Government Trust,
Oppenheimer Bond Fund,
Oppenheimer Value Fund and
Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual
Total Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital
Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan
Balanced Account
Connecticut Mutual Growth Account CMIA Diversified
Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|X| Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and
the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: 1)
persons whose purchases of Class A shares of a Fund and other
Former
Connecticut Mutual Funds were $500,000 prior to March 18,
1996, as a result of direct purchases or purchases pursuant to
the Fund's policies on Combined Purchases or Rights of
Accumulation, who still hold those shares in that Fund or
other Former Connecticut Mutual Funds, and
2) persons whose intended purchases under a Statement of
Intention entered into prior to March 18, 1996, with the
former general distributor of the Former Connecticut Mutual
Funds to purchase shares valued at $500,000 or more over a
13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial
sales charge
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|X| Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
1) any purchaser, provided the total initial amount invested in
the Fund or any one or more of the Former Connecticut Mutual
Funds totaled $500,000 or more, including investments made
pursuant to the Combined Purchases, Statement of Intention and
Rights of Accumulation features available at the time of the
initial purchase and such investment is still held in one or
more of the Former Connecticut Mutual Funds or a Fund into
which such Fund merged;
2) any participant in a qualified plan, provided that the total
initial amount invested by the plan in the Fund or any one or
more of the Former Connecticut Mutual Funds totaled $500,000
or more;
3) Directors of the Fund or any one or more of the Former
Connecticut Mutual Funds and members of their immediate
families;
4) employee benefit plans sponsored by Connecticut Mutual
Financial Services, L.L.C. ("CMFS"), the prior distributor of
the Former Connecticut Mutual Funds, and its affiliated
companies;
5) one or more members of a group of at least 1,000 persons (and
persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other
activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such
group; and
6) an institution acting as a fiduciary on behalf of an
individual or individuals, if such institution was directly
compensated by the individual(s) for recommending the purchase
of the shares of the Fund or any one or more of the Former
Connecticut Mutual Funds, provided the institution had an
agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996:
1) by the estate of a deceased shareholder;
2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or concession in connection with the purchase of
shares of any registered investment management company;
6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- ----------------------------------------------------------------------------------------
Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S. Government Trust,
Oppenheimer Strategic Income Fund and Oppenheimer Capital Income Fund who acquired
(and still hold) shares of those funds as a result of the reorganization of series of
Advance America Funds, Inc. into those Oppenheimer funds on October 18, 1991, and who
held shares of Advance America Funds, Inc. on March 30, 1990, may purchase Class A
shares of those four Oppenheimer funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer Convertible
Securities Fund
- ----------------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them or the prior
investment advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees,
|_| employees and registered representatives (and their spouses) of
dealers or brokers described in the preceding section or financial
institutions that have entered into sales arrangements with those
dealers or brokers (and whose identity is made known to the
Distributor) or with the Distributor, but only if the purchaser
certifies to the Distributor at the time of purchase that the
purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had
entered into an agreement with the Distributor or the prior
distributor of the Fund specifically providing for the use of
Class M shares of the Fund in specific investment products made
available to their clients, and
|_| dealers, brokers or registered investment advisors that had
entered into an agreement with the Distributor or prior
distributor of the Fund's shares to sell shares to defined
contribution employee retirement plans for which the dealer,
broker, or investment advisor provides administrative services.
.
Oppenheimer Core Bond Fund
Internet Website:
www.oppenheimerfunds.com
Investment Advisor
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Distributor
OppenheimerFunds Distributor, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270 Denver, Colorado 80217 1.800.CALL OPP(225.5677)
Custodian Bank
JPMorgan Chase Bank
4 Chase Metro Tech Center
Brooklyn, New York, 11245
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Counsel to the Funds
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
Counsel to the Independent Trustees
Bell, Boyd & Lloyd LLC
70 West Madison Street, Suite 3100
Chicago, Illinois 60602
1234
PX0285.001.0305
OPPENHEIMER TOTAL RETURN BOND FUND
Supplement dated November 23, 2005 to the
Prospectus dated August 26, 2005
The Prospectus supplement dated September 30, 2005 is deleted and replaced with the
following:
1. Effective October 1, 2005, the section in the Prospectus titled
“Special Sales Charge Arrangements and Waiver—Other Special Sales
Charge Arrangements and Waivers—Purchases by Certain Retirement Plans”
on page 26 of the Prospectus was amended by deleting that section in its
entirety and replacing it with the following:
Purchases by Certain Retirement Plans. There is no initial sales charge
on purchases of Class A shares of the Fund by retirement plans that
have $5 million or more in plan assets. In that case the Distributor
may pay from its own resources, at the time of sale, concessions in an
amount equal to 0.25% of the purchase price of Class A shares purchased
within the first six months of account establishment by those
retirement plans to dealers of record, subject to certain exceptions
described in “Retirement Plans” in the Statement of Additional
Information.
There is also no initial sales charge on purchases of Class A shares of
the Fund by certain retirement plans that are part of a retirement plan
or platform offered by banks, broker-dealers, financial advisors,
insurance companies or recordkeepers. No contingent deferred sales
charge is charged upon the redemption of such shares.
2. Effective October 1, 2005, the seventh paragraph in the section in the
Prospectus titled “Distribution and Service Plans—Distribution and
Service Plans for Class B, Class C and Class N Shares” was amended by
deleting that paragraph in its entirety and replacing it with the following:
For certain group retirement plans held in omnibus accounts, the
Distributor will pay the full Class C or Class N asset-based sales
charge and the service fee to the dealer beginning in the first year
after the purchase of such shares in lieu of paying the dealer the
sales concession and the advance of the first year’s service fee at the
time of purchase. New group omnibus plans may not purchase Class B
shares.
3. The following paragraphs are added to the end of the section captioned “How
the Fund is Managed”:
At a recent meeting, the Board of Trustees of the Fund determined that it
is in the best interest of the Fund’s shareholders that the Fund reorganize
with and into Oppenheimer Core Bond Fund (“Core Bond Fund”). The Board
unanimously approved an Agreement and Plan of Reorganization to be entered into
between the Fund and Core Bond Fund, whereby Core Bond Fund will acquire all of
the assets and assume all of the liabilities of the Fund in exchange for
newly-issued shares of Core Bond Fund (the “Reorganization”).
Following the Reorganization, the Fund will liquidate and dissolve and terminate
its registration as an investment company under the Investment Company Act of
1940.
The Reorganization is conditioned upon, among other things, approval by
the Fund's shareholders. If all of the requisite approvals are
obtained, it is anticipated that the Reorganization will take place in
the first calendar quarter of 2006. Shareholders of record, as of a
date to be determined by the Board, will be entitled to vote on the
Reorganization and will receive the proxy statement describing the
Reorganization. The anticipated date for the shareholder meeting is on
or about March 15, 2006, with the Reorganization to be effected shortly
thereafter.
If the Reorganization takes place, Fund shareholders will receive shares of
the class of Core Bond Fund, having the same management fees, 12b-1 fees and
sales charges (including contingent deferred sales charges), if any, as the
shares of the Fund held by them immediately prior to the Reorganization.
November 23, 2005
PS0535.004
Oppenheimer
Total Return Bond Fund
Prospectus dated August 26, 2005
Oppenheimer Total Return Bond Fund is a mutual fund
that seeks to maximize total return through both
capital appreciation and income. As a secondary
objective, it emphasizes preservation of capital.
This Prospectus contains important information
about the Fund’s objective, and its investment
policies, strategies and risks. It also contains
important information about how to buy and sell shares
of the Fund and other account features. Please read
this Prospectus carefully before you invest and keep it
for future reference about your account.
As with all mutual funds, the Securities and Exchange
Commission has not approved or disapproved the Fund’s
securities nor has it determined that this Prospectus is
accurate or complete. It is a criminal offense to
represent otherwise.
[logo] OppenheimerFunds®
The Right Way to Invest
CONTENTS
ABOUT THE FUND
The Fund’s Investment Objectives and Principal Investment
Strategies
Main Risks of Investing in the Fund
The Fund’s Past Performance
Fees and Expenses of the Fund
About the Fund’s Investments
How the Fund is Managed
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class N Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Website
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Checkwriting
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
ABOUT THE FUND
The Fund’s Investment Objectives and Principal Investment Strategies
WHAT ARE THE FUND’S INVESTMENT OBJECTIVES? The Fund seeks to maximize
total return through both capital appreciation and income. As a secondary
objective, it emphasizes preservation of capital.
WHAT DOES THE FUND MAINLY INVEST IN? As a non-fundamental policy (which
will not be changed without providing 60 days notice to Fund shareholders),
under normal market conditions the Fund invests at least 80% of its net assets
(plus borrowings for investment purposes) in bonds. The Fund primarily invests
in investment-grade debt securities, U.S. government securities and money market
instruments, under normal market conditions. Those investment-grade debt
securities can include:
o domestic and foreign government bonds, o domestic and foreign corporate
debt obligations, o mortgage-related securities (including collateralized
mortgage obligations (“CMOs”)) issued by private issuers, and o other
debt obligations.
The Fund’s investments in U.S. government securities include
securities issued or guaranteed by the U.S. government or its agencies or
federally-chartered corporate entities referred to as
“instrumentalities.” These include mortgage-related U.S. government
securities and CMOs.
There is no set allocation of the Fund’s assets among the classes of
securities the Fund buys, but currently the Fund focuses mainly on U.S.
government securities and investment-grade debt securities. However, if market
conditions change, the Fund’s portfolio managers might change the relative
allocation of the Fund’s assets. The Fund can invest up to 20% of its total
assets in high-yield debt securities that are below investment-grade (commonly
referred to as “junk bonds”).
The Fund seeks to maintain an average effective portfolio duration
(discussed below) of three to six years (measured on a dollar-weighted basis) to
try to reduce the volatility of the value of its securities portfolio. The Fund
has no limitations on the range of maturities of the debt securities in which it
can invest and therefore may hold bonds with short-, medium- or long-term
maturities. Because of market events and interest rate changes, the duration of
the portfolio might not meet that target at all times. The Manager will attempt
to maintain the overall weighted average credit quality of the portfolio at a
rating of “A-” (or equivalent) or higher from any nationally
recognized credit rating organization. These investments are more fully
explained in “About the Fund’s Investments,” below. As stated
below, the Fund can use derivatives to seek increased returns or to try to hedge
investment risks.
HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund’s portfolio managers analyze
the overall investment opportunities and risks in different sectors of the debt
securities markets by focusing on business cycle analysis and relative values
between the corporate and government sectors. The portfolio managers’
overall strategy is to build a broadly diversified portfolio of corporate and
government bonds. The portfolio managers currently focus on the factors below
(which may vary in particular cases and may change over time), looking for:
o Debt securities in market sectors that offer attractive relative value, o
Investment-grade securities that offer more income than U.S. treasury
obligations with a good balance of risk and return, o High income potential from
different types of corporate and government securities, and o Broad portfolio
diversification to help reduce the volatility of the Fund’s share prices.
The portfolio manager monitors individual issuers for changes in the
factors above and these changes may trigger a decision to sell a security.
Generally, the “total return” sought by the Fund consists of income
earned on the Fund’s investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates, improving credit fundamentals
for a particular sector or security, and managing pre-payment risks associated
with mortgage-related securities, as well as other techniques.
WHO IS THE FUND DESIGNED FOR? The Fund is designed for investors seeking
high total return from a fund that invests primarily in investment-grade debt
securities but which can also hold high-yield below investment-grade debt
securities. Those investors should be willing to assume the credit risks of a
fund that typically invests a significant amount of its assets in corporate debt
securities, and the changes in share prices that can occur when interest rates
change. The Fund is intended as a long-term investment, not a short-term trading
vehicle, and may be appropriate for a part of an investor’s retirement plan
portfolio. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund’s investments are
subject to changes in value from a number of factors, described below. They
include changes in general bond market movements in the U.S. and abroad (this is
referred to as “market risk”). There is also the risk that poor
security selection by the Fund’s investment Manager, OppenheimerFunds,
Inc., will cause the Fund to underperform other funds having similar objectives.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the
risk that the issuer of a debt security might not make interest and principal
payments on the security as they become due. A downgrade in an issuer’s
credit rating or other adverse news about an issuer can reduce the value of that
issuer’s securities. Securities directly issued by the U.S. Treasury and
certain U.S. government agencies that are backed by the full faith and credit of
the U.S. government have little credit risk. Securities issued by other agencies
or instrumentalities of the U.S. government such as the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association are neither
guaranteed nor insured by the U.S. government but generally are considered to
have low credit risks. These securities are described further below in
“Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities.” Securities issued by private issuers have greater
credit risks. If an issuer fails to pay interest, the Fund’s income may be
reduced. If an issuer fails to repay principal, the value of that security and
of the Fund’s shares may be reduced.
o Special Risks of Lower-Grade Securities. Because the Fund can invest up
to 20% of its total assets in securities (including convertible securities)
below investment-grade, the Fund’s credit risks are greater than those of
funds that buy only investment-grade securities. Lower-grade debt securities may
be subject to greater market fluctuations and greater risks of loss of income
and principal than investment-grade debt securities. Securities that are (or
that have fallen) below investment grade are exposed to a greater risk that the
issuers of those securities might not meet their debt obligations. Those risks
can reduce the Fund’s share prices and the income it earns. The market for
lower-grade securities may be less liquid, especially during times of economic
distress, and therefore they may be harder to value or to sell at an acceptable
price.
INTEREST RATE RISKS. Debt securities are subject to changes in value when
prevailing interest rates change. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. When prevailing interest
rates rise, the values of outstanding debt securities generally fall, and those
securities may sell at a discount from their face amount. The magnitude of these
fluctuations is generally greater for securities having longer maturities than
for short-term securities. However, interest rate changes may have different
effects on the values of mortgage-related securities because of prepayment
risks, discussed below.
At times, the Fund may buy longer-term debt securities. When the average
duration of the Fund’s portfolio is longer, its share prices may fluctuate
more when interest rates change. The Fund can buy zero-coupon or
“stripped” securities, which are particularly sensitive to interest
rate changes and the rate of principal payments (and prepayments). These are
derivative securities that have prices that may go up or down more than other
types of debt securities in response to interest rate changes. 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 investments. Also, if interest
rates fall, the Fund’s investments in new securities at lower yields will
reduce the Fund’s income.
PREPAYMENT RISK. Prepayment risk is the risk that the issuer of a security
can prepay the principal prior to the security’s expected maturity. The
prices and yields of mortgage-related securities are determined, in part, by
assumptions about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected prepayments
of those mortgages to change. In general, prepayments increase when general
interest rates fall and decrease when general interest rates rise.
The impact of prepayments on the price of a security may be difficult to
predict and may increase the volatility of the price. Interest-only and
principal-only “stripped” securities can be particularly volatile when
interest rates change. If the Fund buys mortgage-related securities at a
premium, accelerated prepayments on those securities could cause the Fund to
lose a portion of its principal investment represented by the premium the Fund
paid.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short- or medium-term security. That could cause its value to fluctuate
more widely in response to changes in interest rates. In turn, this could cause
the value of the Fund’s shares to fall more.
RISKS OF USING DERIVATIVE INVESTMENTS. The Fund can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, interest-only and principal-only securities, structured notes,
interest-rate swap agreements and mortgage-related securities are examples of
derivatives the Fund can use.
If the issuer of the derivative does not pay the amount due, the Fund can
lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, may not perform the
way the Manager expected it to perform. If that happens, the Fund’s share
prices could fall and the Fund could get less income than expected, or its hedge
might be unsuccessful. Some derivatives may be illiquid, making it difficult to
value or to sell them at an acceptable price. The Fund has limits on the amount
of certain types of derivatives it can hold. However, using derivatives can
cause the Fund to lose money on its investments and/or increase the volatility
of its share prices.
HOW RISKY IS THE FUND OVERALL? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the
Fund’s investments, its investment performance and the prices of its
shares. Particular investments and investment strategies also have risks. These
risks mean that you can lose money by investing in the Fund. When you redeem
your shares, they may be worth more or less than what you paid for them. The
share price of the Fund will change daily based on changes in interest rates,
market prices of securities and market conditions, and in response to other
economic events. There is no assurance that the Fund will achieve its investment
objective.
Debt securities are subject to market, credit and interest rate risks that
can affect their values and the share prices of the Fund. Prepayment risks of
mortgage-backed securities can cause the Fund to reinvest proceeds of its
investments in lower-yielding securities. In the OppenheimerFunds spectrum, the
Fund generally has more risks than bond funds that focus primarily on U. S.
government securities, but the Fund’s emphasis on investment-grade
securities may make its share prices less volatile than high-yield bond funds or
funds that focus on foreign bonds.
- ----------------------------------------------------------------------------------------------------------
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- ----------------------------------------------------------------------------------------------------------
The Fund’s Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund’s performance (for its Class A
shares) from year to year for the full calendar year since the Fund’s
inception and by showing how the average annual total returns of the Fund’s
shares, both before and after taxes, compared to those of a broad-based market
index. The after-tax returns for the other classes of shares will vary.
The after-tax returns are shown for Class A shares only and are calculated
using the historical highest individual federal marginal income tax rates in
effect during the periods shown, and do not reflect the impact of state or local
taxes. The after-tax returns are calculated based on certain assumptions
mandated by regulation and your actual after-tax returns may differ from those
shown, depending on your individual tax situation. The after-tax returns set
forth below are not relevant to investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans or IRAs or to institutional
investors not subject to tax. The Fund’s past investment performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year) [See appendix to
prospectus for data in bar chart showing the annual total return]
Sales charges and taxes are not included in the calculations of return in
this bar chart, and if those charges and taxes were included, the returns may be
less than those shown.
For the period from 1/1/05 through 6/30/05, the cumulative return (not
annualized) before taxes for Class A shares was 2.17%.
During the period shown in the bar chart, the highest return (not
annualized) before taxes for a calendar quarter was 3.17% (3rd Qtr 04) and the
lowest return (not annualized) before taxes for a calendar quarter was -2.19%
(2nd Qtr 04).
- --------------------------------------------- ---------------------- ---------------------------
5 Years
Average Annual Total Returns (or life of class, if
for the periods ended December 31, 2004 1 Year less)
- --------------------------------------------- ---------------------- ---------------------------
- --------------------------------------------- ---------------------- ---------------------------
Class A Shares (inception 2/21/03)
Return Before Taxes -0.66% 1.54%
Return After Taxes on Distributions -2.05% 0.28%
Return After Taxes on Distributions and
Sale of Fund Shares -0.42% 0.60%
- --------------------------------------------- ---------------------- ---------------------------
CitiGroup Broad Investment-Grade (BIG) Bond
Index (reflects no deduction for fees,
expenses or taxes) 4.48% 3.90%(1)
- --------------------------------------------- ---------------------- ---------------------------
-1.59% 1.18%
Class B Shares (inception 2/21/03)
- --------------------------------------------- ---------------------- ---------------------------
2.51% 3.29%
Class C Shares (inception 2/21/03)
- --------------------------------------------- ---------------------- ---------------------------
- --------------------------------------------- ---------------------- ---------------------------
2.93% 3.81%
Class N Shares (inception 2/21/03)
- --------------------------------------------- ---------------------- ---------------------------
(1) From 2/28/03.
The Fund’s average annual total returns include applicable sales
charges: for Class A, the current maximum initial sales charge of 4.75%; for
Class B, the contingent deferred sales charge of 5% (1-year) and 3% (life of
class); and for Class C and Class N, the 1% contingent deferred sales charge for
the 1-year period. The returns measure the performance of a hypothetical account
and assume that all dividends and capital gains distributions have been
reinvested in additional shares. The performance of the Fund’s Class A
shares is compared to CitiGroup Broad Investment-Grade (BIG) Bond Index, which
represents a market capitalization-weighted index that includes U.S. Treasury,
government-sponsored, mortgage and investment-grade fixed-rate corporate bonds
with a maturity of one year or longer and is generally considered representative
of the U.S. bond market. The index performance includes reinvestment of income
but does not reflect transaction costs, fees, expenses or taxes. The Fund’s
investments vary from those in the index.
Fees and Expenses of the Fund
The following tables are provided to help you understand the fees and
expenses you may pay if you buy and hold shares of the Fund. The Fund pays a
variety of expenses directly for management of its assets, administration,
distribution of its shares and other services. Those expenses are subtracted
from the Fund’s assets to calculate the Fund’s net asset values per
share. All shareholders therefore pay those expenses indirectly. Shareholders
pay other expenses directly, such as sales charges. The numbers below are based
on the Fund's expenses during its fiscal year ended April 30, 2005.
- --------------------------------------------- -------------- ------------ ------------ -------------
Class A Class B Class C Class N
Shares Shares Shares Shares
- --------------------------------------------- -------------- ------------ ------------ -------------
- --------------------------------------------- -------------- ------------ ------------ -------------
Maximum Sales Charge (Load) on 4.75% None None None
Purchases (as % of offering price)
- --------------------------------------------- -------------- ------------ ------------ -------------
- --------------------------------------------- -------------- ------------ ------------ -------------
Maximum Deferred Sales Charge
(Load) (as % of the lower of the None(1) 5%(2) 1%(3) 1%(4)
original offering price or
redemption proceeds)
- --------------------------------------------- -------------- ------------ ------------ -------------
--------------------------------------------- -------------- ------------
- ------------ ------------- Class A Class B Class C Class N Shares Shares Shares
Shares --------------------------------------------- -------------- ------------
- ------------ ------------- ---------------------------------------------
- -------------- ------------ ------------ ------------- Management Fees 0.50%
0.50% 0.50% 0.50% --------------------------------------------- --------------
- ------------ ------------ -------------
- --------------------------------------------- -------------- ------------
- ------------ ------------- Distribution and/or Service (12b-1) Fees 0.25%(5)
1.00% 1.00% 0.50% --------------------------------------------- --------------
- ------------ ------------ -------------
- --------------------------------------------- -------------- ------------
- ------------ ------------- Other Expenses 0.22% 0.91% 0.67% 0.51%
- --------------------------------------------- -------------- ------------
- ------------ ------------- ---------------------------------------------
- -------------- ------------ ------------ ------------- Total Annual Operating
Expenses 0.97% 2.41% 2.17% 1.51% ---------------------------------------------
- -------------- ------------ ------------ ------------- Expenses may vary in
future years. “Other expenses” include transfer agent fees, custodial
fees, and accounting and legal expenses that the Fund pays. The “Other
Expenses” in the table are based on, among other things, the fees the Fund
would have paid if the transfer agent had not waived a portion of its fee under
a voluntary undertaking to the Fund to limit these fees to 0.35% of average
daily net assets per fiscal year for all classes. That undertaking may be
amended or withdrawn at any time. Additionally the Manager has voluntarily
agreed to waive fees and/or reimburse the Fund for certain expenses such that
the “Total Annual Operating Expenses” will not exceed 0.90% for Class
A shares, 1.65% for Class B shares, 1.65% for Class C shares, and 1.15% for
Class N shares, respectively. The voluntary waivers described above may be
amended or withdrawn at any time. After giving effect to the transfer agent fee
waiver and expense limitation described above, the actual “Total Annual
Operating Expenses” were 0.90% for Class A shares, 1.65% for Class B
shares, 1.65% for Class C shares and 1.15% for Class N shares, respectively.
1. A contingent deferred sales charge may apply to redemptions of
investments of $1 million or more ($500,000 for certain retirement plan
accounts) of Class A shares. See “How to Buy Shares” for details. 2.
Applies to redemptions in first year after purchase. The contingent deferred
sales charge gradually declines from 5% to 1% in years one through six and is
eliminated after that. 3. Applies to shares redeemed within 12 months of
purchase. 4. Applies to shares redeemed within 18 months of a retirement
plan’s first purchase of Class N shares. 5. Due to the relatively low
proportion of Class A shareholders who purchased shares of the Fund through
brokers, dealers and other financial institutions entitled to receive payments
under the Class A service (12b-1) plan. Distribution and /or Service (12b-1)
Fees were 0.08% for the Fund’s fiscal year ended April 30, 2005. Fees are
expected to be 0.25% for the current fiscal year.
Examples. The following examples are intended to help you compare the cost
of investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class’s operating expenses remain the same. Your actual costs may be higher
or lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years
-------------------------------- -------------------- ------------------- ------------------- --------------------
-------------------------------- -------------------- ------------------- ------------------- --------------------
Class A Shares $570 $771 $988 $1,614
-------------------------------- -------------------- ------------------- ------------------- --------------------
-------------------------------- -------------------- ------------------- ------------------- --------------------
Class B Shares $747 $1,060 $1,501 $2,074(1)
-------------------------------- -------------------- ------------------- ------------------- --------------------
-------------------------------- -------------------- ------------------- ------------------- --------------------
Class C Shares $322 $686 $1,177 $2,530
-------------------------------- -------------------- ------------------- ------------------- --------------------
-------------------------------- -------------------- ------------------- ------------------- --------------------
Class N Shares $255 $481 $830 $1,815
-------------------------------- -------------------- ------------------- ------------------- --------------------
If shares are not redeemed: 1 Year 3 Years 5 Years 10 Years
- -------------------------------- -------------------- -------------------
- ------------------- -------------------- --------------------------------
- -------------------- ------------------- -------------------
- -------------------- Class A Shares $570 $771 $988 $1,614
- -------------------------------- -------------------- -------------------
- ------------------- -------------------- --------------------------------
- -------------------- ------------------- -------------------
- -------------------- Class B Shares $247 $760 $1,301 $2,074(1)
- -------------------------------- -------------------- -------------------
- ------------------- -------------------- --------------------------------
- -------------------- ------------------- -------------------
- -------------------- Class C Shares $222 $686 $1,177 $2,530
- -------------------------------- -------------------- -------------------
- ------------------- -------------------- --------------------------------
- -------------------- ------------------- -------------------
- -------------------- Class N Shares $155 $481 $830 $1,815
- -------------------------------- -------------------- -------------------
- ------------------- -------------------- In the first example, expenses include
the initial sales charge for Class A and the applicable Class B, Class C and
Class N contingent deferred sales charges. In the second example, the Class A
expenses include the sales charge, but Class B, Class C and Class N expenses do
not include contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses
since Class B shares automatically convert to Class A shares 72 months after
purchase.
About the Fund’s Investments
THE FUND’S PRINCIPAL INVESTMENT POLICIES AND RISKS. The allocation of
the Fund’s portfolio among the different types of investments will vary
over time based upon the evaluation of economic and market trends. The
Fund’s portfolio might not always include all of the different types of
investments described in this prospectus. The Statement of Additional
Information contains more detailed information about the Fund’s investment
policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of securities of any one issuer and by not investing too great a
percentage of the Fund’s assets in any one company. Also, the Fund does not
concentrate 25% or more of its total assets in any one industry.
However, changes in the overall market prices of securities and any income
they may pay can occur at any time. The share price and yield of the Fund will
change daily based on changes in market prices of securities and market
conditions, and in response to other economic events.
In selecting debt securities and evaluating their yield potential and
credit risk, the Manager does not rely solely on ratings by rating organizations
but evaluates business and economic factors affecting an issuer as well. The
debt securities the Fund buys may be rated by nationally recognized rating
organizations such as Moody’s Investors Service (“Moody’s”)
or Standard & Poor’s Ratings Services, Inc. (“S&P”), or
they may be unrated securities assigned an equivalent rating by the Manager.
“Investment-grade” rated securities are those in the four highest
rating categories of national ratings organizations. A description of those
ratings definitions is included in Appendix A to the Statement of Additional
Information.
U.S. Government Securities. Not all of the U.S. government securities the
Fund buys are backed by the full faith and credit of the U.S. government as to
payment of interest and repayment of principal. Some are backed by the right of
the entity to borrow from the U.S. Treasury. Others are backed only by the
credit of the instrumentality. All of these different types of securities
described below are generally referred to as “U.S. government
securities” in this Prospectus. o U.S. Treasury Obligations. These include
Treasury bills (having maturities of one year or less when issued), Treasury
notes (having maturities of more than one year and up to ten years when issued),
and Treasury bonds (having maturities of more than ten years when issued).
Treasury securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. The Fund can buy
U.S. Treasury securities that have been “stripped” of their coupons
and zero-coupon securities described below. o Obligations Issued or Guaranteed
by U.S. Government Agencies or Instrumentalities. These include direct
obligations and mortgage-related securities that have different levels of credit
support from the U.S. government. Some are supported by the full faith and
credit of the U.S. government, such as Government National Mortgage Association
(“Ginnie Mae”) pass-through mortgage certificates. Some are supported
by the right of the issuer to borrow from the U.S. Treasury under certain
circumstances, such as Federal National Mortgage Association (“Fannie
Mae”) bonds or Federal Home Loan Mortgage Corporation (“Freddie
Mac”) obligations. o Mortgage-Related U.S. Government Securities. These
include interests in pools of residential or commercial mortgages, in the form
of CMOs and other “pass-through” mortgage securities. CMOs that are
U.S. government securities have collateral to secure payment of interest and
principal. They may be issued in different series with different interest rates
and maturities. The collateral is either in the form of mortgage pass-through
certificates issued or guaranteed by a U.S. agency or instrumentality or
mortgage loans insured by a U.S. government agency. The Fund can have
substantial amounts of its assets invested in mortgage-related U.S. government
securities. The prices and yields of CMOs are determined, in part, by
assumptions about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected prepayments
of those mortgages to change. These prepayment risks can make the prices of CMOs
very volatile when interest rates change. That volatility will affect the
Fund’s share prices. Other Debt Securities. While the Fund invests
primarily in investment-grade debt securities, it is not required to dispose of
debt securities that fall below investment grade after the Fund buys them.
However, the portfolio managers will monitor those holdings to determine whether
the Fund should sell them. While securities rated “Baa” by
Moody’s or “BBB” by S&P are considered “investment
grade,” they have some speculative characteristics. While investment-grade
securities are subject to risks of non-payment of interest and principal, in
general, higher-yielding lower-grade bonds, whether rated or unrated, have
greater risks than investment-grade securities. There may be less of a market
for them and therefore they may be harder to value and sell at an acceptable
price. These risks can reduce the Fund’s share prices and the income it
earns. o Private-Issuer Securities. The Fund can invest in securities issued by
private issuers that do not offer the credit backing of the U.S. government.
These include multi-class debt or pass-through certificates secured by mortgage
loans. They may be issued by banks, savings and loans, mortgage bankers or
special trusts. The Fund can buy other types of asset-backed securities
collateralized by loans or other assets or receivables. Private-issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks discussed above). There is
the risk that private issuers may not make timely payment of interest or repay
principal when due, although in some cases those payment obligations may be
supported by insurance or guarantees. The Fund’s Portfolio
“Duration” Strategy. The “maturity” of a security (the date
when its principal repayment is due) differs from effective duration, which
attempts to measure the expected volatility of a security’s price. The Fund
measures the duration of its entire portfolio of securities on a dollar-weighted
basis, to try to maintain an average effective duration of its portfolio of
three to six years under normal market conditions (that is, when financial
markets are not in an unstable or volatile state). However, duration cannot be
relied on as an exact prediction of future volatility. There can be no assurance
that the Fund will achieve its targeted portfolio duration at all times.
Duration calculations rely on a number of assumptions and variables based on the
historic performance of similar securities. Therefore, duration can be affected
by unexpected economic events or conditions relating to a particular security.
In the case of CMOs, duration calculations are based on historic rates of
prepayments of underlying mortgages. If the mortgages underlying the Fund’s
investments are prepaid more rapidly or more slowly than expected, the duration
calculation for that security may not be correct. Foreign Investing. The Fund
may invest a portion of its assets in foreign debt securities. The Fund can buy
debt securities issued by foreign governments or companies. The Fund can buy
securities of governments and companies in under-developed and developed
markets. However, the Fund may not invest more than 10% of its net assets in the
securities of governments and companies in emerging markets. Debt securities
issued or guaranteed by a foreign government or its agencies might not be backed
by the “full faith and credit” of the government.
The Fund’s foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. However, the Fund may not invest more than 20% of its
net assets in foreign debt securities. The Fund will buy and sell foreign
currency only in connection with the purchase and sale of foreign securities and
not for speculation.
Risks of Foreign Investing. While foreign securities offer special
investment opportunities, there are also special risks that can reduce the
Fund’s share prices and returns. The change in value of a foreign currency
against the U.S. dollar will result in a change in the U.S. dollar value of
securities denominated in that foreign currency. Currency rate changes can also
affect the distributions the Fund makes from the income it receives from foreign
securities as foreign currency values change against the U.S. dollar. Foreign
investing can result in higher transaction and operating costs for the Fund.
Foreign issuers are not subject to the same accounting and disclosure
requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, currency
devaluation, 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. These risks could cause the prices of foreign securities to
fall and therefore could depress the Fund’s share prices.
Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to “time-zone arbitrage”
attempts by investors seeking to take advantage of the differences in value of
foreign securities that might result from events that occur after the close of
the foreign securities market on which a foreign security is traded and before
the close of the New York Stock Exchange ("the NYSE") that day, when the
Fund’s net asset value is calculated. If such time-zone arbitrage were
successful, it might dilute the interests of other shareholders. However, the
Fund’s use of “fair value pricing” to adjust the closing market
prices of foreign securities under certain circumstances, to reflect what the
Manager and the Board believe to be their fair value, may help deter those
activities.
Special Risks of Emerging Markets. The Fund can buy securities in emerging
and developing markets. They present risks not found in more mature markets.
Those securities may be more difficult to sell at an acceptable price and their
prices may be more volatile than securities of issuers in more developed
markets. Settlements of trades may be subject to greater delays so that the Fund
might not receive the sale proceeds of a security on a timely basis.
Emerging markets might have less developed trading markets and exchanges,
and less developed legal and accounting systems. Investments may be subject to
greater risks of government restrictions on withdrawing the sales proceeds of
securities from the country. Economies of developing countries may be more
dependent on relatively few industries that may be highly vulnerable to local
and global changes. Governments may be more unstable and present greater risks
of nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be substantially more volatile than securities
of issuers in the U.S. and other developed countries and may be very
speculative.
Portfolio Turnover. A change in the securities held by the Fund is known as
“portfolio turnover.” The Fund may engage in active and frequent
short-term trading to try to achieve its objective and may have a high portfolio
turnover rate of over 100% annually. Increased portfolio turnover creates higher
brokerage and transaction costs for the Fund (and may reduce performance).
However, most of the Fund’s portfolio transactions are principal trades
that do not entail brokerage fees. If the Fund realizes capital gains when it
sells its portfolio investments, it must generally pay those gains out to
shareholders, increasing their taxable distributions.
CAN THE FUND’S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The
Fund’s Board of Trustees can change non-fundamental investment policies
without shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies cannot be changed without
the approval of a majority of the Fund’s outstanding voting shares. The
Fund’s investment objectives are fundamental policies. Other investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
OTHER INVESTMENT STRATEGIES AND RISKS. To seek its objective, the Fund can
use the investment techniques and strategies described below which are not
principal policies of the Fund. The Manager might not always use all of them.
These techniques have risks, although some are designed to help reduce overall
investment or market risks. Forward Rolls. The Fund can enter into "forward
roll" transactions with respect to mortgage-related securities. In this type of
transaction, the Fund sells a mortgage-related security to a buyer and
simultaneously agrees to repurchase a similar security at a later date at a set
price. During the period between the sale and the repurchase, the Fund will not
be entitled to receive interest and principal payments on the securities that
have been sold. It is possible that the market value of the securities the Fund
sells may decline below the price at which the Fund is obligated to repurchase
securities, or that the counterparty might default in its obligation.
Zero-Coupon and “Stripped” Securities. Some of the debt securities the
Fund buys are zero-coupon bonds that pay no interest. They are issued at a
substantial discount from their face value. They may be securities issued by the
U.S. government or private issuers. “Stripped” securities are the
separate income or principal components of a debt security. Some CMOs or other
mortgage-related securities may be stripped, with each component having a
different proportion of principal or interest payments. One class might receive
all the interest and the other all the principal payments. Zero-coupon and
stripped securities are subject to greater fluctuations in price from interest
rate changes than typical debt securities that pay interest on a regular basis.
The Fund may have to pay out the imputed income on zero-coupon securities
without receiving the cash currently. Stripped securities are particularly
sensitive to changes in interest rates. The values of interest-only and
principal-only mortgage-related securities are very sensitive to changes in
interest rates and prepayments of underlying mortgages. The market for these
securities may be limited, making it difficult for the Fund to value or to sell
its holdings at an acceptable price. Asset-Backed Securities. The Fund can buy
asset-backed securities, which are fractional interests in pools of loans
collateralized by the loans or other assets or receivables. They are typically
issued by trusts and special purpose corporations that pass the income from the
underlying pool to the buyer of the interest. These securities are subject to
prepayment risks and the risk of default by the issuer as well as by the
borrowers of the underlying loans in the pool. Illiquid and Restricted
Securities. Investments may be illiquid because they do not have an active
trading market, making it difficult to value them or dispose of them promptly at
an acceptable price. Restricted securities may have terms that limit their
resale to other investors or may require registration under applicable
securities laws before they may be sold publicly. The Fund will not invest more
than 15% of its net assets in illiquid or restricted securities. Certain
restricted securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
“Structured” Notes. The Fund can buy “structured”
notes, which are specially-designed derivative debt investments whose payments
of principal or interest are linked to the value of an index (such as a currency
or securities index) or commodity, including financial commodities. The terms of
the instrument may be “structured” by the purchaser (the Fund) and the
borrower issuing the note. The principal and/or interest payments depend on the
performance of one or more other securities or indices, and the values of these
notes will therefore fall or rise in response to the changes in the values of
the underlying security or index. They are subject to both credit and interest
rate risks and therefore the Fund could receive more or less than it originally
invested when the notes mature, or it might receive less interest than the
stated coupon payment if the underlying investment or index does not perform as
anticipated. Their values may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment at an
acceptable price. Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, interest rate swaps and forward contracts to
hedge investment risks. These are all examples of hedging instruments. The Fund
is not required to use hedging instruments to seek its objective and does not
currently use them to a significant degree. There are special risks in
particular hedging strategies. If the Manager used a hedging instrument at the
wrong time or judged market conditions incorrectly, the hedge might fail and the
strategy could reduce the Fund’s return. The Fund could also experience
losses if the prices of its futures and options positions were not correlated
with its other investments or if it could not close out a position because of an
illiquid market. Short-Term Debt Securities. The Fund can buy high-quality,
short-term money market instruments, including obligations of the U.S.
Government and its agencies, short-term corporate debt obligations, bank
certificates of deposit and bankers’ acceptances, and commercial paper,
which are short-term, negotiable promissory notes of companies.
Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its total assets in temporary defensive investments that are
inconsistent with the Fund’s principal investment strategies. Generally
they would be highly-rated commercial paper and money market instruments, U.S.
government securities and repurchase agreements. The Fund might also hold these
types of securities pending the investment of proceeds from the sale of Fund
shares or portfolio securities or to meet anticipated redemptions of Fund
shares. To the extent the Fund invests defensively in these securities, it may
not achieve its investment objective.
PORTFOLIO HOLDINGS. The Fund’s portfolio holdings are included in
semi-annual and annual reports that are distributed to shareholders of the Fund
within 60 days after the close of the period for which such report is being
made. The Fund also discloses its portfolio holdings in its Statements of
Investments on Form N-Q, which are filed with the Securities and Exchange
Commission (the “SEC”) no later than 60 days after the close of its
first and third fiscal quarters. These required filings are publicly available
at the SEC. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund’s
fiscal quarters.
A description of the Fund’s policies and procedures with respect to
the disclosure of the Fund’s portfolio securities is available in the
Fund’s Statement of Additional Information.
How the Fund Is Managed
THE MANAGER. The Manager chooses the Fund’s investments and handles
its day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund’s Board of Trustees, under an investment
advisory agreement that states the Manager’s responsibilities. The
agreement sets the fees the Fund pays to the Manager and describes the expenses
that the Fund is responsible to pay to conduct its business.
The Manager has been an investment advisor since 1960. The Manager and its
subsidiaries and controlled affiliates managed more than $180 billion in assets
as of June 30, 2005, including other Oppenheimer funds with more than 7 million
shareholder accounts. The Manager is located at Two World Financial Center, 225
Liberty Street, 11th Floor, New York, New York 10281-1008.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines as the Fund’s
assets grow: 0.50% of the first $250 million of average annual net assets of the
Fund; 0.475% of the next $500 million; and 0.45% of average annual net assets in
excess of $750 million. The Fund’s management fee for its fiscal year ended
April 30, 2005 was 0.50% of average annual net assets for each class of shares.
A discussion regarding the basis for the Board of Trustees approval of the
Fund’s investment advisory agreement is available in the Fund’s annual
report to shareholders for the period ended April 30, 2005.
Portfolio Managers. The Fund’s portfolio is managed by a team of
investment professionals including Angelo Manioudakis, Benjamin J. Gord,
Geoffrey Caan, Charles Moon and Antulio N. Bomfim who are primarily responsible
for the day-to-day management of the Fund’s investments.
Mr. Manioudakis has been a portfolio manager of the Fund since April 2002,
and a Senior Vice President of the Manager and of HarbourView Asset Management
Corporation since April 2002. He has been a Senior Vice President of OFI
Institutional Asset Management, Inc. since June 2002. He is also a portfolio
manager and officer of other portfolios in the OppenheimerFunds complex. Mr.
Manioudakis was Executive Director and portfolio manager for Miller, Anderson
& Sherrerd, a division of Morgan Stanley Investment Management from August
1993 through April 2002.
Mr. Gord has been a portfolio manager of the Fund and a Vice President of
the Manager since April 2002. He is also a portfolio manager of other portfolios
in the OppenheimerFunds complex. Mr. Gord was an Executive Director and a senior
fixed income analyst at Miller, Anderson & Sherrerd, a division of Morgan
Stanley Investment Management from April 1992 through March 2002.
Mr. Caan has been a portfolio manager of the Fund and a Vice President of
the Manager since August 2003. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Caan was a Vice President of ABN
AMRO N.A., Inc. from June 2002 through August 2003, and a Vice President of
Zurich Scudder Investments from January 1999 through June 2002.
Mr. Moon has been a portfolio manager of the Fund and a Vice President of
the Manager since April 2002. He is also a portfolio manager of other portfolios
in the OppenheimerFunds complex. Mr. Moon was an Executive Director and a
portfolio manager at Miller, Anderson & Sherrerd, a division of Morgan
Stanley Investment Management from June 1999 through March 2002.
Mr. Bomfim has been a portfolio manager of the Fund and a Vice President of
the Manager since October 2003. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Bomfim was a Senior Economist at
the Board of Governors of the Federal Reserve System from June 1992 to October
2003.
The Statement of Additional Information provides additional information
about the portfolio management team’s compensation, other accounts they
manage and their ownership of Fund shares.
PENDING LITIGATION. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
“funds”) including the Fund, 30 present and former Directors or
Trustees and 8 present and former officers of certain of the funds. This
complaint, initially filed in the U.S. District Court for the Southern District
of New York on January 10, 2005 and amended on March 4, 2005, consolidates into
a single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint alleges
that the Manager charged excessive fees for distribution and other costs,
improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of 1940.
Also, like those prior complaints, the complaint further alleges that by
permitting and/or participating in those actions, the Directors/Trustees and the
Officers breached their fiduciary duties to Fund shareholders under the
Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds’ investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys’ fees and litigation expenses.
The defendants believe the claims asserted in these law suits to be without
merit, and intend to defend the suits vigorously. The Manager and the
Distributor do not believe that the pending actions are likely to have a
material adverse effect on the Fund or on their ability to perform their
respective investment advisory or distribution agreements with the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
You can buy shares several ways, as described below. The Fund’s
Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing agents to
accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund’s shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer,
broker or financial institution that has a sales agreement with the Distributor.
Your dealer will place your order with the Distributor on your behalf. A broker
or dealer may charge for that service. Buying Shares Through the Distributor.
Complete an OppenheimerFunds new account application and return it with a check
payable to “OppenheimerFunds Distributor, Inc.” Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don’t list a dealer on the
application, the Distributor will act as your agent in buying the shares. Class
B, Class C or Class N shares may not be purchased by an investor directly from
the Distributor without the investor designating another registered
broker-dealer. The Fund’s Management recommends that you discuss your
investment with a financial advisor before you make a purchase to be sure that
the Fund is appropriate for you. o Paying by Federal Funds Wire. Shares
purchased through the Distributor may be paid for by Federal Funds wire. The
minimum investment is $2,500. Before sending a wire, call the Distributor’s
Wire Department at 1.800.225.5677 to notify the Distributor of the wire and to
receive further instructions. o Buying Shares Through OppenheimerFunds
AccountLink. With AccountLink, you pay for shares by electronic funds transfers
from your bank account. Shares are purchased for your account by a transfer of
money from your bank account through the Automated Clearing House (ACH) system.
You can provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds PhoneLink,
also described below. Please refer to “AccountLink,” below for more
details. o Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund automatically each month from your account at a bank or other financial
institution under an Asset Builder Plan with AccountLink. Details are in the
Asset Builder application and the Statement of Additional Information.
WHAT IS THE MINIMUM AMOUNT YOU MUST INVEST? In most cases, you can buy Fund
shares with a minimum initial investment of $1,000 and make additional
investments at any time with as little as $50. There are reduced minimums
available under the following special investment plans: o If you establish one
of the many types of retirement plan accounts that OppenheimerFunds offers, more
fully described below under “Special Investor Services,” you can start
your account with as little as $500. o By using an Asset Builder Plan or
Automatic Exchange Plan (details are in the Statement of Additional
Information), or government allotment plan, you can make subsequent investments
(after making the initial investment of $500) for as little as $50. For any type
of account established under one of these plans prior to November 1, 2002, the
minimum additional investment will remain $25. o The minimum investment
requirement does not apply to reinvesting dividends from the Fund or other
Oppenheimer funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer Agent), or
reinvesting distributions from unit investment trusts that have made
arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price
which is the net asset value per share plus any initial sales charge that
applies. The offering price that applies to a purchase order is based on the
next calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Colorado, or after any
agent appointed by the Distributor receives the order.
Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of the NYSE, on each day the NYSE is open for trading
(referred to in this Prospectus as a “regular business day”). The NYSE
normally closes at 4:00 p.m., Eastern time, but may close earlier on some days.
All references to time in this Prospectus mean “Eastern time.”
The net asset value per share for a class of shares on a “regular
business day” is determined by dividing the value of the Fund’s net
assets attributable to that class by the number of shares of that class
outstanding on that day. To determine net asset values, the Fund assets are
valued primarily on the basis of current market quotations. If market quotations
are not readily available or do not accurately reflect fair value for a security
(in the Manager’s judgment) or if a security’s value has been
materially affected by events occurring after the close of the NYSE or market on
which the security is principally traded, that security may be valued by another
method that the Board of Trustees believes accurately reflects the fair value.
Because some foreign securities trade in markets and on exchanges that operate
on weekends and U.S. holidays, the values of some of the Fund’s foreign
investments may change on days when investors cannot buy or redeem Fund shares.
The Board has adopted valuation procedures for the Fund and has delegated
the day-to-day responsibility for fair value determinations to the
Manager’s Valuation Committee. Fair value determinations by the Manager are
subject to review, approval and ratification by the Board at its next scheduled
meeting after the fair valuations are determined. In determining whether current
market prices are readily available and reliable, the Manager monitors the
information it receives in the ordinary course of its investment management
responsibilities for significant events that it believes in good faith will
affect the market prices of the securities of issuers held by the Fund. Those
may include events affecting specific issuers (for example, a halt in trading of
the securities of an issuer on an exchange during the trading day) or events
affecting securities markets (for example, a foreign securities market closes
early because of a natural disaster).
If, after the close of the principal market on which a security held by the
Fund is traded and before the time as of which the Fund’s net asset values
are calculated that day, a significant event occurs that the Manager learns of
and believes in the exercise of its judgment will cause a material change in the
value of that security from the closing price of the security on the principal
market on which it is traded, the Manager will use its best judgment to
determine a fair value for that security.
The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets. The Manager’s fair valuation procedures
therefore include a procedure whereby foreign securities prices may be
“fair valued” to take those factors into account.
The Offering Price. To receive the offering price for a particular day, the
Distributor or its designated agent must receive your order by the time the NYSE
closes that day. If your order is received on a day when the NYSE is closed or
after it has closed, the order will receive the next offering price that is
determined after your order is received. Buying Through a Dealer. If you buy
shares through a dealer, your dealer must receive the order by the close of the
NYSE and transmit it to the Distributor so that it is received before the
Distributor’s close of business on a regular business day (normally 5:00
p.m.) to receive that day’s offering price, unless your dealer has made
alternative arrangements with the Distributor. Otherwise, the order will receive
the next offering price that is determined.
- ----------------------------------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors five
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or lesser amounts for certain
retirement plans). The amount of that sales charge will vary depending on the
amount you invest. The sales charge rates are listed in “How Can You Buy
Class A Shares?” below.
- ----------------------------------------------------------------------------------------------------------
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 6 years of buying them, you will normally pay a contingent
deferred sales charge. That contingent deferred sales charge varies depending on
how long you own your shares, as described in “How Can You Buy Class B
Shares?” below.
- ----------------------------------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1.0%, as described in “How Can You Buy Class C
Shares?” below.
- ----------------------------------------------------------------------------------------------------------
Class N Shares. If you buy Class N shares (available only through certain
retirement plans), you pay no sales charge at the time of purchase, but you will
pay an annual asset-based sales charge. If you sell your shares within 18 months
of the retirement plan’s first purchase of Class N shares, you may pay a
contingent deferred sales charge of 1.0%, as described in “How Can You Buy
Class N Shares?” below.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is
an appropriate investment for you, the decision as to which class of shares is
best suited to your needs depends on a number of factors that you should discuss
with your financial advisor. Some factors to consider are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares. The Fund’s operating costs that apply to a class of shares and the
effect of the different types of sales charges on your investment will vary your
investment results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor’s financial considerations are
different. The discussion below assumes that you will purchase only one class of
shares and not a combination of shares of different classes. Of course, these
examples are based on approximations of the effects of current sales charges and
expenses projected over time, and do not detail all of the considerations in
selecting a class of shares. You should analyze your options carefully with your
financial advisor before making that choice.
How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B, Class C or Class N.
For retirement plans that qualify to purchase Class N shares, Class N shares
will generally be more advantageous than Class B and Class C shares.
o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you have a relatively short-term investment horizon (that is, you
plan to hold your shares for not more than six years), you should most likely
invest in Class A or Class C shares rather than Class B shares. That is because
of the effect of the Class B contingent deferred sales charge if you redeem
within six years, as well as the effect of the Class B asset-based sales charge
on the investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than $100,000),
because there is no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after holding them one
year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares might
not be as advantageous as Class A shares. That is because the annual asset-based
sales charge on Class C shares will have a greater impact on your account over
the longer term than the reduced front-end sales charge available for larger
purchases of Class A shares.
If you 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
$100,000 or more of Class B shares or $1 million or more of Class C shares from
a single investor. Dealers or other financial intermediaries purchasing shares
for their customers in omnibus accounts are responsible for compliance with
those limits.
o Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be appropriate.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B, Class C and Class N shareholders.
Other features may not be advisable (because of the effect of the contingent
deferred sales charge) for Class B, Class C and Class N shareholders. Therefore,
you should carefully review how you plan to use your investment account before
deciding which class of shares to buy.
Additionally, the dividends payable to Class B, Class C and Class N
shareholders will be reduced by the additional expenses borne by those classes
that are not borne by Class A shares, such as the Class B, Class C and Class N
asset-based sales charge described below and in the Statement of Additional
Information. Also, checkwriting is not available on accounts subject to a
contingent deferred sales charge.
How Do Share Classes Affect Payments to Your Broker? A financial advisor
may receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B, Class C and
Class N contingent deferred sales charges and asset-based sales charges have the
same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for concessions and expenses it pays to dealers and
financial institutions for selling shares. The Distributor may pay additional
compensation from its own resources to securities dealers or financial
institutions based upon the value of shares of the Fund owned by the dealer or
financial institution for its own account or for its customers.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial sales
charge, and the offering price will be the net asset value. In other cases,
reduced sales charges may be available, as described below or in the Statement
of Additional Information. Out of the amount you invest, the Fund receives the
net asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A portion
of the sales charge may be retained by the Distributor or allocated to your
dealer as a concession. The Distributor reserves the right to reallow the entire
concession to dealers. The current sales charge rates and concessions paid to
dealers and brokers are as follows:
------------------------------------ ------------------------ ------------------------- -------------------------
Amount of Purchase Front-End Sales Front-End Sales Concession As
Charge As a Charge As a Percentage of
Percentage of Percentage of Net Offering Price
Offering Price Amount Invested
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
Less than $50,000 4.75% 4.98% 4.00%
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$50,000 or more but less than 4.50% 4.71% 3.75%
$100,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$100,000 or more but less than 3.50% 3.63% 2.75%
$250,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$250,000 or more but less than 2.50% 2.56% 2.00%
$500,000
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$500,000 or more but less than $1 2.00% 2.04% 1.60%
million
------------------------------------ ------------------------ ------------------------- -------------------------
Due to rounding, the actual sales charge for a particular transaction may be higher or lower than the
rates listed above.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement
of Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that a special condition
applies.
Can You Reduce Class A Sales Charges? You and your spouse may be eligible
to buy Class A shares of the Fund at reduced sales charge rates set forth in the
table above under the Fund’s “Right of Accumulation” or a
“Letter of Intent.” The Fund reserves the right to modify or to cease
offering these programs at any time. o Right of Accumulation. To qualify for the
reduced Class A sales charge that would apply to a larger purchase than you are
currently making (as shown in the table above), you can add the value of any
Class A, Class B or, Class C shares of the Fund or other Oppenheimer funds that
you or your spouse currently own, or are currently purchasing, to the value of
your Class A share purchase. Your Class A shares of Oppenheimer Money Market
Fund, Inc. or Oppenheimer Cash Reserves on which you have not paid a sales
charge will not be counted for this purpose. In totaling your holdings, you may
count shares held in your individual accounts (including IRAs and 403(b) plans),
your joint accounts with your spouse, or accounts you or your spouse hold as
trustees or custodians on behalf of your children who are minors. A fiduciary
can count all shares purchased for a trust, estate or other fiduciary account
that has multiple accounts (including employee benefit plans for the same
employer). If you are buying shares directly from the Fund, you must inform the
Distributor of your eligibility and holdings at the time of your purchase in
order to qualify for the Right of Accumulation. If you are buying shares through
your financial intermediary you must notify your intermediary of your
eligibility for the Right of Accumulation at the time of your purchase.
To count shares of eligible Oppenheimer funds held in accounts at other
intermediaries under this Right of Accumulation, you may be requested to provide
the Distributor or your current intermediary with a copy of all account
statements showing your current holdings of the Fund or other eligible
Oppenheimer funds, including statements for accounts held by you and your spouse
or in retirement plans or trust or custodial accounts for minor children as
described above. The Distributor or intermediary through which you are buying
shares will calculate the value of your eligible Oppenheimer fund shares, based
on the current offering price, to determine which Class A sales charge rate you
qualify for on your current purchase.
o Letters of Intent. You may also qualify for reduced Class A sales charges
by submitting a Letter of Intent to the Distributor. A Letter of Intent is a
written statement of your intention to purchase a specified value of Class A,
Class B or Class C shares of the Fund or other Oppenheimer funds over a 13-month
period. The total amount of your intended purchases of Class A, Class B and
Class C shares will determine the reduced sales charge rate that will apply to
your Class A share purchases of the Fund during that period. You can choose to
include purchases made up to 90 days before the date that you submit a Letter.
Your Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves on which you have not paid a sales charge will not be counted for this
purpose. Submitting a Letter of Intent does not obligate you to purchase the
specified amount of shares. You may also be able to also apply the Right of
Accumulation to these purchases.
If you do not complete the Letter of Intent, the front-end sales charge you
paid on your purchases will be recalculated to reflect the actual value of
shares you purchased. A certain portion of your shares will be held in escrow by
the Fund’s Transfer Agent for this purpose. Please refer to “How to
Buy Shares – Letters of Intent” in the Fund’s Statement of
Additional Information for more complete information.
Other Special Sales Charge Arrangements and Waivers. The Fund and the
Distributor offer other opportunities to purchase shares without front-end or
contingent deferred sales charges under the programs described below. The Fund
reserves the right to amend or discontinue these programs at any time without
prior notice. o Dividend Reinvestment. Dividends and/or capital gains
distributions received by a shareholder from the Fund may be reinvested in
shares of the Fund or any of the other Oppenheimer funds without a sales charge,
at the net asset value per share in effect on the payable date. You must notify
the Transfer Agent in writing to elect this option and must have an existing
account in the fund selected for reinvestment. o Exchanges of Shares. Shares of
the Fund may be exchanged for shares of certain other Oppenheimer funds at net
asset value per share at the time of exchange, without sales charge, and shares
of the Fund can be purchased by exchange of shares of certain other Oppenheimer
funds on the same basis. Please refer to “How to Exchange Shares” in
this Prospectus and in the Statement of Additional Information for more details,
including a discussion of circumstances in which sales charges may apply on
exchanges. o Reinvestment Privilege. Within six months of a redemption of
certain Class A and Class B shares, the proceeds may be reinvested in Class A
shares of the Fund without sales charge. This privilege applies to redemptions
of Class A shares that were subject to an initial sales charge or Class A or
Class B shares that were subject to a contingent deferred sales charge when
redeemed. The investor must ask the Transfer Agent for that privilege at the
time of reinvestment and must identify the account from which the redemption was
made. o Other Special Reductions and Waivers. The Fund and the Distributor offer
additional arrangements to reduce or eliminate front-end sales charges or to
waive contingent deferred sales charges for certain types of transactions and
for certain classes of investors (primarily retirement plans that purchase
shares in special programs through the Distributor). These are described in
greater detail in Appendix C to the Statement of Additional Information, which
may be ordered by calling 800.225.5677 or through the OppenheimerFunds website,
at www.oppenheimerfunds.com (follow the hyperlinks: “Access Accounts and
Services” – “Forms & Literature” – “Order
Literature” – “Statements of Additional Information”). A
description of these waivers and special sales charge arrangements is also
available for viewing on the OppenheimerFunds website (follow the hyperlinks:
“Research Funds” – “Fund Documents” – “View a
description . . .”). To receive a waiver or special sales charge rate under
these programs, the purchaser must notify the Distributor (or other financial
intermediary through which shares are being purchased) at the time of purchase,
or notify the Transfer Agent at the time of redeeming shares for those waivers
that apply to contingent deferred sales charges.
o Purchases by Certain Retirement Plans. There is no initial sales charge
on purchases of Class A shares of the Fund by (1) retirement plans that have $10
million or more in plan assets and that have entered into a special agreement
with the Distributor and by (2) retirement plans that are part of a retirement
plan product or platform offered by banks, broker-dealers, financial advisors,
insurance companies or record-keepers that have entered into a special agreement
with the Distributor for this purpose. The Distributor currently pays dealers of
record concessions in an amount equal to 0.25% of the purchase price of Class A
shares by those retirement plans from its own resources at the time of sale,
subject to certain exceptions described in “Retirement Plans” in the
Statement of Additional Information. No contingent deferred sales charge is
charged upon the redemption of such shares. Class A Contingent Deferred Sales
Charge. There is no initial sales charge on purchases of Class A shares of any
one or more of the Oppenheimer funds aggregating $1 million or more, or on
purchases of Class A shares by certain retirement plans that satisfied certain
requirements prior to March 1, 2001 (“grandfathered retirement
accounts”). However, those Class A shares may be subject to a Class A
contingent deferred sales charge, as described below. Retirement plans holding
shares of Oppenheimer funds in an omnibus account(s) for the benefit of plan
participants in the name of a fiduciary or financial intermediary (other than
OppenheimerFunds-sponsored Single DB Plus plans) are not permitted to make
initial purchases of Class A shares subject to a contingent deferred sales
charge.
The Distributor pays dealers of record concessions in an amount equal to
1.0% of purchases of $1 million or more other than purchases by grandfathered
retirement accounts. For grandfathered retirement accounts, the concession is
0.75% of the first $2.5 million of purchases plus 0.25% of purchases in excess
of $2.5 million. In either case, the concession will not be paid on purchases of
shares by exchange or that were previously subject to a front-end sales charge
and dealer concession.
If you redeem any of those shares within an 18-month “holding
period” measured from the beginning of the calendar month of their
purchase, a contingent deferred sales charge (called the “Class A
contingent deferred sales charge”) may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of: o the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or o the original net asset value of the redeemed shares.
The Class A contingent deferred sales charge will not exceed the aggregate
amount of the concessions the Distributor paid to your dealer on all purchases
of Class A shares of all Oppenheimer funds you made that were subject to the
Class A contingent deferred sales charge.
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B shares are
redeemed within six years from the beginning of the calendar month of their
purchase, a contingent deferred sales charge will be deducted from the
redemption proceeds. The Class B contingent deferred sales charge is paid to
compensate the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class B shares.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule for the Class B contingent deferred sales
charge holding period:
- ----------------------------------------------------------- --------------------------------------------------------
Years Since Beginning of Month in Which Purchase Order Contingent Deferred Sales Charge on Redemptions in
was Accepted That Year
(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%
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
More than 6 None
- ----------------------------------------------------------- --------------------------------------------------------
In the table, a “year” is a 12-month period. In applying the contingent deferred sales charge, all
purchases are considered to have been made on the first regular business day of the month in which the
purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares 72 months after you purchase them. This conversion
feature relieves Class B shareholders of the asset-based sales charge that
applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When any Class B
shares that you hold convert, any other Class B shares that were acquired by
reinvesting dividends and distributions on the converted shares will also
convert to Class A shares. For further information on the conversion feature and
its tax implications, see “Class B Conversion” in the Statement of
Additional Information.
HOW CAN YOU BUY CLASS C SHARES? Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C shares are
redeemed within a holding period of 12 months from the beginning of the calendar
month of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. The Class C contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
HOW CAN YOU BUY CLASS N SHARES? Class N shares are offered for sale to
retirement plans (including IRAs and 403(b) plans) that purchase $500,000 or
more of Class N shares of one or more Oppenheimer funds or to group retirement
plans (which do not include IRAs and 403(b) plans) that have assets of $500,000
or more or 100 or more eligible participants. See “Availability of Class N
shares” in the Statement of Additional Information for other circumstances
where Class N shares are available for purchase.
Class N shares are sold at net asset value without an initial sales charge.
A contingent deferred sales charge of 1.0% will be imposed upon the redemption
of Class N shares, if: o The group retirement plan is terminated or Class N
shares of all Oppenheimer funds are terminated as an investment option of the
plan and Class N shares are redeemed within 18 months after the plan’s
first purchase of Class N shares of any Oppenheimer fund, or o With respect to
an IRA or 403(b) plan, Class N shares are redeemed within 18 months of the
plan’s first purchase of Class N shares of any Oppenheimer fund.
Retirement plans that offer Class N shares may impose charges on plan
participant accounts. The procedures for buying, selling, exchanging and
transferring the Fund’s other classes of shares (other than the time those
orders must be received by the Distributor or Transfer Agent in Colorado) and
the special account features applicable to purchasers of those other classes of
shares described elsewhere in this Prospectus do not apply to Class N shares
offered through a group retirement plan. Instructions for buying, selling,
exchanging or transferring Class N shares offered through a group retirement
plan must be submitted by the plan, not by plan participants for whose benefit
the shares are held.
DISTRIBUTION AND SERVICE (12b-1) PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. With respect to Class A
shares subject to a Class A contingent deferred sales charge purchased by
grandfathered retirement accounts, the Distributor pays the 0.25% service fee to
dealers in advance for the first year after the shares are sold by the dealer.
The Distributor retains the first year’s service fee paid by the Fund.
After the shares have been held by grandfathered retirement accounts for a year,
the Distributor pays the service fee to dealers on a quarterly basis.
Distribution and Service Plans for Class B, Class C and Class N Shares. The
Fund has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to pay the Distributor for its services and costs in distributing Class
B, Class C and Class N shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under the Class B, Class C and Class N plans.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.0% and increase Class N expenses by 0.50% of the net assets per
year of the respective class. Because these fees are paid out of the Fund’s
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B, Class C or Class N shares. The
Distributor normally pays the 0.25% service fees to dealers in advance for the
first year after the shares are sold by the dealer. After the shares have been
held for a year, the Distributor pays the service fees to dealers on a quarterly
basis.
The Distributor currently pays a sales concession of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor normally retains the Class B
asset-based sales charge. See the Statement of Additional Information for
exceptions.
The Distributor currently pays a sales concession of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.0% of the purchase price. The Distributor pays the asset-based sales charge as
an ongoing concession to the dealer on Class C shares that have been outstanding
for a year or more. The Distributor normally retains the asset-based sales
charge on Class C shares during the first year after the purchase of Class C
shares. See the Statement of Additional Information for exceptions.
The Distributor currently pays a sales concession of 0.75% of the purchase
price of Class N shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class N shares is therefore
1.0% of the purchase price. The Distributor normally retains the asset-based
sales charge on Class N shares. See the Statement of Additional Information for
exceptions.
Under certain circumstances, the Distributor will pay the full Class B,
Class C or Class N asset-based sales charge and the service fee to the dealer
beginning in the first year after purchase of such shares in lieu of paying the
dealer the sales concession and the advance of the first year’s service fee
at the time of purchase, if there is a special agreement between the dealer and
the Distributor. In those circumstances, the sales concession will not be paid
to the dealer.
For Class C shares purchased through the OppenheimerFunds Recordkeeper Pro
program, the Distributor will pay the Class C asset-based sales charge to the
dealer of record in the first year after the purchase of such shares in lieu of
paying the dealer a sales concession at the time of purchase. The Distributor
will use the service fee it receives from the Fund on those shares to reimburse
FASCorp for providing personal services to the Class C accounts holding those
shares.
In addition, the Manager and the Distributor may make substantial payments
to dealers or other financial intermediaries and service providers for
distribution and/or shareholder servicing activities, out of their own
resources, including the profits from the advisory fees the Manager receives
from the Fund. Some of these distribution-related payments may be made to
dealers or financial intermediaries for marketing, promotional or related
expenses; these payments are often referred to as “revenue sharing.”
In some circumstances, those types of payments may create an incentive for a
dealer or financial intermediary or its representatives to recommend or offer
shares of the Fund or other Oppenheimer funds to its customers. You should ask
your dealer or financial intermediary for more details about any such payments
it receives.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you: o transmit funds
electronically to purchase shares by telephone (through a service representative
or by PhoneLink) or automatically under Asset Builder Plans, or o have the
Transfer Agent send redemption proceeds or transmit dividends and distributions
directly to your bank account. Please call the Transfer Agent for more
information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.225.5677. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer’s settlement instructions if you buy your shares through a dealer.
After your account is established, you can request AccountLink privileges by
sending signature-guaranteed instructions and proper documentation to the
Transfer Agent. AccountLink privileges will apply to each shareholder listed in
the registration on your account as well as to your dealer representative of
record unless and until the Transfer Agent receives written instructions
terminating or changing those privileges. After you establish AccountLink for
your account, any change of bank account information must be made by
signature-guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the PhoneLink number, 1.800.225.5677. Purchasing
Shares. You may purchase shares in amounts up to $100,000 by phone, by calling
1.800.225.5677. You must have established AccountLink privileges to link your
bank account with the Fund to pay for these purchases. Exchanging Shares. With
the OppenheimerFunds Exchange Privilege, described below, you can exchange
shares automatically by phone from your Fund account to another OppenheimerFunds
account you have already established by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to “How to Sell Shares,” below
for details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for
certain types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1.800.225.5677 for information about which transactions may be
handled this way. Transaction requests submitted by fax are subject to the same
rules and restrictions as written and telephone requests described in this
Prospectus.
OPPENHEIMERFUNDS INTERNET WEBSITE. You can obtain information about the
Fund, as well as your account balance, on the OppenheimerFunds Internet website,
at www.oppenheimerfunds.com. Additionally, shareholders listed in the account
registration (and the dealer of record) may request certain account transactions
through a special section of that website. To perform account transactions or
obtain account information online, you must first obtain a user I.D. and
password on that website. If you do not want to have Internet account
transaction capability for your account, please call the Transfer Agent at
1.800.225.5677. At times, the website may be inaccessible or its transaction
features may be unavailable.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis. Please call the Transfer Agent or
consult the Statement of Additional Information for details.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use: Individual Retirement Accounts (IRAs). These include
regular IRAs, Roth IRAs, SIMPLE IRAs and rollover IRAs. SEP-IRAs. These are
Simplified Employee Pension Plan IRAs for small business owners or self-employed
individuals. 403(b)(7) Custodial Plans. These are tax-deferred plans for
employees of eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations. 401(k) Plans. These are special retirement plans for
businesses. Pension and Profit-Sharing Plans. These plans are designed for
businesses and self-employed individuals. Please call the Distributor for
OppenheimerFunds retirement plan documents, which include applications and
important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by wire, by using the Fund’s
checkwriting privilege, or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner or from a retirement
plan account, please call the Transfer Agent first, at 1.800.225.5677, for
assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund
from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee): o You wish to redeem more than $100,000 and
receive a check o The redemption check is not payable to all shareholders listed
on the account statement o The redemption check is not sent to the address of
record on your account statement o Shares are being transferred to a Fund
account with a different owner or name o Shares are being redeemed by someone
(such as an Executor) other than the owners.
Where Can You Have Your Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including: o a U.S. bank, trust company, credit union or savings association, o
a foreign bank that has a U.S. correspondent bank, o a U.S. registered dealer or
broker in securities, municipal securities or government securities, or o a U.S.
national securities exchange, a registered securities association or a clearing
agency. If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the signature.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements apply to
distributions from retirement plans. You must submit a withholding form with
your redemption request to avoid delay in getting your money and if you do not
want tax withheld. If your employer holds your retirement plan account for you
in the name of the plan, you must ask the plan trustee or administrator to
request the sale of the Fund shares in your plan account.
Receiving Redemption Proceeds by Wire. While the Fund normally sends your
money by check, you can arrange to have the proceeds of shares you sell sent by
Federal Funds wire to a bank account you designate. It must be a commercial bank
that is a member of the Federal Reserve wire system. The minimum redemption you
can have sent by wire is $2,500. There is a $10 fee for each request. To find
out how to set up this feature on your account or to arrange a wire, call the
Transfer Agent at 1.800.225.5677.
CHECKWRITING. To write checks against your Fund account, request that
privilege on your account application, or contact the Transfer Agent for
signature cards. They must be signed (with a signature guarantee) by all owners
of the account and returned to the Transfer Agent so that checks can be sent to
you to use. Shareholders with joint accounts can elect in writing to have checks
paid over the signature of one owner. If you previously signed a signature card
to establish checkwriting in another Oppenheimer fund, simply call
1.800.225.5677 to request checkwriting for an account in this Fund with the same
registration as the other account. o Checks can be written to the order of
whomever you wish, but may not be cashed at the bank the checks are payable
through or the Fund’s custodian bank. o Checkwriting privileges are not
available for accounts holding shares that are subject to a contingent deferred
sales charge. o Checks must be written for at least $500. Checks written below
the stated amount on the check will not be accepted. However, if you have
existing checks indicating a $100 minimum, you may still use them for amounts of
$100 or more. o Checks cannot be paid if they are written for more than your
account value. Remember, your shares fluctuate in value and you should not write
a check close to the total account value. o You may not write a check that would
require the Fund to redeem shares that were purchased by check or Asset Builder
Plan payments within the prior 10 days. o Don’t use your checks if you
changed your Fund account number, until you receive new checks.
HOW DO YOU SELL SHARES BY MAIL? Write a letter of instruction that includes:
o Your name
o The Fund’s name
o Your Fund account number (from your account statement)
o The dollar amount or number of shares to be redeemed
o Any special payment instructions
o Any share certificates for the shares you are selling
o The signatures of all registered owners exactly as the account is registered, and
o Any special documents requested by the Transfer Agent to assure proper authorization of the
person asking to sell the shares.
Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of the NYSE 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-sponsored qualified retirement plan account or under a share
certificate by telephone. o To redeem shares through a service representative or
automatically on PhoneLink, call 1.800.225.5677. Whichever method you use, you
may have a check sent to the address on the account statement, or, if you have
linked your Fund account to your bank account on AccountLink, you may have the
proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone? Telephone Redemptions
Paid by Check. Up to $100,000 may be redeemed by telephone in any seven-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 or by Wire. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated when
you establish AccountLink. Normally the ACH transfer to your bank is initiated
on the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
If you have requested Federal Funds wire privileges for your account, the
wire of the redemption proceeds will normally be transmitted on the next bank
business day after the shares are redeemed. There is a possibility that the wire
may be delayed up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of shares
that have been redeemed and are awaiting transmittal by wire.
CAN YOU SELL SHARES THROUGH YOUR DEALER? The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on behalf of
their customers. Brokers or dealers may charge for that service. If your shares
are held in the name of your dealer, you must redeem them through your dealer.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase
shares subject to a Class A, Class B, Class C or Class N contingent deferred
sales charge and redeem any of those shares during the applicable holding period
for the class of shares, the contingent deferred sales charge will be deducted
from the redemption proceeds (unless you are eligible for a waiver of that sales
charge based on the categories listed in Appendix C to the Statement of
Additional Information and you advise the Transfer Agent of your eligibility for
the waiver when you place your redemption request.)
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on: o the amount
of your account value represented by an increase in net asset value over the
initial purchase price, o shares purchased by the reinvestment of dividends or
capital gains distributions, or o shares redeemed in the special circumstances
described in Appendix C to the Statement of Additional Information. To determine
whether a contingent deferred sales charge applies to a redemption, the Fund
redeems shares in the following order: 1. shares acquired by reinvestment of
dividends and capital gains distributions, 2. shares held for the holding period
that applies to the class, and 3. shares held the longest during the holding
period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
How to Exchange Shares
If you want to change all or part of your investment from one Oppenheimer
fund to another, you can exchange your shares for shares of the same class of
another Oppenheimer fund that offers the exchange privilege. For example, you
can exchange Class A shares of the Fund only for Class A shares of another fund.
To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence. o The prospectus of the selected fund must offer the
exchange privilege. o When you establish an account, you must hold the shares
you buy for at least seven days before you can exchange them. After your account
is open for seven days, you can exchange shares on any regular business day,
subject to the limitations described below. o You must meet the minimum purchase
requirements for the selected fund. o Generally, exchanges may be made only
between identically registered accounts, unless all account owners send written
exchange instructions with a signature guarantee. o Before exchanging into a
fund, you must obtain its prospectus and should read it carefully.
For tax purposes, an exchange of shares of the Fund is considered a sale of
those shares and a purchase of the shares of the fund to which you are
exchanging. An exchange may result in a capital gain or loss.
You can find a list of the Oppenheimer funds that are currently available
for exchanges in the Statement of Additional Information or you can obtain a
list by calling a service representative at 1.800.225.5677. The funds available
for exchange can change from time to time.
A contingent deferred sales charge (CDSC) is not charged when you exchange
shares of the Fund for shares of another Oppenheimer fund. However, if you
exchange your shares during the applicable CDSC holding period, the holding
period will carry over to the fund shares that you acquire. Similarly, if you
acquire shares of the Fund in exchange for shares of another Oppenheimer fund
that are subject to a CDSC holding period, that holding period will carry over
to the acquired shares of the Fund. In either of these situations, a CDSC may be
imposed if the acquired shares are redeemed before the end of the CDSC holding
period that applied to the exchanged shares.
There are a number of other special conditions and limitations that apply
to certain types of exchanges. These conditions and circumstances are described
in detail in the “How to Exchange Shares” section in the Statement of
Additional Information.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing,
by telephone or internet, or by establishing an Automatic Exchange Plan.
Written Exchange Requests. Send a request letter, signed by all owners of
the account, to the Transfer Agent at the address on the back cover. Exchanges
of shares for which share certificates have been issued cannot be processed
unless the Transfer Agent receives the certificates with the request letter.
Telephone and Internet Exchange Requests. Telephone exchange requests may be
made either by calling a service representative or by using PhoneLink by calling
1.800.225.5677. You may submit internet exchange requests on the
OppenheimerFunds internet website, at www.oppenheimerfunds.com. You must have
obtained a user I.D. and password to make transactions on that website.
Telephone and/or internet exchanges may be made only between accounts that are
registered with the same name(s) and address. Shares for which share
certificates have been issued may not be exchanged by telephone or the internet.
Automatic Exchange Plan. Shareholders can authorize the Transfer Agent to
exchange a pre-determined amount of shares automatically on a monthly,
quarterly, semi-annual or annual basis.
Please refer to “How to Exchange Shares” in the Statement of
Additional Information for more details.
ARE THERE LIMITATIONS ON FREQUENT PURCHASES, REDEMPTIONS AND EXCHANGES?
Risks from Excessive Purchase, Redemption and Short-Term Exchange Activity. The
OppenheimerFunds exchange privilege affords investors the ability to switch
their investments among Oppenheimer funds if their investment needs change.
However, there are limits on that privilege. Frequent purchases, redemptions and
exchanges of fund shares may interfere with the Manager’s ability to manage
the Fund's investments efficiently, increase the Fund’s transaction and
administrative costs and/or affect the Fund’s performance, depending on
various factors, such as the size of the Fund, the nature of its investments,
the amount of Fund assets the portfolio manager maintains in cash or cash
equivalents, the aggregate dollar amount and the number and frequency of trades.
If large dollar amounts are involved in exchange and/or redemption transactions,
the Fund might be required to sell portfolio securities at unfavorable times to
meet redemption or exchange requests, and the Fund’s brokerage or
administrative expenses might be increased.
Therefore, the Manager and the Fund’s Board of Trustees have adopted
the following policies and procedures to detect and prevent frequent and/or
excessive exchanges, and/or purchase and redemption activity, while balancing
the needs of investors who seek liquidity from their investment and the ability
to exchange shares as investment needs change. There is no guarantee that the
policies and procedures described below will be sufficient to identify and deter
excessive short-term trading.
o Timing of Exchanges. Exchanged shares are normally redeemed from one fund
and the proceeds are reinvested in the fund selected for exchange on the same
regular business day on which the Transfer Agent or its agent (such as a
financial intermediary holding the investor’s shares in an
“omnibus” or “street name” account) receives an exchange
request that conforms to these policies. The request must be received by the
close of the NYSE that day, which is normally 4:00 p.m. Eastern time, but may be
earlier on some days, in order to receive that day’s net asset value on the
exchanged shares. Exchange requests received after the close of the NYSE will
receive the next net asset value calculated after the request is received.
However, the Transfer Agent may delay transmitting the proceeds from an exchange
for up to five business days if it determines, in its discretion, that an
earlier transmittal of the redemption proceeds to the receiving fund would be
detrimental to either the fund from which the exchange is being made or the fund
into which the exchange is being made. The proceeds will be invested in the fund
into which the exchange is being made at the next net asset value calculated
after the proceeds are received. In the event that such a delay in the
reinvestment of proceeds occurs, the Transfer Agent will notify you or your
financial representative.
o Limits on Disruptive Activity. The Transfer Agent may, in its discretion,
limit or terminate trading activity by any person, group or account that it
believes would be disruptive, even if the activity has not exceeded the policy
outlined in this Prospectus. The Transfer Agent may review and consider the
history of frequent trading activity in all accounts in the Oppenheimer funds
known to be under common ownership or control as part of the Transfer
Agent’s procedures to detect and deter excessive trading activity.
o Exchanges of Client Accounts by Financial Advisers. The Fund and the
Transfer Agent permit dealers and financial intermediaries to submit exchange
requests on behalf of their customers (unless the customer has revoked that
authority). The Distributor and/or the Transfer Agent have agreements with a
number of financial intermediaries that permit them to submit exchange orders in
bulk on behalf of their clients. Those intermediaries are required to follow the
exchange policies stated in this Prospectus and to comply with additional, more
stringent restrictions. Those additional restrictions include limitations on the
funds available for exchanges, the requirement to give advance notice of
exchanges to the Transfer Agent, and limits on the amount of client assets that
may be invested in a particular fund. A fund or the Transfer Agent may limit or
refuse bulk exchange requests submitted by such financial intermediaries if, in
the Transfer Agent's judgment, exercised in its discretion, the exchanges would
be disruptive to any of the funds involved in the transaction.
o Redemptions of Shares. These exchange policy limits do not apply to
redemptions of shares. Shareholders are permitted to redeem their shares on any
regular business day, subject to the terms of this Prospectus.
o Right to Refuse Exchange and Purchase Orders. The Distributor and/or the
Transfer Agent may refuse any purchase or exchange order in their discretion and
are not obligated to provide notice before rejecting an order. The Fund may
amend, suspend or terminate the exchange privilege at any time. You will receive
60 days’ notice of any material change in the exchange privilege unless
applicable law allows otherwise.
o Right to Terminate or Suspend Account Privileges. The Transfer Agent may
send a written warning to direct shareholders that the Transfer Agent believes
may be engaging in excessive purchases, redemptions and/or exchange activity and
reserves the right to suspend or terminate the ability to purchase shares and/or
exchange privileges for any account that the Transfer Agent determines, in
carrying out these policies and in the exercise of its discretion, has engaged
in disruptive or excessive trading activity, with or without such warning.
o Omnibus Accounts. If you hold your shares of the Fund through a financial
intermediary such as a broker-dealer, a bank, an insurance company separate
account, an investment adviser, an administrator or trustee of a retirement plan
or 529 plan, that holds your shares in an account under its name (these are
sometimes referred to as “omnibus” or “street name”
accounts), that financial intermediary may impose its own restrictions or
limitations to discourage short-term or excessive trading. You should consult
your financial intermediary to find out what trading restrictions, including
limitations on exchanges, they may apply.
While the Fund, the Distributor, the Manager and the Transfer Agent
encourage financial intermediaries to apply the Fund’s policies to their
customers who invest indirectly in the Fund, the Transfer Agent may not be able
to detect excessive short term trading activity facilitated by, or in accounts
maintained in, the “omnibus” or “street name” accounts of a
financial intermediary. Therefore the Transfer Agent might not be able to apply
this policy to accounts such as (a) accounts held in omnibus form in the name of
a broker-dealer or other financial institution, or (b) omnibus accounts held in
the name of a retirement plan or 529 plan trustee or administrator, or (c)
accounts held in the name of an insurance company for its separate account(s),
or (d) other accounts having multiple underlying owners but registered in a
manner such that the underlying beneficial owners are not identified to the
Transfer Agent.
However, the Transfer Agent will attempt to monitor overall purchase and
redemption activity in those accounts to seek to identify patterns that may
suggest excessive trading by the underlying owners. If evidence of possible
excessive trading activity is observed by the Transfer Agent, the financial
intermediary that is the registered owner will be asked to review account
activity, and to confirm to the Transfer Agent and the fund that appropriate
action has been taken to curtail any excessive trading activity. However, the
Transfer Agent’s ability to monitor and deter excessive short-term trading
in omnibus or street name accounts ultimately depends on the capability and
cooperation of the financial intermediaries controlling those accounts.
Additional Policies and Procedures. The Fund’s Board has adopted the
following additional policies and procedures to detect and prevent frequent
and/or excessive exchanges and purchase and redemption activity.
o 30-Day Limit. A direct shareholder may exchange some or all of the shares
of the Fund held in his or her account to another eligible Oppenheimer fund once
in a 30 calendar-day period. When shares are exchanged into a fund account, that
account will be “blocked” from further exchanges into another fund for
a period of 30 calendar days from the date of the exchange. The block will apply
to the full account balance and not just to the amount exchanged into the
account. For example, if a shareholder exchanged $1,000 from one fund into
another fund in which the shareholder already owned shares worth $10,000, then,
following the exchange, the full account balance ($11,000 in this example) would
be blocked from further exchanges into another fund for a period of 30 calendar
days. A “direct shareholder” is one whose account is registered on the
Fund’s books showing the name, address and tax ID number of the beneficial
owner.
o Exchanges Into Money Market Funds. A direct shareholder will be permitted
to exchange shares of a stock or bond fund for shares of a money market fund at
any time, even if the shareholder has exchanged shares into the stock or bond
fund during the prior 30 days. However, all of the shares held in that money
market fund would then be blocked from further exchanges into another fund for
30 calendar days.
o Dividend Reinvestments/B Share Conversions. Reinvestment of dividends or
distributions from one fund to purchase shares of another fund and the
conversion of Class B shares into Class A shares will not be considered
exchanges for purposes of imposing the 30-day limit.
o Asset Allocation. Third-party asset allocation and rebalancing programs
will be subject to the 30-day limit described above. Asset allocation firms that
want to exchange shares held in accounts on behalf of their customers must
identify themselves to the Transfer Agent and execute an acknowledgement and
agreement to abide by these policies with respect to their customers’
accounts. “On-demand” exchanges outside the parameters of portfolio
rebalancing programs will be subject to the 30-day limit. However, investment
programs by other Oppenheimer “funds-of-funds” that entail rebalancing
of investments in underlying Oppenheimer funds will not be subject to these
limits.
Automatic Exchange Plans. Accounts that receive exchange proceeds through
automatic or systematic exchange plans that are established through the Transfer
Agent will not be subject to the 30-day block as a result of those automatic or
systematic exchanges (but may be blocked from exchanges, under the 30-day limit,
if they receive proceeds from other exchanges).
Shareholder Account Rules and Policies
More information about the Fund’s policies and procedures for buying,
selling and exchanging shares is contained in the Statement of Additional
Information. A $12 annual “Minimum Balance Fee” is assessed on each
Fund account with a value of less than $500. The fee is automatically deducted
from each applicable Fund account annually in September. See the Statement of
Additional Information to learn how you can avoid this fee and for circumstances
under which this fee will not be assessed. 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. The Fund will provide
you notice whenever it is required to do so by applicable law. If an account has
more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of the
account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
The Transfer Agent will record any telephone calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax identification
numbers and other account data or by using PINs, and by confirming such
transactions in writing. The Transfer Agent and the Fund will not be liable for
losses or expenses arising out of telephone instructions reasonably believed to
be genuine. Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus. Dealers that perform account
transactions for their clients by participating in NETWORKING through the
National Securities Clearing Corporation are responsible for obtaining their
clients’ permission to perform those transactions, and are responsible to
their clients who are shareholders of the Fund if the dealer performs any
transaction erroneously or improperly. The redemption price for shares will vary
from day to day because the value of the securities in the Fund’s portfolio
fluctuates. The redemption price, which is the net asset value per share, will
normally differ for each class of shares. The redemption value of your shares
may be more or less than their original cost. Payment for redeemed shares
ordinarily is made in cash. It is forwarded by check, or through AccountLink or
by Federal Funds wire (as elected by the shareholder) within seven days after
the Transfer Agent receives redemption instructions in proper form. However,
under unusual circumstances determined by the SEC, payment may be delayed or
suspended. For accounts registered in the name of a broker-dealer, payment will
normally be forwarded within three business days after redemption. The Transfer
Agent may delay processing any type of redemption payment as described under
“How to Sell Shares” for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase shares by
Federal Funds wire or certified check, or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared. Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $500 for reasons other than the fact that
the market value of shares has dropped. In some cases, involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders. Shares may be “redeemed in kind” under unusual
circumstances (such as a lack of liquidity in the Fund’s portfolio to meet
redemptions). This means that the redemption proceeds will be paid with liquid
securities from the Fund’s portfolio. If the Fund redeems your shares in
kind, you may bear transaction costs and will bear market risks until such time
as such securities are converted into cash. Federal regulations may require the
Fund to obtain your name, your date of birth (for a natural person), your
residential street address or principal place of business and your Social
Security Number, Employer Identification Number or other government issued
identification when you open an account. Additional information may be required
in certain circumstances or to open corporate accounts. The Fund or the Transfer
Agent may use this information to attempt to verify your identity. The Fund may
not be able to establish an account if the necessary information is not
received. The Fund may also place limits on account transactions while it is in
the process of attempting to verify your identity. Additionally, if the Fund is
unable to verify your identity after your account is established, the Fund may
be required to redeem your shares and close your account. “Backup
withholding” of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if you
fail to furnish the Fund your correct, certified Social Security or Employer
Identification Number when you sign your application, or if you under-report
your income to the Internal Revenue Service. To avoid sending duplicate copies
of materials to households, the Fund will mail only one copy of each prospectus,
annual and semi-annual report and annual notice of the Fund’s privacy
policy to shareholders having the same last name and address on the Fund’s
records. The consolidation of these mailings, called householding, benefits the
Fund through reduced mailing expense.
If you want to receive multiple copies of these materials, you may call the
Transfer Agent at 1.800.225.5677. You may also notify the Transfer Agent in
writing. Individual copies of prospectuses, reports and privacy notices will be
sent to you commencing within 30 days after the Transfer Agent receives your
request to stop householding.
Dividends, Capital Gains and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for each class
of shares from net investment income each regular business day and pay those
dividends monthly. Daily dividends will not be declared or paid on newly
purchased shares until Federal Funds are available to the Fund from the purchase
payment for shares. Dividends and distributions paid to Class A shares will
generally be higher than dividends for Class B, Class C and Class N shares,
which normally have higher expenses than Class A shares. The Fund has no fixed
dividend rate and cannot guarantee that it will pay any dividends or
distributions.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains each year. The Fund may make supplemental distributions
of dividends and capital gains following the end of its fiscal year. There can
be no assurance that the Fund will pay any capital gains distributions in a
particular year.
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options: Reinvest All Distributions in the Fund.
You can elect to reinvest all dividends and capital gains distributions in
additional shares of the Fund. Reinvest Dividends or Capital Gains. You can
elect to reinvest some distributions (dividends, short-term capital gains or
long-term capital gains distributions) in the Fund while receiving the other
types of distributions by check or having them sent to your bank account through
AccountLink. Receive All Distributions in Cash. You can elect to receive a check
for all dividends and capital gains distributions or have them sent to your bank
through AccountLink. Reinvest Your Distributions in Another OppenheimerFunds
Account. You can reinvest all distributions in the same class of shares of
another OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account,
you should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
The Fund intends to qualify each year as a “regulated investment
company” under the Internal Revenue Code, but reserves the right not to
qualify. It qualified during its last fiscal year. The Fund, as a regulated
investment company, will not be subject to federal income taxes on any of its
income, provided that it satisfies certain income, diversification and
distribution requirements.
Avoid “Buying a Distribution.” If you buy shares on 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
capital gain. Remember, There May be Taxes on Transactions. Because the
Fund’s share prices fluctuate, you may have a capital gain or loss when you
sell or exchange your shares. A capital gain or loss is the difference between
the price you paid for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax. Returns of Capital Can Occur.
In certain cases, distributions made by the Fund may be considered a non-taxable
return of capital to shareholders. If that occurs, it will be identified in
notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the
Fund’s financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, the Fund’s
independent registered public accounting firm, whose report, along with the
Fund’s financial statements, is included in the Statement of Additional
Information, which is available on request.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 2 .28 .03
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .48 .26 .11
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.29) (.03)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.44) (.34) (.03)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.89% 2.64% 1.14%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 41,648 $ 35,522 $ 27,598
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 38,411 $ 32,578 $ 26,027
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.56% 2.78% 1.77%
Total expenses 0.80% 0.79% 1.29%
Expenses after payments and waivers and
reduction to custodian expenses 0.79% 0.73% 0.90%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 2 .19 .02
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .39 .17 .10
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.20) (.02)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.35) (.25) (.02)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.00% 1.69% 0.97%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 4,244 $ 2,896 $ 798
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 3,610 $ 2,444 $ 340
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.70% 1.91% 0.85%
Total expenses 2.41% 2.20% 2.36%
Expenses after payments and waivers and reduction
to custodian expenses 1.65% 1.65% 1.65%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38 | OPPENHEIMER TOTAL RETURN BOND FUND
CLASS C YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.99 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 2 .19 .02
Net realized and unrealized gain (loss) .12 (.03) .08
-------------------------------------------------
Total from investment operations .39 .16 .10
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.20) (.02)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.35) (.25) (.02)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.03 $ 9.99 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 3.99% 1.60% 0.96%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 6,757 $ 2,943 $ 388
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 4,641 $ 1,679 $ 126
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.71% 1.95% 0.59%
Total expenses 2.17% 2.12% 2.28%
Expenses after payments and waivers and reduction
to custodian expenses 1.65% 1.65% 1.65%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .32 2 .24 .03
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .44 .22 .11
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.25) (.03)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.40) (.30) (.03)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.51% 2.20% 1.08%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,812 $ 831 $ 22
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,802 $ 386 $ 6
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.22% 2.40% 1.50%
Total expenses 1.51% 1.34% 2.63%
Expenses after payments and waivers and reduction
to custodian expenses 1.15% 1.15% 1.15%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
INFORMATION AND SERVICES
For More Information on Oppenheimer Total Return Bond Fund
The following additional information about the Fund is available without
charge upon request:
STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund’s investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the
Fund’s investments and performance is available in the Fund’s Annual
and Semi-Annual Reports to shareholders. The Annual Report includes a discussion
of market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year.
How to Get More Information You can request the Statement of Additional
Information, the Annual and Semi-Annual Reports, the notice explaining the
Fund’s privacy policy and other information about the Fund or your account:
- ------------------------------------------- -------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.525.7048
- ------------------------------------------- -------------------------------------------------------------------------
- ------------------------------------------- -------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ------------------------------------------- -------------------------------------------------------------------------
- ------------------------------------------- -------------------------------------------------------------------------
On the Internet: You can request these documents by e-mail or through the
OppenheimerFunds website. You may also read or download certain
documents on the OppenheimerFunds website at: www.oppenheimerfunds.com
- ------------------------------------------- -------------------------------------------------------------------------
Information about the Fund including the Statement of Additional
Information can be reviewed and copied at the SEC’s Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1.202.942.8090. Reports and other
information about the Fund are available on the EDGAR database on the SEC’s
Internet website at www.sec.gov. Copies may be obtained after payment of a
duplicating fee by electronic request at the SEC’s e-mail address:
publicinfo@sec.gov or by writing to the SEC’s Public Reference Section,
Washington, D.C. 20549-0102. No one has been authorized to provide any
information about the Fund or to make any representations about the Fund other
than what is contained in this Prospectus. This Prospectus is not an offer to
sell shares of the Fund, nor a solicitation of an offer to buy shares of the
Fund, to any person in any state or other jurisdiction where it is unlawful to
make such an offer.
The Fund’s shares are distributed by: [logo] OppenheimerFunds Distributor, Inc.
The Fund’s SEC File No.: 811-21268
PR0535.001.0805
Printed on recycled paper
Appendix to Prospectus of
Oppenheimer Total Return Bond Fund
Graphic material included in the Prospectus of Oppenheimer Total Return
Bond Fund (the “Fund”) under the heading: “Annual Total Return
(Class A) (as of 12/31 each year)”:
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
since inception, without deducting sales charges or taxes. Set forth below are
the relevant data points that will appear in the bar chart:
Year Ended Annual Total Return
12/31/04 4.30%
Oppenheimer Total Return Bond Fund
6803 South Tucson Way, Centennial, Colorado 80112-3924
1.800 CALL OPP (225.5677)
Statement of Additional Information dated August 26, 2005 revised November 23, 2005
This Statement of Additional Information is not a Prospectus. This document
contains additional information about the Fund and supplements information in
the Prospectus dated August 26, 2005. It should be read together with the
Prospectus. You can obtain the Prospectus by writing to the Fund’s Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, by
calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund’s Investment Policies and Risks........................................
2
The Fund’s Investment Policies..........................................................................
2
Other Investment Techniques and Strategies..............................................................
12
Other Investment Restrictions...........................................................................
33
Disclosure of Portfolio Holdings........................................................................
35
How the Fund is Managed......................................................................................
39
Organization and History................................................................................
39
Board of Trustees and Audit Committee...................................................................
40
Trustees and Officers of the Fund.......................................................................
41
The Manager.............................................................................................
47
Brokerage Policies of the Fund...............................................................................
51
Distribution and Service Plans...............................................................................
53
Performance of the Fund......................................................................................
58
About Your Account
How To Buy Shares............................................................................................
65
How To Sell Shares...........................................................................................
75
How To Exchange Shares.......................................................................................
80
Dividends, Capital Gains and Taxes...........................................................................
84
Additional Information About the Fund........................................................................
88
Financial Information About the Fund
Report of Independent Registered Public Accounting Firm......................................................
90
Financial Statements.........................................................................................
91
Appendix A: Ratings Definitions..............................................................................
A-1
Appendix B: Industry Classifications.........................................................................
B-1
Appendix C: Special Sales Charge Arrangements and Waivers....................................................
C-1
39
ABOUT THE FUND
Additional Information About the Fund’s Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund’s investment Manager,
OppenheimerFunds, Inc. (the “Manager”), can select for the Fund.
Additional information is also provided about the strategies that the Fund may
use to try to achieve its objective.
The Fund’s Investment Policies. The composition of the Fund’s
portfolio and the techniques and strategies that the Manager may use in
selecting portfolio securities will vary over time. The Fund is not required to
use all of the investment techniques and strategies described below in seeking
its objective. It may use some of the special investment techniques and
strategies at some times or not at all.
In selecting securities for the Fund’s portfolio, the Manager
evaluates the merits of particular securities primarily through the exercise of
its own investment analysis. In the case of non-governmental issues, that
process may include, among other things, evaluation of the issuer’s
historical operations, prospects for the industry of which the issuer is part,
the issuer’s financial condition, its pending product developments and
business (and those of competitors), the effect of general market and economic
conditions on the issuer’s business, and legislative proposals that might
affect the issuer. In the case of foreign issuers, the Manager may consider
general economic conditions, the conditions of a particular country’s
economy in relation to the U.S. economy or other foreign economies, general
political conditions in a country or region, the effect of taxes, the
efficiencies and costs of particular markets (as well as their liquidity) and
other factors.
|X| Debt Securities. The Fund can invest in a variety of debt securities to
seek its objective. Foreign debt securities are subject to the risks of foreign
securities described below. In general, debt securities are also subject to two
additional types of risk: credit risk and interest rate risk.
o Credit Risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater extent
than lower-yield, higher-quality bonds.
The Fund’s investments primarily are investment-grade debt securities
and U.S. government securities. U.S. government securities, although unrated,
are generally considered to be equivalent to securities in the highest rating
categories. Investment-grade bonds are bonds rated at least “Baa” by
Moody’s Investors Service, Inc. (“Moody’s”), or at least
“BBB” by Standard & Poor’s Rating Service
(“S&P”) or Fitch, Inc. (“Fitch”), or that have
comparable ratings by another nationally-recognized rating organization. The
Fund can also buy non-investment-grade debt securities (commonly referred to as
“junk bonds”).
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security’s credit-worthiness. If securities the Fund buys are
unrated, to be considered part of the Fund’s holdings of investment-grade
securities, they must be judged by the Manager to be of comparable quality to
bonds rated as investment grade by a rating organization.
o Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of debt securities resulting from the inverse relationship between price
and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued debt securities, and a decline in
general interest rates will tend to increase their value. In addition, debt
securities having longer maturities tend to offer higher yields, but are subject
to potentially greater fluctuations in value from changes in interest rates than
obligations having shorter maturities.
Fluctuations in the market value of debt securities after the Fund buys
them will not affect the interest income payable on those securities (unless the
security pays interest at a variable rate pegged to interest rate changes).
However, those price fluctuations will be reflected in the valuations of the
securities, and therefore the Fund’s net asset values will be affected by
those fluctuations.
o Special Risks of Lower-Grade Debt Securities. The Fund can invest in
lower-grade debt securities. Because lower-grade debt securities tend to offer
higher yields than investment-grade securities, the Fund might invest in
lower-grade securities if the Manager is trying to achieve higher income.
“Lower-grade” debt securities are those rated below
“investment grade,” which means they have a rating lower than
“Baa” by Moody’s or lower than “BBB” by S&P or
Fitch, or similar ratings by other rating organizations. If they are unrated,
and are determined by the Manager to be of comparable quality to debt securities
rated below investment grade, they are considered part of the Fund’s
portfolio of lower-grade securities.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment-grade
securities. The issuer’s low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high yield bonds, these risks are in addition to the special risks of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of the risks of volatility than non-convertible high
yield bonds, since stock may be more liquid and less affected by some of these
risk factors.
While securities rated “Baa” by Moody’s or “BBB”
by S&P or Fitch are investment grade and are not regarded as junk bonds,
those securities may be subject to special risks and have some speculative
characteristics. Definitions of the debt security ratings categories of
Moody’s, S&P, and Fitch are included in Appendix A to this Statement of
Additional Information.
|X| Duration of the Fund’s Portfolio. The Fund can invest in debt
securities of any maturity or duration but currently seeks to maintain a
dollar-weighted average effective portfolio duration of three to six years under
normal market conditions. The goal is to try to manage the sensitivity of the
Fund’s portfolio to changes in interest rates, and in doing so to manage
the volatility of the Fund’s share prices in response to those changes.
However, unanticipated events may change the effective duration of a security
after the Fund buys it, and there can be no assurance that the Fund will achieve
its targeted duration at all times.
The Manager determines the effective duration of debt obligations purchased
by the Fund considering various factors that apply to a particular type of debt
obligation, including those described below. Duration is a measure of the
expected life of a security on a current-value basis expressed in years, using
calculations that consider the security’s yield, coupon interest payments,
final maturity and call features.
While a debt security’s maturity can be used to measure the
sensitivity of the security’s price to changes in interest rates, the term
to maturity of a security does not take into account the pattern (or expected
pattern) of the security’s payments of interest or principal prior to
maturity. Duration, on the other hand, measures the length of the time interval
from the present to the time when the interest and principal payments are
scheduled to be received (or, in the case of a mortgage-related security, when
the interest payments are expected to be received). Duration calculations weigh
them by the present value of the cash to be received at each future point in
time. If the interest payments on a debt security occur prior to the repayment
of principal, the duration of the security is less than its stated maturity. For
zero-coupon securities, duration and term to maturity are equal.
Absent other factors, the lower the stated or coupon rate of interest on a
debt security or the longer the maturity or the lower the yield-to-maturity of
the debt security, the longer the duration of the security. Conversely, the
higher the stated or coupon rate of interest, the shorter the maturity or the
higher the yield-to-maturity of a debt security, the shorter the duration of the
security.
Futures, options and options on futures in general have durations that are
closely related to the duration of the securities that underlie them. Holding
long futures positions or call option positions (backed by liquid assets) will
tend to lengthen the portfolio’s duration.
In some cases the standard effective duration calculation does not properly
reflect the interest rate exposure of a security. For example, floating and
variable rate securities often have final maturities of ten or more years.
However, their exposure to interest rate changes corresponds to the frequency of
the times at which their interest coupon rate is reset. In the case of mortgage
pass-through securities, the stated final maturity of the security is typically
30 years, but current rates or prepayments are more important to determine the
security’s interest rate exposure. In these and other similar situations,
the Manager will use other analytical techniques that consider the economic life
of the security as well as relevant macroeconomic factors (such as historical
prepayment rates) in determining the Fund’s effective duration.
|X| Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations (“CMOs”),
mortgage pass-through securities, stripped mortgage pass-through securities,
interests in real estate mortgage investment conduits (“REMICs”) and
other real estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security’s maturity can be shortened
by unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security’s yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of “locking in” attractive long-term
interest rates, and they may have less potential for appreciation during periods
of declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund’s
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security’s expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund’s mortgage-related securities were to decrease broadly, the
Fund’s effective duration and therefore its sensitivity to interest rates,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market’s perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and tax
policies.
o Collateralized Mortgage Obligations. Collateralized mortgage obligations
or “CMOs,” are multi-class bonds that are backed by pools of mortgage
loans or mortgage pass-through certificates. They may be collateralized by: (1)
pass-through certificates issued or guaranteed by Government National Mortgage
Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), or
Federal Home Loan Mortgage Corporation (Freddie Mac), (2) unsecuritized mortgage
loans insured by the Federal Housing Administration or guaranteed by the
Department of Veterans’ Affairs, (3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or (5) any combination of these.
Each class of CMO, referred to as a “tranche,” is issued at a
specific coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the underlying mortgages may cause the CMO to be
retired much earlier than the stated maturity or final distribution date. The
principal and interest on the underlying mortgages may be allocated among the
several classes of a series of a CMO in different ways. One or more tranches may
have coupon rates that reset periodically at a specified increase over an index.
These are floating rate CMOs, and typically have a cap on the coupon rate.
Inverse floating rate CMOs have a coupon rate that moves in the reverse
direction to an applicable index. The coupon rate on these CMOs will increase as
general interest rates decrease. These are usually much more volatile than fixed
rate CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other U.S. government agencies or federally-chartered
corporate entities referred to as “instrumentalities.” The obligations
of U.S. government agencies or instrumentalities in which the Fund can invest
may or may not be guaranteed or supported by the “full faith and
credit” of the United States. “Full faith and credit” means
generally that the taxing power of the U.S. government is pledged to the payment
of interest and repayment of principal on a security. If a security is not
backed by the full faith and credit of the United States, the owner of the
security must look principally to the agency issuing the obligation for
repayment. The owner might not be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.
o U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of more than one year and up to ten years when issued), and Treasury
bonds (which have maturities of more than ten years when issued). Treasury
securities are backed by the full faith and credit of the United States as to
timely payments of interest and repayments of principal. Other U.S. Treasury
obligations the Fund can buy include U.S. Treasury securities that have been
“stripped” by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities described below, and Treasury Inflation-Protection Securities
(“TIPS”).
o Treasury Inflation-Protection Securities. The Fund can buy these TIPS,
which are designed to provide an investment vehicle that is not vulnerable to
inflation. The interest rate paid by TIPS is fixed. The principal value rises or
falls semi-annually based on changes in the published Consumer Price Index. If
inflation occurs, the principal and interest payments on TIPS are adjusted to
protect investors from inflationary loss. If deflation occurs, the principal and
interest payments will be adjusted downward, although the principal will not
fall below its face amount at maturity.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Ginnie Maes. Some are supported by the right of the issuer to borrow from the
U.S. Treasury under certain circumstances, such as Fannie Mae bonds. Others are
supported only by the credit of the entity that issued them, such as Freddie Mac
obligations.
o Mortgage-Related U.S. Government Securities. These include interests in
pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations and other “pass-through” mortgage securities.
CMOs that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series with different
interest rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have significant amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions about
the cash flows from the rate of payments of the underlying mortgages. Changes in
interest rates may cause the rate of expected prepayments of those mortgages to
change. In general, prepayments increase when general interest rates fall and
decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO will be reduced.
Additionally, the Fund may have to reinvest the prepayment proceeds in other
securities paying interest at lower rates, which could reduce the Fund’s
yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These are the prepayment risks
described above and can make the prices of CMOs very volatile when interest
rates change. The prices of longer-term debt securities tend to fluctuate more
than those of shorter-term debt securities. That volatility will affect the
Fund’s share prices.
o Commercial (Privately-Issued) Mortgage Related Securities. The Fund can
invest in commercial mortgage-related securities issued by private entities.
Generally these are multi-class debt or pass-through certificates secured by
mortgage loans on commercial properties. They are subject to the credit risk of
the issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. These securities are
subject to prepayment risks and the risk of default by the issuer as well as by
the borrowers of the underlying loans in the pool. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
interest or repayments of principal are not made, the Fund could suffer losses
on its investment or delays in receiving payment.
The value of an asset-backed security is affected by changes in the
market’s perception of the asset backing the security, the creditworthiness
of the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans by
the individual borrowers. As a purchaser of an asset-backed security, the Fund
would generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to prepayments,
which may shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as in the case of mortgage-backed
securities and CMOs, described above.
|X| Participation Interests. The Fund can invest in participation
interests, subject to the Fund’s limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyer’s
participation interest bears to the total principal amount of the loan. Not more
than 5% of the Fund’s net assets can be invested in participation interests
of the same borrower. The issuing financial institution may have no obligation
to the Fund other than to pay the Fund the proportionate amount of the principal
and interest payments it receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund’s shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
|X| Foreign Securities. “Foreign securities” include debt
securities issued or guaranteed by companies organized under the laws of
countries other than the United States and debt securities issued or guaranteed
by governments other than the U.S. government or by foreign supra-national
entities, such as the World Bank. Those securities may be traded on foreign
securities exchanges or in the foreign over-the-counter markets. Securities
denominated in foreign currencies issued by U.S. companies are also considered
to be “foreign securities.” The Fund expects to have investments in
foreign securities as part of its normal investment strategy.
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.
American Depository Receipts (“ADR”) facilities may be either
“sponsored” or “un-sponsored.” While sponsored and
un-sponsored ADR facilities are similar, distinctions exist between the rights
and duties of ADR holders and market practices. Sponsored facilities have the
backing or participation of the underlying foreign issuers. Un-sponsored
facilities do not have the participation by or consent of the issuer of the
deposited shares. Un-sponsored facilities usually request a letter of
non-objection from the issuer. Holders of un-sponsored ADRs generally bear all
the costs of such facility. The costs of the facility can include deposit and
withdrawal fees, currency conversion and other service fees. The depository of
an un-sponsored facility may not have a duty to distribute shareholder
communications from the issuer or to pass through voting rights. Issuers of
un-sponsored ADRs do not have an obligation to disclose material information
about the foreign issuers in the U.S. As a result, the value of the un-sponsored
ADR may not correlate with the value of the underlying security trading abroad
or any material information about the security or the issuer disseminated
abroad. Sponsored facilities enter into an agreement with the issuer that sets
out rights and duties of the issuer, the depository and the ADR holder. The
sponsored agreement also allocates fees among the parties. Most sponsored
agreements provide that the depository will distribute shareholder notices,
voting instructions and other communications.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer income 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 securities markets that do not move in a manner parallel to
U.S. markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
o Foreign Debt Obligations. The debt obligations of a foreign government
and its agencies and instrumentalities may or may not be supported by the full
faith and credit of the foreign government. The Fund can buy securities issued
by certain “supra-national” entities, which include entities
designated or supported by governments to promote economic reconstruction or
development, international banking organizations and related government
agencies. Examples are the International Bank for Reconstruction and Development
(commonly called the “World Bank”), the Asian Development bank and the
Inter-American Development Bank.
The governmental members of these supra-national entities are
“stockholders” that typically make capital contributions and may be
committed to make additional capital contributions if the entity is unable to
repay its borrowings. A supra-national entity’s lending activities may be
limited to a percentage of its total capital, reserves and net income. There can
be no assurance that the constituent foreign governments will continue to be
able or willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated “Brady Bonds.”
These foreign debt obligations may be fixed-rate par bonds or floating-rate
discount bonds. They are generally collateralized in full as to repayment of
principal at maturity by U.S. Treasury zero-coupon obligations that have the
same maturity as the Brady Bonds. Brady Bonds can be viewed as having three or
four valuation components: (i) the collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of
principal at maturity. Those uncollateralized amounts constitute what is called
the “residual risk.”
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
Because the Fund can purchase securities denominated in foreign currencies,
a change in the value of a foreign currency against the U.S. dollar could result
in a change in the amount of income the Fund has available for distribution.
Because a portion of the Fund’s investment income may be received in
foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund’s having distributed more
income in a particular fiscal period than was available from investment income,
which could result in a return of capital to shareholders.
o Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes; o fluctuation in value of foreign
investments due to changes in currency rates or currency devaluation, or
currency control regulations (for example, currency blockage); o transaction
charges for currency exchange; o lack of public information about foreign
issuers; o lack of uniform accounting, auditing and financial reporting
standards in foreign countries comparable to those applicable to domestic
issuers; o less volume on foreign exchanges than on U.S. exchanges; o greater
volatility and less liquidity on foreign markets than in the U.S.; o less
governmental regulation of foreign issuers, securities exchanges and brokers
than in the U.S.; o greater difficulties in commencing lawsuits; o higher
brokerage commission rates than in the U.S.; o increased risks of delays in
settlement of portfolio transactions or loss of certificates for portfolio
securities; o foreign withholding taxes; o possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; and o unfavorable differences between the
U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
o Special Risks of Emerging Markets. Emerging and developing markets abroad
may also offer special opportunities for investing but have greater risks than
more developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. There may be even less liquidity in their securities markets,
and settlements of purchases and sales of securities may be subject to
additional delays. They are subject to greater risks of limitations on the
repatriation of income and profits because of currency restrictions imposed by
local governments. Those countries may also be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. The Manager will consider these factors
when evaluating securities in these markets, and the Fund currently does not
expect to invest a substantial portion of its assets in emerging markets.
o Passive Foreign Investment Companies. Some securities of corporations
domiciled outside the U.S. which the Fund may purchase, may be considered
passive foreign investment companies (“PFICs”) under U.S. tax laws.
PFICs are those foreign corporations which generate primarily passive income.
They tend to be growth companies or “start-up” companies. For federal
tax purposes, a corporation is deemed a PFIC if 75% or more of the foreign
corporation’s gross income for the income year is passive income or if 50%
or more of its assets are assets that produce or are held to produce passive
income. Passive income is further defined as any income to be considered foreign
personal holding company income within the subpart F provisions defined by IRC
§954.
Investing in PFICs involves the risks associated with investing in foreign
securities, as described above. There are also the risks that the Fund may not
realize that a foreign corporation it invests in is a PFIC for federal tax
purposes. Federal tax laws impose severe tax penalties for failure to properly
report investment income from PFICs. Following industry standards, the Fund
makes every effort to ensure compliance with federal tax reporting of these
investments. PFICs are considered foreign securities for the purposes of the
Fund’s minimum percentage requirements or limitations of investing in
foreign securities.
Subject to the limits under the Investment Company Act of 1940 (the
“Investment Company Act”), the Fund may also invest in foreign mutual
funds which are also deemed PFICs (since nearly all of the income of a mutual
fund is generally passive income). Investing in these types of PFICs may allow
exposure to various countries because some foreign countries limit, or prohibit,
all direct foreign investment in the securities of companies domiciled therein.
In addition to bearing their proportionate share of a fund’s expenses
(management fees and operating expenses), shareholders will also indirectly bear
similar expenses of such entities. Additional risks of investing in other
investment companies are described below under “Investment in Other
Investment Companies.”
Other Investment Techniques and Strategies. In seeking its objective, the
Fund may from time to time use the types of investment strategies and
investments described below. It is not required to use all of these strategies
at all times, and at times may not use them.
|X| Zero-Coupon Securities. The Fund can buy zero-coupon and
delayed-interest securities, and “stripped” securities. Stripped
securities are debt securities whose interest coupons are separated from the
security and sold separately. The Fund can buy different types of zero-coupon or
stripped securities, including, among others, foreign debt securities and U.S.
Treasury notes or bonds that have been stripped of their interest coupons, U.S.
Treasury bills issued without interest coupons, and certificates representing
interests in stripped securities.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. In the absence
of threats to the issuer’s credit quality, the discount typically decreases
as the maturity date approaches. Some zero-coupon securities are convertible, in
that they are zero-coupon securities until a predetermined date, at which time
they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund’s investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| “Stripped” Mortgage-Related Securities. The Fund can invest
in stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security’s principal or interest payments. These are a form of derivative
investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an “interest-only” security, or “I/O,” and all of
the principal is distributed to holders of another type of security, known as a
“principal-only” security or “P/O.” Strips can be created
for pass through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially. The market for some of these securities may be limited, making it
difficult for the Fund to dispose of its holdings at an acceptable price.
|X| Floating Rate and Variable Rate Obligations. Some securities the Fund
can purchase have variable or floating interest rates. Variable rates are
adjusted at stated periodic intervals. Variable rate obligations may have a
demand feature that allows the Fund to tender the obligation to the issuer or a
third party prior to its maturity. The tender may be at par value plus accrued
interest, according to the terms of the obligations.
The interest rate on a floating rate note is adjusted automatically
according to a stated prevailing market rate, such as a bank’s prime rate,
the 91-day U.S. Treasury Bill rate, or some other standard. The
instrument’s rate is adjusted automatically each time the base rate is
adjusted. The interest rate on a variable rate note is also based on a stated
prevailing market rate but is adjusted automatically at specified intervals.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than that for
fixed-rate obligations of the same maturity. The Manager may determine that an
unrated floating rate or variable rate obligation meets the Fund’s quality
standards by reason of being backed by a letter of credit or guarantee issued by
a bank that meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity in
excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days’ notice. The issuer of that type of
note normally has a corresponding right in its discretion, after a given period,
to prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days’ notice to the
holder.
Step-coupon bonds have a coupon interest rate that changes periodically
during the life of the security on predetermined dates that are set when the
security is issued.
|X| “When-Issued” and “Delayed-Delivery” Transactions.
The Fund may invest in securities on a “when-issued” basis and may
purchase or sell securities on a “delayed-delivery” basis. When-issued
and delayed-delivery are terms that refer to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. The securities are
subject to change in value from market fluctuations during the period until
settlement. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by
the Manager before settlement will affect the value of such securities and may
cause a loss to the Fund. During the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund
from the investment until it receives the security at settlement. There is a
risk of loss to the Fund if the value of the security changes prior to the
settlement date, and there is the risk that the other party may not perform.
The Fund may engage in when-issued transactions to secure what the Manager
considers to be an advantageous price and yield at the time the obligation is
entered into. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security on
a when-issued or delayed-delivery basis, it records the transaction on its books
and reflects the value of the security purchased in determining the Fund’s
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund’s purchase commitments until the Fund pays for the
investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Manager from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund’s limits on holding illiquid investments, as described in the
Prospectus. The Fund will not enter into a repurchase agreement that causes more
than 15% of its net assets to be subject to repurchase agreements having a
maturity beyond seven days. There is no limit on the amount of the Fund’s
net assets that may be subject to repurchase agreements having maturities of
seven days or less for defensive purposes.
Repurchase agreements, considered “loans” under the Investment
Company Act, are collateralized by the underlying security. The Fund’s
repurchase agreements require that at all times while the repurchase agreement
is in effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. However, if the vendor
fails to pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any delay in
its ability to do so. The Manager will monitor the vendor’s
creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral’s value.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission ("SEC"), the Fund, along with other affiliated entities managed by
the Manager, may transfer uninvested cash balances into one or more joint
repurchase accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities that are pledged
as collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each joint repurchase arrangement requires that the market
value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default by the other party to the agreement,
retention or sale of the collateral may be subject to legal proceedings.
|X| Investment in Other Investment Companies. The Fund can also invest in
the securities of other investment companies, which can include open-end funds,
closed-end funds and unit investment trusts, subject to the limits set forth in
the Investment Company Act that apply to those types of investments. For
example, the Fund can invest in Exchange-Traded Funds, which are typically
open-end funds or unit investment trusts, listed on a stock exchange. The Fund
might do so as a way of gaining exposure to the segments of the equity or
fixed-income markets represented by the Exchange-Traded Funds’ portfolio,
at times when the Fund may not be able to buy those portfolio securities
directly.
Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company’s portfolio
securities and is subject to limitations under the Investment Company Act. The
Fund does not intend to invest in other investment companies unless the Manager
believes that the potential benefits of the investment justify the payment of
any premiums or sales charges. As a shareholder of an investment company, the
Fund would be subject to its ratable share of that investment company’s
expenses, including its advisory and administration expenses in addition to its
own fees and expenses. The Fund does not anticipate investing a substantial
amount of its net assets in shares of other investment companies.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund’s Board of Trustees, the Manager determines the
liquidity of certain of the Fund’s investments. To enable the Fund to sell
its holdings of a restricted security not registered under applicable securities
laws, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private placements.
Those securities have contractual restrictions on their public resale. Those
restrictions may make it more difficult to value them, and might limit the
Fund’s ability to dispose of the securities and might lower the amount the
Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund’s holdings of that security may be considered to be
illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
|X| Forward Rolls. The Fund can enter into “forward roll”
transactions with respect to mortgage-related securities. In this type of
transaction, the Fund sells a mortgage-related security to a buyer and
simultaneously agrees to repurchase a similar security (the same type of
security, and having the same coupon and maturity) at a later date at a set
price. The securities that are repurchased will have the same interest rate as
the securities that are sold, but typically will be collateralized by different
pools of mortgages (with different prepayment histories) than the securities
that have been sold. Proceeds from the sale are invested in short-term
instruments, such as repurchase agreements. The income from those investments,
plus the fees from the forward roll transaction, are expected to generate income
to the Fund in excess of the yield on the securities that have been sold.
The Fund will only enter into “covered” rolls. To assure its
future payment of the purchase price, the Fund will identify on its books liquid
assets in an amount equal to the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells might decline below the price at which
the Fund is obligated to repurchase securities.
|X| Convertible Securities. Convertible securities are debt securities that
are convertible into an issuer’s common stock. Convertible securities rank
senior to common stock in a corporation’s capital structure and therefore
are subject to less risk than common stock in the case of the issuer’s
bankruptcy or liquidation.
The value of a convertible security is a function of its “investment
value” and its “conversion value.” If the investment value
exceeds the conversion value, the security will, behave more like a debt
security, and the security’s price will likely increase when interest rates
fall and decrease when interest rates rise. If the conversion value exceeds the
investment value, the security will behave more like an equity security. In that
case, it will likely sell at a premium over its conversion value and its price
will tend to fluctuate directly with the price of the underlying security.
While some convertible securities are a form of debt security, in certain
cases their conversion feature (allowing conversion into equity securities)
causes them to be regarded by the Manager more as “equity
equivalents.” As a result, the rating assigned to the security might have
less impact on the Manager’s investment decision with respect to
convertible securities than in the case of non-convertible fixed-income
securities. Convertible debt securities are subject to the credit risks and
interest rate risks described above in “Debt Securities.”
To determine whether convertible securities should be regarded as
“equity equivalents,” the Manager may examine the following factors:
(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer, (2)
whether the issuer of the convertible securities has restated its earnings per
share of common stock on a fully diluted basis (considering the effect of
conversion of the convertible securities), and (3) the extent to which the
convertible security may be a defensive “equity substitute,” providing
the ability to participate in any appreciation in the price of the issuer’s
common stock.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks
on an unsecured basis to invest the borrowed funds in portfolio securities. This
speculative technique is known as “leverage.” Currently, under the
Investment Company Act, absent exemptive relief, a mutual fund may borrow only
from banks and the maximum amount it may borrow is up to one-third of its total
assets (including the amount borrowed) less all liabilities and indebtedness
other than borrowing. The fund may also borrow up to 5% of its total assets for
temporary purposes from any person. Under the Investment Company Act, there is a
rebuttable presumption that a loan is temporary if it is repaid within 60 days
and not extended or renewed. If the value of the Fund’s assets fails to
meet the 300% asset coverage requirement, the Fund will reduce its bank debt
within three days to meet the requirement. To do so, the Fund might have to sell
a portion of its investments at a disadvantageous time.
The Fund will pay interest on its borrowings, and that interest expense
will raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund’s net asset value per share might
fluctuate more than that of funds that do not borrow. Currently, the Fund does
not contemplate using this technique, but if it does so, it will not likely do
so to a substantial degree.
|X| Loans of Portfolio Securities. To raise cash for income or liquidity
purposes, the Fund can lend its portfolio securities to brokers, dealers and
other types of financial institutions approved by the Fund’s Board of
Trustees.
These loans are limited to not more than 25% of the value of the
Fund’s total assets. The Fund currently does not intend to engage in loans
of securities, but if it does so, such loans will not likely exceed 5% of the
Fund’s total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit or securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder’s, custodian and administrative fees in connection with these loans.
The terms of the Fund’s loans must meet applicable tests under the Internal
Revenue Code and must permit the Fund to reacquire loaned securities on five
days’ notice or in time to vote on any important matter.
|X| Money Market Instruments. The following is a brief description of the
types of the U.S. dollar denominated money market securities the Fund can invest
in. Money market securities are high-quality, short-term debt instruments that
may be issued by the U.S. government, corporations, banks or other entities.
They may have fixed, variable or floating interest rates.
o U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
described above.
o Bank Obligations. The Fund can buy time deposits, certificates of deposit
and bankers’ acceptances. They must be:
o obligations issued or guaranteed by a domestic bank (including a foreign
branch of a domestic bank) having total assets of at least U.S. $1 billion, or o
obligations of a foreign bank with total assets of at least U.S. $1 billion.
“Banks” include commercial banks, savings banks and savings and
loan associations, which may or may not be members of the Federal Deposit
Insurance Corporation.
o Commercial Paper. The Fund can invest in commercial paper if it is rated
within the top three rating categories of S&P and Moody’s or other
rating organizations.
If the paper is not rated, it may be purchased if the Manager determines
that it is comparable to rated commercial paper in the top three rating
categories of national rating organizations.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
o Variable Amount Master Demand Notes. Master demand notes are corporate
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest under direct arrangements between the Fund, as lender,
and the borrower. They permit daily changes in the amounts borrowed. The Fund
has the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount. The borrower
may prepay up to the full amount of the note without penalty. These notes may or
may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund’s right to redeem such notes
is dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
|X| Derivatives. The Fund can invest in a variety of derivative investments
to seek income or for hedging purposes. Some derivative investments the Fund can
use are the hedging instruments described below in this Statement of Additional
Information. Segregated accounts will be maintained for all derivative
transactions, as required by the Investment Company Act.
Among the derivative investments the Fund can invest in are
“index-linked” or “currency-linked” notes. Principal and/or
interest payments on index-linked notes depend on the performance of an
underlying index. Currency-indexed securities are typically short-term or
intermediate-term debt securities. Their value at maturity or the rates at which
they pay income are determined by the change in value of the U.S. dollar against
one or more foreign currencies or an index. In some cases, these securities may
pay an amount at maturity based on a multiple of the amount of the relative
currency movements. This type of index security offers the potential for
increased income or principal payments but at a greater risk of loss than a
typical debt security of the same maturity and credit quality.
Other derivative investments the Fund can use include “debt
exchangeable for common stock” of an issuer or “equity-linked debt
securities” of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or it is payable in an amount based on the price of
the issuer’s common stock at the time of maturity. Both alternatives
present a risk that the amount payable at maturity will be less than the
principal amount of the debt because the price of the issuer’s common stock
might not be as high as the Manager expected.
o Credit Derivatives. The Fund may enter into credit default swaps, both
directly (“unfunded swaps”) and indirectly in the form of a swap
embedded within a structured note (“funded swaps”), to protect against
the risk that a security will default. Unfunded and funded credit default swaps
may be on a single security, or on a basket of securities. The Fund pays a fee
to enter into the swap and receives a fixed payment during the life of the swap.
The Fund may take a short position in the credit default swap (also known as
“buying credit protection”), or may take a long position in the credit
default swap note (also known as “selling credit protection”).
The Fund would take a short position in a credit default swap (the
“unfunded swap”) against a long portfolio position to decrease
exposure to specific high yield issuers. If the short credit default swap is
against a corporate issue, the Fund must own that corporate issue. However, if
the short credit default swap is against sovereign debt, the Fund may own
either: (i) the reference obligation, (ii) any sovereign debt of that foreign
country, or (iii) sovereign debt of any country that the Manager determines is
closely correlated as an inexact bona fide hedge.
If the Fund takes a short position in the credit default swap, if there is
a credit event (including bankruptcy, failure to timely pay interest or
principal, or a restructuring), the Fund will deliver the defaulted bonds and
the swap counterparty will pay the par amount of the bonds. An associated risk
is adverse pricing when purchasing bonds to satisfy the delivery obligation. If
the swap is on a basket of securities, the notional amount of the swap is
reduced by the par amount of the defaulted bond, and the fixed payments are then
made on the reduced notional amount.
Taking a long position in the credit default swap note (i.e., purchasing
the “funded swap”) would increase the Fund’s exposure to specific
high yield corporate issuers. The goal would be to increase liquidity in that
market sector via the swap note and its associated increase in the number of
trading instruments, the number and type of market participants, and market
capitalization.
If the Fund takes a long position in the credit default swap note, if there
is a credit event the Fund will pay the par amount of the bonds and the swap
counterparty will deliver the bonds. If the swap is on a basket of securities,
the notional amount of the swap is reduced by the par amount of the defaulted
bond, and the fixed payments are then made on the reduced notional amount.
The Fund will invest no more than 25 % of its total assets in
“unfunded” credit default swaps.
The Fund will limit its investments in “funded” credit default
swap notes to no more than 10% of its total assets.
Other risks of credit default swaps include the cost of paying for credit
protection if there are no credit events, pricing transparency when assessing
the cost of a credit default swap, counterparty risk, and the need to fund the
delivery obligation (either cash or the defaulted bonds, depending on whether
the Fund is long or short the swap, respectively).
|X| Hedging. The Fund can use hedging instruments although it is not
obligated to use them in seeking its objective. To attempt to protect against
declines in the market value of the Fund’s portfolio, to permit the Fund to
retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could: o sell futures contracts, o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls may also be used
to increase the Fund’s income, but the Manager does not expect to engage
extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could: o buy
futures, or o buy calls on futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager’s discretion, as described below. The
Fund’s strategy of hedging with futures and options on futures will be
incidental to the Fund’s activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund’s investment
objective and are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to (1)
broadly-based bond or other security indices (these are referred to as
“financial futures”), (2) commodity contracts (these are referred to
as “commodity futures”), (3) debt securities (these are referred to as
“interest rate futures”), (4) foreign currencies (these are referred
to as “forward contracts”), (5) individual stock (these are referred
to as “single stock futures”) and (6) bond indices (these are referred
to as “bond index futures”).
A broadly-based stock index is used as the basis for trading stock index
futures. In some cases, these futures may be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the securities included in the index and its value fluctuates in
response to the changes in value of the underlying securities. A stock index
cannot be purchased or sold directly. Bond index futures are similar contracts
based on the future value of the basket of securities that comprise the index.
These contracts obligate the seller to deliver, and the purchaser to take, cash
to settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
Similarly, a single stock future obligates the seller to deliver (and the
purchaser to take) cash or a specified equity security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position. Single stock futures trade on a very limited number of
exchanges, with contracts typically not fungible among the exchanges.
The Fund can invest a portion of its assets in commodity futures contracts.
Commodity futures may be based upon commodities within five main commodity
groups: (1) energy, which includes crude oil, natural gas, gasoline and heating
oil; (2) livestock, which includes cattle and hogs; (3) agriculture, which
includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4) industrial
metals, which includes aluminum, copper, lead, nickel, tin and zinc; and (5)
precious metals, which includes gold, platinum and silver. The Fund may purchase
and sell commodity futures contracts, options on futures contracts and options
and futures on commodity indices with respect to these five main commodity
groups and the individual commodities within each group, as well as other types
of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
“futures broker”). Initial margin payments will be deposited with the
Fund’s custodian bank in an account registered in the futures broker’s
name. However, the futures broker can gain access to that account only under
specified conditions. As the future is marked to market (that is, its value on
the Fund’s books is changed) to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or by the
futures broker daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o Put and Call Options. The Fund can buy and sell certain kinds of put
options (“puts”) and call options (“calls”). The Fund can
buy and sell exchange-traded and over-the-counter put and call options,
including index options, securities options, currency options, commodities
options, and options on the other types of futures described above.
o Writing Covered Call Options. The Fund can write (that is, sell) covered
calls. If the Fund sells a call option, it must be covered. That means the Fund
must own the security subject to the call while the call is outstanding, or, for
calls on futures and indices, the call may be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised.
Up to 50% of the Fund’s total assets may be subject to calls the Fund
writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund’s custodian bank, or a securities depository acting for the
custodian bank, will act as the Fund’s escrow agent, through the facilities
of the Options Clearing Corporation (“OCC”), as to the investments on
which the Fund has written calls traded on exchanges or as to other acceptable
escrow securities. In that way, no margin will be required for such
transactions. OCC will release the securities on the expiration of the option or
when the Fund enters into a closing transaction.
When the Fund writes an over-the-counter (“OTC”) option, it will
enter into an arrangement with a primary U.S. government securities dealer which
will establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is “in the money”). When the Fund writes an OTC option,
it will treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may purchase
a corresponding call in a “closing purchase transaction.” The Fund
will then realize a profit or loss, depending upon whether the net of the amount
of the option transaction costs and the premium received on the call the Fund
wrote is more or less than the price of the call the Fund purchases to close out
the transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on it
books an equivalent dollar amount of liquid assets. The Fund will identify
additional liquid assets on its books to cover the call if the value of the
identified assets drops below 100% of the current value of the future. Because
of this asset coverage requirement, in no circumstances would the Fund’s
receipt of an exercise notice as to that future require the Fund to deliver a
futures contract. It would simply put the Fund in a short futures position,
which is permitted by the Fund’s hedging policies.
o Writing Put Options. The Fund can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. A put option
on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund’s net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund’s books. The premium the Fund receives from writing
a put represents a profit, as long as the price of the underlying investment
remains equal to or above the exercise price of the put. However, the Fund also
assumes the obligation during the option period to buy the underlying investment
from the buyer of the put at the exercise price, even if the value of the
investment falls below the exercise price.
If a put the Fund has written expires unexercised, the Fund realizes a gain
in the amount of the premium less the transaction costs incurred. If the put is
exercised, the Fund must fulfill its obligation to purchase the underlying
investment at the exercise price. That price will usually exceed the market
value of the investment at that time. In that case, the Fund may incur a loss if
it sells the underlying investment. That loss will be equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund’s obligation as the put writer continues, it may
be assigned an exercise notice by the broker-dealer through which the put was
sold. That notice will require the Fund to take delivery of the underlying
security and pay the exercise price. The Fund has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. That obligation terminates upon expiration of the put. It may
also terminate if, before it receives an exercise notice, the Fund effects a
closing purchase transaction by purchasing a put of the same series as it sold.
Once the Fund has been assigned an exercise notice, it cannot effect a closing
purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls on securities,
broadly-based securities indices, foreign currencies and futures. It may do so
to protect against the possibility that the Fund’s portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price.
The Fund benefits only if it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns the underlying
investment. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund’s
total assets.
o Buying and Selling Options on Foreign Currencies. The Fund can buy and
sell calls and puts on foreign currencies. They include puts and calls that
trade on a securities or commodities exchange or in the over-the-counter markets
or are quoted by major recognized dealers in such options.
The Fund could use these calls and puts to try to protect against declines
in the dollar value of foreign securities and increases in the dollar cost of
foreign securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign currency
in which securities to be acquired are denominated, the increased cost of those
securities may be partially offset by purchasing calls or writing puts on that
foreign currency. If the Manager anticipates a decline in the dollar value of a
foreign currency, the decline in the dollar value of portfolio securities
denominated in that currency might be partially offset by writing calls or
purchasing puts on that foreign currency. However, the currency rates could
fluctuate in a direction adverse to the Fund’s position. The Fund will then
have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is “covered” if the
Fund owns the underlying foreign currency covered by the call or has an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a “cross-hedging” strategy. In
those circumstances, the Fund covers the option by identifying liquid assets on
its books having a value equal to its obligation under the option.
o Risks of Hedging with Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Manager
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund’s return. The Fund
could also experience losses if the prices of its futures and options positions
were not correlated with its other investments.
The Fund’s option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might cause
the Fund to sell related portfolio securities, thus increasing its turnover
rate. The exercise by the Fund of puts on securities will cause the sale of
underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within the Fund’s control, holding a
put might cause the Fund to sell the related investments for reasons that would
not exist in the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund’s net asset value being more sensitive to changes
in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any additional appreciation in excess
of the covered call price if the investment has increased in value above the
call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund’s portfolio securities. The risk is that the
prices of the futures or the applicable index will correlate imperfectly with
the behavior of the cash prices of the Fund’s securities. For example, it
is possible that while the Fund has used hedging instruments in a short hedge,
the market might advance and the value of the securities held in the Fund’s
portfolio might decline. If that occurred, the Fund would lose money on the
hedging instruments and also experience a decline in the value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will
tend to move in the same direction as the indices upon which the hedging
instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund’s portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price of
the portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to “lock in” the U.S. dollar price
of a security denominated in a foreign currency that the Fund has bought or
sold, or to protect against possible losses from changes in the relative values
of the U.S. dollar and a foreign currency. The Fund may also use
“cross-hedging” where the Fund hedges against changes in currencies
other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when it anticipates receiving dividend
payments in a foreign currency, the Fund might desire to “lock-in” the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a “transaction hedge.” The transaction hedge will
protect the Fund against a loss from an adverse change in the currency exchange
rates during the period between the date on which the security is purchased or
sold or on which the payment is declared, and the date on which the payments are
made or received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a “position hedge.” When the
Fund believes that foreign currency might suffer a substantial decline against
the U.S. dollar, it could enter into a forward contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund’s
portfolio securities denominated in that foreign currency. When the Fund
believes that the U.S. dollar might suffer a substantial decline against a
foreign currency, it could enter into a forward contract to buy that foreign
currency for a fixed dollar amount. Alternatively, the Fund could enter into a
forward contract to sell a different foreign currency for a fixed U.S. dollar
amount if the Fund believes that the U.S. dollar value of the foreign currency
to be sold pursuant to its forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the Fund are denominated. That is referred to as a “cross hedge.”
The Fund will cover its short positions in these cases by identifying to
its custodian bank assets having a value equal to the aggregate amount of the
Fund’s commitment under forward contracts. The Fund will not enter into
forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund’s portfolio securities
or other assets denominated in that currency or another currency that is the
subject of the hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund’s portfolio securities or other assets denominated in foreign
currencies if the excess amount is “covered” by liquid securities
denominated in any currency. The cover must be at least equal at all times to
the amount of that excess. As one alternative, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price. As another alternative, the Fund may purchase a put option permitting the
Fund to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the “spot” (that is, cash)
market to settle the security trade. If the market value of the security instead
exceeds the amount of foreign currency the Fund is obligated to deliver to
settle the trade, the Fund might have to sell on the spot market some of the
foreign currency received upon the sale of the security. There will be
additional transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund’s performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may convert foreign currency from time to time, and will
incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest rate
swap agreements. In an interest rate swap, the Fund and another party exchange
their right to receive or their obligation to pay interest on a security. For
example, they might swap the right to receive floating rate payments for fixed
rate payments. The Fund can enter into swaps only on securities that it owns.
The Fund will not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will identify on its books liquid assets (such as cash or
U.S. government securities) to cover any amounts it could owe under swaps that
exceed the amounts it is entitled to receive, and it will adjust that amount
daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund’s loss will consist of the
net amount of contractual interest payments that the Fund has not yet received.
The Manager will monitor the creditworthiness of counterparties to the
Fund’s interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty may terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party’s damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty’s gain or loss on
termination. The termination of all swaps and the netting of gains and losses on
termination is generally referred to as “aggregation.”
o Swaption Transactions. The Fund may enter into a swaption transaction,
which is a contract that grants the holder, in return for payment of the
purchase price (the “premium”) of the option, the right, but not the
obligation, to enter into an interest rate swap at a preset rate within a
specified period of time, with the writer of the contract. The writer of the
contract receives the premium and bears the risk of unfavorable changes in the
preset rate on the underlying interest rate swap. Unrealized gains/losses on
swaptions are reflected in investment assets and investment liabilities in the
Fund’s statement of financial condition.
o Regulatory Aspects of Hedging Instruments. The Commodities Futures
Trading Commission (the “CFTC”) recently eliminated limitations on
futures trading by certain regulated entities including registered investment
companies and consequently registered investment companies may engage in
unlimited futures transactions and options thereon provided that the Fund claims
an exclusion from regulation as a commodity pool operator. The Fund has claimed
such an exclusion from registration as a commodity pool operator under the
Commodity Exchange Act (“CEA”). The Fund may use futures and options
for hedging and non-hedging purposes to the extent consistent with its
investment objective, internal risk management guidelines adopted by the
Fund’s investment advisor (as they may be amended from time to time), and
as otherwise set forth in the Fund’s prospectus or this statement of
additional information.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the
Fund’s advisor). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Under interpretations of the staff of the SEC regarding applicable
provisions of the Investment Company Act, when the Fund purchases a future, it
must identify liquid assets on its books in an amount equal to the purchase
price of the future, less the margin deposit applicable to it. o Tax Aspects of
Certain Hedging Instruments. Certain foreign currency exchange contracts in
which the Fund may invest are treated as “Section 1256 contracts”
under the Internal Revenue Code. In general, gains or losses relating to Section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from Section 1256 contracts that are forward contracts generally are
treated as ordinary income or loss. In addition, Section 1256 contracts held by
the Fund at the end of each taxable year are “marked-to-market,” and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under
rules prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in
“straddles” for federal income tax purposes. The straddle rules may
affect the character and timing of gains (or losses) recognized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a position
making up a straddle is allowed only to the extent that the loss exceeds any
unrecognized gain in the offsetting positions making up the straddle. Disallowed
loss is generally allowed at the point where there is no unrecognized gain in
the offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that
occur between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities, and (2) gains
or losses attributable to fluctuations in the value of a foreign currency
between the date of acquisition of a debt security denominated in a foreign
currency or foreign currency forward contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net “Section 988” gain or loss under
the Internal Revenue Code for that trade, which may increase or decrease the
amount of the Fund’s investment income available for distribution to its
shareholders.
|X| Portfolio Turnover. “Portfolio turnover” describes the rate
at which the Fund traded its portfolio securities during its last fiscal year.
For example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Fund’s portfolio turnover rate will
fluctuate from year to year, and the Fund may have a portfolio turnover rate of
more than 100% annually.
Increased portfolio turnover may result in higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary defensive investments that are inconsistent with
the Fund’s principal investment strategies. Generally, they would be cash
equivalents (such as commercial paper), money market instruments, short-term
debt securities, U.S. Government securities, or repurchase agreements. They
could include other investment-grade debt securities. The Fund might also hold
these types of securities pending the investment of proceeds from the sale of
Fund shares or portfolio securities or to meet anticipated redemptions of Fund
shares. To the extent the Fund invests defensively in these securities, it might
not achieve its investment objective.
Other Investment Restrictions
|X| What Are “Fundamental Policies?” Fundamental policies are
those policies that the Fund has adopted to govern its investments that can be
changed only by the vote of a “majority” of the Fund’s
outstanding voting securities. Under the Investment Company Act, a
“majority” vote is defined as the vote of the holders of the lesser
of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or o more than 50% of the outstanding
shares.
The Fund’s investment objective is a fundamental policy. Other
policies described in the Prospectus or this Statement of Additional Information
are “fundamental” only if they are identified as such. The Fund’s
Board of Trustees can change non-fundamental policies without shareholder
approval. However, significant changes to investment policies will be described
in supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund’s most significant investment
policies are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities or other instruments issued or guaranteed
by any one issuer if more than 5% of its total assets would be invested in
securities or other instruments of that issuer or if it would then own more than
10% of that issuer’s voting securities. This limitation applies to 75% of
the Fund’s total assets. The limit does not apply to securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities or
securities of other investment companies.
o The Fund cannot make loans, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any exemption
therefrom that is applicable to the Fund, as such statute, rules or regulations
may be amended or interpreted from time to time.
o The Fund may not borrow money, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any exemption
therefrom that is applicable to the Fund, as such statute, rules or regulations
may be amended or interpreted from time to time.
o The Fund cannot invest 25% or more of its total assets in any one
industry. That limit does not apply to securities issued or guaranteed by the
U.S. government or its agencies and instrumentalities.
o The Fund cannot buy or sell real estate. However, the Fund can purchase
and sell securities issued or secured by companies that invest in or deal in
real estate or interests in real estate.
o The Fund cannot buy or sell commodities or commodity contracts. However,
the Fund can buy and sell derivative instruments and other hedging instruments,
such as futures contracts, options, swaps, and forward contracts.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot issue “senior securities,” but this does not
prohibit certain investment activities for which assets of the Fund are
designated as segregated, or margin, collateral or escrow arrangements are
established, to cover the related obligations. Examples of those activities
include borrowing money, reverse repurchase agreements, delayed-delivery and
when-issued arrangements for portfolio securities transactions, and contracts to
buy or sell derivatives, hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment (except in the case of borrowing and
investments in illiquid securities). The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
For purposes of the Fund’s policy not to concentrate its investments,
the Fund has adopted the industry classifications set forth in Appendix B to
this Statement of Additional Information. That is not a fundamental policy.
The Fund cannot invest in the securities of other registered investment
companies or registered unit investment trusts in reliance on sub-paragraph (F)
or (G) of section 12(d)(1) of the Investment Company Act.
The Fund currently has no intention of investing in commodity contracts. If
the Fund’s intention changes, the Prospectus and this Statement of
Additional Information will be revised accordingly.
Disclosure of Portfolio Holdings. The Fund has adopted policies and
procedures concerning the dissemination of information about its portfolio
holdings by employees, officers and/or directors of the Manager Distributor and
Transfer Agent. These policies are designed to assure that non-public
information about portfolio securities is distributed only for a legitimate
business purpose, and is done in a manner that (a) conforms to applicable laws
and regulations and (b) is designed to prevent that information from being used
in a way that could negatively affect the Fund’s investment program or
enable third parties to use that information in a manner that is harmful to the
Fund.
o Public Disclosure. The Fund’s portfolio holdings are made publicly
available no later than 60 days after the close of each of the Fund’s
fiscal quarters in semi-annual and annual reports to shareholders, or in its
Statements of Investments on Form N-Q, which are publicly available at the SEC.
In addition, the top 10 or more holdings are posted on the
OppenheimerFunds’ website at www.oppenheimerfunds.com in the “Fund
Profiles” section. Other general information about the Fund’s
portfolio investments, such as portfolio composition by asset class, industry,
country, currency, credit rating or maturity, may also be posted with a 15-day
lag.
Until publicly disclosed, the Fund’s portfolio holdings are
proprietary, confidential business information. While recognizing the importance
of providing Fund shareholders with information about their Fund’s
investments and providing portfolio information to a variety of third parties to
assist with the management, distribution and administrative process, the need
for transparency must be balanced against the risk that third parties who gain
access to the Fund’s portfolio holdings information could attempt to use
that information to trade ahead of or against the Fund, which could negatively
affect the prices the Fund is able to obtain in portfolio transactions or the
availability of the securities that portfolio managers are trading on the
Fund’s behalf.
The Manager and its subsidiaries and affiliates, employees, officers, and
directors, shall neither solicit nor accept any compensation or other
consideration (including any agreement to maintain assets in the Fund or in
other investment companies or accounts managed by the Manager or any affiliated
person of the Manager) in connection with the disclosure of the Fund’s
non-public portfolio holdings. The receipt of investment advisory fees or other
fees and compensation paid to the Manager and its subsidiaries pursuant to
agreements approved by the Fund’s Board shall not be deemed to be
“compensation” or “consideration” for these purposes. It is
a violation of the Code of Ethics for any covered person to release holdings in
contravention of portfolio holdings disclosure policies and procedures adopted
by the Fund.
A list of the top 10 or more portfolio securities holdings (based on
invested assets), listed by security or by issuer, as of the end of each month
may be disclosed to third parties (subject to the procedures below) no sooner
than 15 days after month-end.
Except under special limited circumstances discussed below, month-end lists
of the Fund’s complete portfolio holdings may be disclosed no sooner than
30-days after the relevant month-end, subject to the procedures below. If the
Fund’s complete portfolio holdings have not been disclosed publicly, they
may be disclosed pursuant to special requests for legitimate business reasons,
provided that:
o The third-party recipient must first submit a request for release of Fund
portfolio holdings, explaining the business reason for the request; o Senior
officers (a Senior Vice President or above) in the Manager’s Portfolio and
Legal departments must approve the completed request for release of Fund
portfolio holdings; and o The third-party recipient must sign the Manager’s
portfolio holdings non-disclosure agreement before receiving the data, agreeing
to keep information that is not publicly available regarding the Fund’s
holdings confidential and agreeing not to trade directly or indirectly based on
the information.
The Fund’s complete portfolio holdings positions may be released to
the following categories of entities or individuals on an ongoing basis,
provided that such entity or individual either (1) has signed an agreement to
keep such information confidential and not trade on the basis of such
information or (2) is subject to fiduciary obligations, as a member of the
Fund’s Board, or as an employee, officer and/or director of the Manager,
Distributor, or Transfer Agent, or their respective legal counsel, not to
disclose such information except in conformity with these policies and
procedures and not to trade for his/her personal account on the basis of such
information:
o Employees of the Fund’s Manager, Distributor and Transfer Agent who
need to have access to such information (as determined by senior officers of
such entity), o The Fund’s certified public accountants and independent
registered public accounting firm, o Members of the Fund’s Board and the
Board’s legal counsel, o The Fund’s custodian bank, o A proxy voting
service designated by the Fund and its Board, o Rating/ranking organizations
(such as Lipper and Morningstar), o Portfolio pricing services retained by the
Manager to provide portfolio security prices, and o Dealers, to obtain bids
(price quotations if securities are not priced by the Fund’s regular
pricing services).
Portfolio holdings information of the Fund may be provided, under limited
circumstances, to brokers and/or dealers with whom the Fund trades and/or
entities that provide investment coverage and/or analytical information
regarding the Fund’s portfolio, provided that there is a legitimate
investment reason for providing the information to the broker, dealer or other
entity. Month-end portfolio holdings information may, under this procedure, be
provided to vendors providing research information and/or analytics to the fund,
with at least a 15-day delay after the month end, but in certain cases may be
provided to a broker or analytical vendor with a 1-2 day lag to facilitate the
provision of requested investment information to the manager to facilitate a
particular trade or the portfolio manager’s investment process for the
Fund. Any third party receiving such information must first sign the
Manager’s portfolio holdings non-disclosure agreement as a pre-condition to
receiving this information.
Portfolio holdings information (which may include information on individual
securities positions or multiple securities) may be provided to the entities
listed below (1) by portfolio traders employed by the Manager in connection with
portfolio trading, and (2) by the members of the Manager’s Security
Valuation Group and Accounting Departments in connection with portfolio pricing
or other portfolio evaluation purposes:
o Brokers and dealers in connection with portfolio transactions (purchases
and sales) o Brokers and dealers to obtain bids or bid and asked prices (if
securities held by the Fund are not priced by the fund’s regular pricing
services) o Dealers to obtain price quotations where the fund is not identified
as the owner
Portfolio holdings information (which may include information on the
Fund’s entire portfolio or individual securities therein) may be provided
by senior officers of the Manager or attorneys on the legal staff of the
Manager, Distributor, or Transfer Agent, in the following circumstances:
o Response to legal process in litigation matters, such as responses to
subpoenas or in class action matters where the Fund may be part of the plaintiff
class (and seeks recovery for losses on a security) or a defendant, o Response
to regulatory requests for information (the SEC, NASD, state securities
regulators, and/or foreign securities authorities, including without limitation
requests for information in inspections or for position reporting purposes), o
To potential sub-advisers of portfolios (pursuant to confidentiality
agreements), o To consultants for retirement plans for plan sponsors/discussions
at due diligence meetings (pursuant to confidentiality agreements), o Investment
bankers in connection with merger discussions (pursuant to confidentiality
agreements)
Portfolio managers and analysts may, subject to the Manager’s policies
on communications with the press and other media, discuss portfolio information
in interviews with members of the media, or in due diligence or similar meetings
with clients or prospective purchasers of Fund shares or their financial
intermediary representatives.
The Fund’s shareholders may, under unusual circumstances (such as a
lack of liquidity in the Fund’s portfolio to meet redemptions), receive
redemption proceeds of their Fund shares paid as pro rata shares of securities
held in the Fund’s portfolio. In such circumstances, disclosure of the
Fund’s portfolio holdings may be made to such shareholders.
The Chief Compliance Officer of the Fund and the Manager, Distributor, and
Transfer Agent (the “CCO”) shall oversee the compliance by the
Manager, Distributor, Transfer Agent, and their personnel with these policies
and procedures. At least annually, the CCO shall report to the Fund’s Board
on such compliance oversight and on the categories of entities and individuals
to which disclosure of portfolio holdings of the Funds has been made during the
preceding year pursuant to these policies. The CCO shall report to the
Fund’s Board any material violation of these policies and procedures during
the previous calendar quarter and shall make recommendations to the Board as to
any amendments that the CCO believes are necessary and desirable to carry out or
improve these policies and procedures.
The Manager and/or the Fund have entered into ongoing arrangements to make
available information about the Fund’s portfolio holdings. One or more of
the Oppenheimer funds may currently disclose portfolio holdings information
based on ongoing arrangements to the following parties:
A.G. Edwards & Sons
ABG Securities
ABN AMRO
Advest
AG Edwards
American Technology Research
Auerbach Grayson
Banc of America Securities
Barclays
Baseline
Bear Stearns
Belle Haven
Bloomberg
BNP Paribas
BS Financial Services
Buckingham Research Group
Caris & Co.
CIBC World Markets
Citigroup
Citigroup Global Markets
Collins Stewart
Craig-Hallum Capital Group LLC
Credit Agricole Cheuvreux N.A. Inc.
Credit Suisse First Boston
Daiwa Securities
Davy
Deutsche Bank
Deutsche Bank Securities
Dresdner Kleinwort Wasserstein
Emmet & Co
Empirical Research
Enskilda Securities
Essex Capital Markets
Exane BNP Paribas
Factset
Fidelity Capital Markets
Fimat USA Inc.
First Albany
First Albany Corporation
Fixed Income Securities
Fortis Securities
Fox-Pitt, Kelton
Friedman, Billing, Ramsey
Fulcrum Global Partners
Garp Research
George K Baum & Co.
Goldman
Goldman Sachs
HSBC
HSBC Securities Inc
ING Barings
ISI Group
Janney Montgomery
Jefferies
Jeffries & Co.
JP Morgan
JP Morgan Securities
JPP Eurosecurities
Keefe, Bruyette & Woods
Keijser Securities
Kempen & Co. USA Inc.
Kepler Equities/Julius Baer Sec
KeyBanc Capital Markets
Leerink Swan
Legg Mason
Lehman
Lehman Brothers
Lipper
Loop Capital Markets
MainFirst Bank AG
Makinson Cowell US Ltd
Maxcor Financial
Merrill
Merrill Lynch
Midwest Research
Mizuho Securities
Morgan Stanley
Morningstar
Natexis Bleichroeder
Ned Davis Research Group
Nomura Securities
Pacific Crest
Pacific Crest Securities
Pacific Growth Equities
Petrie Parkman
Pictet
Piper Jaffray Inc.
Plexus
Prager Sealy & Co.
Prudential Securities
Ramirez & Co.
Raymond James
RBC Capital Markets
RBC Dain Rauscher
Research Direct
Robert W. Baird
Roosevelt & Cross
Russell Mellon
Ryan Beck & Co.
Sanford C. Bernstein
Scotia Capital Markets
SG Cowen & Co.
SG Cowen Securities
Soleil Securities Group
Standard & Poors
Stone & Youngberg
SWS Group
Taylor Rafferty
Think Equity Partners
Thomas Weisel Partners
UBS
Wachovia
Wachovia Corp
Wachovia Securities
Wescott Financial
William Blair
Yieldbook
73
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in November
2002.
|X| Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares, to reclassify unissued
shares into additional series or classes and to divide or combine the shares of
a class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights, preemptive rights or subscription rights. Shares
may be voted in person or by proxy at shareholder meetings.
The Fund currently has four classes of shares: Class A, Class B, Class C
and Class N. All classes invest in the same investment portfolio. Only
retirement plans may purchase Class N shares. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are
different from interests of another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote at
shareholder meetings, with fractional shares voting proportionally, on matters submitted to the
vote of shareholders. Each share of the Fund represents an interest in the Fund proportionately
equal to the interest of each other share of the same class.
|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required
to hold, and does not plan to hold, regular annual meetings of shareholders, but may hold
shareholder meetings from time to time on important matters or when required to do so by the
Investment Company Act or other applicable law. Shareholders have the right, upon a vote or
declaration in writing of two-thirds of the outstanding shares of the Fund, to remove a Trustee
or to take other action described in the Fund’s Declaration of Trust.
The Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares. If the Trustees
receive a request from at least 10 shareholders stating that they wish to communicate with other
shareholders to request a meeting to remove a Trustee, the Trustees will then either make the
Fund’s shareholder list available to the applicants or mail their communication to all other
shareholders at the applicants’ expense. The shareholders making the request must have been
shareholders for at least six months and must hold shares of the Fund valued at $25,000 or more
or constituting at least 1% of the Fund’s outstanding shares. The Trustees may also take other
action as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund’s Declaration of Trust contains an express
disclaimer of shareholder or Trustee liability for the Fund’s obligations. It also provides for
indemnification and reimbursement of expenses out of the Fund’s property for any shareholder
held personally liable for its obligations. The Declaration of Trust also states that upon
request, the Fund shall assume the defense of any claim made against a shareholder for any act
or obligation of the Fund and shall satisfy any judgment on that claim. Massachusetts law
permits a shareholder of a business trust (such as the Fund) to be held personally liable as a
“partner” under certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a “partner” of the Fund is limited to the relatively
remote circumstances in which the Fund would be unable to meet its obligations.
The Fund’s contractual arrangements state that any person doing business with the Fund
(and each shareholder of the Fund) agrees under its Declaration of Trust to look solely to the
assets of the Fund for satisfaction of any claim or demand that may arise out of any dealings
with the Fund. Additionally, the Trustees shall have no personal liability to any such person,
to the extent permitted by law.
Board of Trustees and Audit Committee. 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.
The Board of Trustees has an Audit Committee comprised solely of Independent Trustees.
The members of the Audit Committee are Joseph M. Wikler (Chairman) and Peter I. Wold. The Audit
Committee held four meetings during the fiscal year ended April 30, 2005. The Audit Committee
furnishes the Board with recommendations regarding the selection of the Fund’s independent
auditors. Other main functions of the Audit Committee include, but are not limited to: (i)
reviewing the scope and results of financial statement audits and the audit fees charged; (ii)
reviewing reports from the Fund’s independent registered public accounting firm regarding the
Fund’s internal accounting procedures and controls; (iii) reviewing reports from the Manager’s
Internal Audit Department; (iv) maintaining a separate line of communication between the Fund’s
independent registered public accounting firm and its Independent Trustees; (v) reviewing the
independence of the Fund’s independent registered public accounting firm; (vi) pre-approving the
provision of any audit and non-audit services (including tax services) that are not prohibited
by the Sarbanes-Oxley Act by the Fund’s independent registered public accounting firm for the
Fund, the Manager and certain affiliates of the Manager; and (vii) exercising all other
functions outlined in the Audit Committee Charter.
The Audit Committee’s functions include selecting and nominating, to the full Board,
nominees for election as Trustees, and selecting and nominating Independent Trustees for
election. The Audit Committee may, but need not, consider the advice and recommendation of the
Manager and its affiliates in selecting nominees. The full Board elects new trustees except for
those instances when a shareholder vote is required.
To date, the Audit Committee has been able to identify from its own resources an ample
number of qualified candidates. Nonetheless, shareholders may submit names of individuals for
the Audit Committee’s consideration by mailing such information, accompanied by complete and
properly supported resumes, to the Audit Committee in care of the Fund. The Audit Committee may
consider such persons at such time as it meets to consider possible nominees. The Audit
Committee, however, reserves sole discretion to determine the candidates to present to the Board
and/or shareholders when it meets for the purpose of considering potential nominees.
Trustees and Officers of the Fund. Except for Mr. Murphy, each of the Trustees is an
“Independent Trustee” under the Investment Company Act. In addition to being a trustee or
director of the Fund, Mr. Wikler and Mr. Wold are also directors or trustees of 38 other
portfolios in the OppenheimerFunds complex and Mr. Murphy is also a director or trustee of 76
other portfolios in the OppenheimerFunds complex.
Present or former officers, directors, trustees and employees (and their immediate
family members) of the Fund, the Manager and its affiliates, and retirement plans established by
them for their employees are permitted to purchase Class A shares of the Fund and the other
Oppenheimer funds at net asset value without sales charge. The sales charge on Class A shares is
waived for that group because of the reduced sales efforts realized by the Distributor.
Messrs. Bomfim, Caan, Gillespie, Gord, Manioudakis, Moon, Murphy, Petersen, Vandehey,
Vottiero, Wixted and Zack and Mss. Bloomberg and Ives, who are officers of the Fund, hold the
same offices with one or more other funds in the Oppenheimer complex. As of October 31, 2005 the
Trustees and officers of the Fund, as a group, owned of record or beneficially less than 1% of
any class of shares of the Fund. The foregoing statement does not reflect ownership of shares
held of record by an employee benefit plan for employees of the Manager, other than the shares
beneficially owned under that plan by the officers of the Fund listed above. In addition,
neither of the Independent Trustees (nor any of their immediate family members) own securities
of either the Manager or the Distributor of the Fund or of any entity directly or indirectly
controlling, controlled by or under common control with the Manager or the Distributor.
Biographical Information. The Trustees and officers, their positions with the Fund,
length of service in such position(s) and principal occupations and business affiliations during
the past five years are listed in the charts below. The information for each Trustee also
includes the dollar range of shares beneficially owned in the Fund and the aggregate dollar
range of shares beneficially owned in all funds in the Oppenheimer family of funds that are
overseen by the Trustee (“Supervised Funds”). The address of each Trustee in the chart below is
6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each Trustee serves for an indefinite term,
until his or her resignation, retirement, death or removal.
-------------------------------------------------------------------------------------------------------------------
Independent Trustees
-------------------------------------------------------------------------------------------------------------------
-------------------- --------------------------------------------------------- ----------------- ------------------
Name, Position(s) Principal Occupation(s) During the Past 5 Years; Other Dollar Range of Aggregate Dollar
Shares Range Of Shares
Held with the Beneficially Beneficially
Fund, Length of Trusteeships/Directorships Held; Number of Portfolios Owned in Owned in
Service, Age in the Fund Complex Currently Overseen the Fund Supervised Funds
-------------------- --------------------------------------------------------- ----------------- ------------------
-------------------- --------------------------------------------------------- ------------------------------------
As of December 31, 2004
-------------------- --------------------------------------------------------- ------------------------------------
-------------------- --------------------------------------------------------- ----------------- ------------------
Joseph M. Wikler, Director of the following medical device None $50,001-$100,000
Trustee since 2002 companies: Medintec (since 1992) and Cathco (since
Age: 64 1996); Director of Lakes Environmental Association
(since 1996); Member of the Investment Committee of the
Associated Jewish Charities of Baltimore (since 1994);
Director of Fortis/Hartford mutual funds (1994-December
2001). Oversees 39 portfolios in the OppenheimerFunds
complex.
-------------------- --------------------------------------------------------- ----------------- ------------------
-------------------- --------------------------------------------------------- ----------------- ------------------
Peter I. Wold, President of Wold Oil Properties, Inc. (oil $50,000-$100,000 Over $100,000
Trustee since 2002 and gas exploration and production company) (since
Age: 57 1994); Vice President, Secretary and Treasurer of Wold
Trona Company, Inc. (soda ash processing and
production) (since 1996); Vice President of Wold Talc
Company, Inc. (talc mining) (since 1999); Managing
Member of Hole-in-the-Wall Ranch (cattle ranching)
(since 1979); Director and Chairman of the Denver
Branch of the Federal Reserve Bank of Kansas City
(1993-1999); and Director of PacifiCorp. (electric
utility) (1995-1999). Oversees 39 portfolios in the
OppenheimerFunds complex.
-------------------- --------------------------------------------------------- ----------------- ------------------
The address of Mr. Murphy is Two World Financial Center, 225 Liberty Street, 11th
Floor, New York, New York 10281-1008. Mr. Murphy serves as a Trustee for an indefinite term and
as an officer for an annual term, or until his resignation, retirement, death or removal.
Mr. Murphy is an “Interested Trustee” because he is affiliated with the Manager by virtue of his
positions as an officer and director of the Manager, and as a shareholder of its parent company.
Mr. Murphy was elected as a Trustee of the Fund with the understanding that in the event he
ceases to be the chief executive officer of the Manager, he will resign as a Trustee of the Fund.
-------------------------------------------------------------------------------------------------------------------
Interested Trustee and Officer
-------------------------------------------------------------------------------------------------------------------
------------------ ---------------------------------------------------------- ----------------- -------------------
Name, Principal Occupation(s) During the Past 5 Years; Other Dollar Range of Aggregate Dollar
Position(s) Held Shares Range Of Shares
with Fund, Beneficially Beneficially
Length of Trusteeships/Directorships Held; Number of Portfolios in Owned in the Owned in
Service, Age the Fund Complex Currently Overseen Fund Supervised Funds
------------------ ---------------------------------------------------------- ----------------- -------------------
------------------ ---------------------------------------------------------- -------------------------------------
As of December 31, 2004
------------------ ---------------------------------------------------------- -------------------------------------
------------------ ---------------------------------------------------------- ----------------- -------------------
John V. Murphy, Chairman, Chief Executive Officer and Director (since None Over $100,000
President since June 2001) and President (since September 2000) of the
2004 and Trustee Manager; President and Director or Trustee of other
2002 Oppenheimer funds; President and Director of Oppenheimer
Age: 56 Acquisition Corp. (“OAC”) (the Manager’s parent holding
company) and of Oppenheimer Partnership Holdings, Inc.
(holding company subsidiary of the Manager) (since July
2001); Director of OppenheimerFunds Distributor, Inc.
(subsidiary of the Manager) (since November 2001);
Chairman and Director of Shareholder Services, Inc. and
of Shareholder Financial Services, Inc. (transfer agent
subsidiaries of the Manager) (since July 2001);
President and Director of OppenheimerFunds Legacy
Program (charitable trust program established by the
Manager) (since July 2001); Director of the following
investment advisory subsidiaries of the Manager: OFI
Institutional Asset Management, Inc., Centennial Asset
Management Corporation, Trinity Investment Management
Corporation and Tremont Capital Management, Inc. (since
November 2001), HarbourView Asset Management Corporation
and OFI Private Investments, Inc. (since July 2001);
President (since November 1, 2001) and Director (since
July 2001) of Oppenheimer Real Asset Management, Inc.;
Executive Vice President of Massachusetts Mutual Life
Insurance Company (OAC’s parent company) (since February
1997); Director of DLB Acquisition Corporation (holding
company parent of Babson Capital Management LLC) (since
June 1995); Member of the Investment Company Institute’s
Board of Governors (since October 3, 2003); Chief
Operating Officer of the Manager (September 2000-June
2001); President and Trustee of MML Series Investment
Fund and MassMutual Select Funds (open-end investment
companies) (November 1999-November 2001); Director of
C.M. Life Insurance Company (September 1999-August
2000); President, Chief Executive Officer and Director
of MML Bay State Life Insurance Company (September
1999-August 2000); Director of Emerald Isle Bancorp and
Hibernia Savings Bank (wholly-owned subsidiary of
Emerald Isle Bancorp) (June 1989-June 1998). Oversees 87
portfolios as a Director or Trustee and officer in the
OppenheimerFunds complex.
------------------ ---------------------------------------------------------- ----------------- -------------------
The addresses of the officers in the chart below are as follows: for Messrs. Bomfim,
Caan, Gillespie, Gord, Manioudakis, Moon and Zack and Ms. Bloomberg, Two World Financial Center,
225 Liberty Street, New York, New York 10281-1008, for Messrs. Petersen, Vandehey, Vottiero, and
Wixted and Ms. Ives, 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each officer serves
for an annual term or until his or her resignation, retirement, death or removal.
------------------------------------------------------------------------------------------------------------------
Other Officers of the Fund
------------------------------------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Name, Position(s) Held Principal Occupation(s) During Past 5 Years
with Fund, Length of
Service, Age
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Antulio Bomfim, Vice President of the Manager since October 2003. He is also a portfolio manager of 11
Vice President and other portfolios in the OppenheimerFunds complex. Mr. Bomfim was a Senior Economist at
Portfolio Manager since the Board of Governors of the Federal Reserve System from June 1992 to October 2003.
2005
Age: 38
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Geoffrey Caan, Vice President and Portfolio Manager of the Manager since August 2003; he is also a
Vice President and portfolio manager of 11 other portfolios in the OppenheimerFunds complex. Formerly
Portfolio Manager since Vice President of ABN AMRO NA, Inc. (June 2002 – August 2003); Vice President of
2005 Zurich Scudder Investments (January 1999 – June 2002).
Age: 36
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Benjamin J. Gord, Vice President of the Manager (since April 2002), of HarbourView Asset Management
Vice President and Corporation (since April 2002) and of OFI Institutional Asset Management, Inc. (as of
Portfolio Manager since June 2002); a portfolio manager of 11 other portfolios in the OppenheimerFunds
2003 complex. Formerly an executive director and senior fixed income analyst at Miller
Age: 43 Anderson & Sherrerd, a division of Morgan Stanley Investment Management (April
1992-March 2002).
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Angelo Manioudakis, Senior Vice President of the Manager (since April 2002), of HarbourView Asset
Vice President and Management Corporation (since April, 2002 and of OFI Institutional Asset Management,
Portfolio Manager since Inc. (since June 2002); an officer of 14 portfolios in the OppenheimerFunds complex.
2003 Formerly Executive Director and portfolio manager for Miller, Anderson & Sherrerd, a
Age: 39 division of Morgan Stanley Investment Management (August 1993-April 2002).
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Charles Moon, Vice President of the Manager (since April 2002, of HarbourView Asset Management
Vice President and Corporation (since April 2002) and of OFI Institutional Asset Management, Inc. (since
Portfolio Manager since June 2002); a portfolio manager of 11 other portfolios in the OppenheimerFunds
2003 complex. Formerly executive director and portfolio manager at Miller Anderson &
Age: 38 Sherrerd, a division of Morgan Stanley Investment Management (June 1999-March 2002);
Vice President of Citicorp Securities Inc. (June 1993-May 1999).
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of the Manager (since March 2004);
Vice President and Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Management
Chief Compliance Corporation and Shareholder Services, Inc. (since June 1983). Former Vice President
Officer since 2003 and Director of Internal Audit of the Manager (1997-February 2004). An officer of 87
Age: 55 portfolios in the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of
Treasurer since 2004 the following: HarbourView Asset Management Corporation, Shareholder Financial
Age: 46 Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management
Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI
Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd.
(since May 2000), OppenheimerFunds plc (since May 2000), OFI Institutional Asset
Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program
(charitable trust program established by the Manager) (since June 2003); Treasurer and
Chief Financial Officer of OFI Trust Company (trust company subsidiary of the Manager)
(since May 2000); Assistant Treasurer of the following: OAC (since March
1999),Centennial Asset Management Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003); Principal and Chief Operating
Officer of Bankers Trust Company-Mutual Fund Services Division (March 1995-March
1999). An officer of 87 portfolios in the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager (since August 2002); Manager/Financial Product
Assistant Treasurer Accounting of the Manager (November 1998-July 2002). An officer of 87 portfolios in
since 2003 the OppenheimerFunds complex.
Age: 35
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Philip F. Vottiero, Vice President/Fund Accounting of the Manager (since March 2002); Vice
Assistant Treasurer President/Corporate Accounting of the Manager (July 1999-March 2002); Chief Financial
since 2003 Officer of Sovlink Corporation (April 1996-June 1999). An officer of 87 portfolios in
Age: 42 the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General Counsel (since March 2002)
Secretary since 2003 of the Manager; General Counsel and Director of the Distributor (since December 2001);
Age: 57 General Counsel of Centennial Asset Management Corporation (since December 2001);
Senior Vice President and General Counsel of HarbourView Asset Management Corporation
(since December 2001); Secretary and General Counsel of OAC (since November 2001);
Assistant Secretary (since September 1997) and Director (since November 2001) of
OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and
Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of
Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President,
General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder
Services, Inc. (since December 2001); Senior Vice President, General Counsel and
Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001);
Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice
President and General Counsel of OFI Institutional Asset Management, Inc. (since
November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003);
Senior Vice President (May 1985-December 2003), Acting General Counsel (November
2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the
Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November
2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An
officer of 87 portfolios in the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since
Assistant Secretary October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary
since 2004 (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset
Age: 40 Management Corporation (since October 2003); Vice President and Assistant Secretary of
Shareholder Services, Inc. (since 1999); Assistant Secretary of OppenheimerFunds
Legacy Program and Shareholder Financial Services, Inc. (since December 2001);
Assistant Counsel of the Manager (August 1994-October 2003). An officer of 87
portfolios in the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager (since May 2004); First Vice
Assistant Secretary President (April 2001-April 2004), Associate General Counsel (December 2000-April
since 2004 2004), Corporate Vice President (May 1999-April 2001) and Assistant General Counsel
Age: 37 (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber
Incorporated). An officer of 87 portfolios in the OppenheimerFunds complex.
------------------------- ----------------------------------------------------------------------------------------
------------------------- ----------------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the Manager (since September
Assistant Secretary 2004); Mr. Gillespie held the following positions at Merrill Lynch Investment
since 2004 Management: First Vice President (2001-September 2004); Director (2000-September 2004)
Age: 41 and Vice President (1998-2000). An officer of 87 portfolios in the OppenheimerFunds
complex.
------------------------- ----------------------------------------------------------------------------------------
Remuneration of Trustees. The Trustees of the Fund who are affiliated with the Manager
receive no salary or fee from the Fund. The Independent Trustees received the compensation shown
below from the Fund for serving as a Trustee and member of a committee, with respect to the
Fund’s fiscal year ended April 30, 2005. The total compensation from the Fund and fund complex
represents compensation, including accrued retirement benefits, for serving as a Trustee and
member of a committee (if applicable) of the Boards of the Fund and other funds in the
OppenheimerFunds complex during the calendar year ended December 31, 2004.
- --------------------------------- -------------------- ---------------------- --------------------------
Name and Other Fund Position(s) Aggregate Estimated Annual Total Compensation From
Compensation From Benefits Upon
(as applicable) the Fund(1) Retirement(2) the Fund and Fund Complex
- --------------------------------- -------------------- ---------------------- --------------------------
- --------------------------------- -------------------- ---------------------- --------------------------
Ronald J. Abdow(3) $2,000 None $81,833(4)
- --------------------------------- -------------------- ---------------------- --------------------------
- --------------------------------- -------------------- ---------------------- --------------------------
Eustis Walcott(3) $1,800 None $18,500
- --------------------------------- -------------------- ---------------------- --------------------------
- --------------------------------- -------------------- ---------------------- --------------------------
Joseph M. Wikler $2,583 - $23,000
Audit Committee Member
- --------------------------------- -------------------- ---------------------- --------------------------
- --------------------------------- -------------------- ---------------------- --------------------------
Peter I. Wold $2,333 - $20,500
Governance Committee Member
- --------------------------------- -------------------- ---------------------- --------------------------
1. “Aggregate Compensation From the Fund” includes fees and deferred compensation, if any.
2. “Estimated Annual Benefits Upon Retirement” represents retirement plan benefits from
other funds in the OppenheimerFunds complex and is based on a straight life payment plan
election with the assumption that a Trustee will retire at the age of 75 and is eligible
(after 7 years of service). The Fund has not adopted a retirement plan.
3. Mr. Abdow and Mr. Walcott retired as Trustees of the Fund as of October 1, 2005.
4. Includes $61,333 compensation paid to Mr. Abdow for serving as a trustee for two
open-end investment companies (MassMutual Institutional Funds and MML Series Investment
Fund) the investment adviser for which is the indirect parent company of the Fund’s Manager.
The Manager also serves as the Sub-Advisor to the MassMutual International Equity Fund, a
series of MassMutual Institutional Funds. In accordance with SEC regulations, for purposes
of this section only, “Fund Complex” includes the Oppenheimer funds, MassMutual
Institutional Funds and MML Series Investment Fund. The Manager does not consider MassMutual
Institutional Funds and MML Series Investment Fund to be part of the OppenheimerFunds’ “Fund
Complex” as that term may be otherwise interpreted.
|X| Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for Independent Trustees that enables them to elect to defer receipt of all or
a portion of the annual fees they are entitled to receive from the Fund. Under the plan, the
compensation deferred by a Trustee is periodically adjusted as though an equivalent amount had
been invested in shares of one or more Oppenheimer funds selected by the Trustee. The amount
paid to the Trustee under the plan will be determined based upon the amount of compensation
deferred and the performance of the selected funds.
Deferral of the Trustees’ fees under the plan will not materially affect the Fund’s
assets, liabilities or net income per share. The plan will not obligate the Fund to retain the
services of any Trustee or to pay any particular level of compensation to any Trustee. Pursuant
to an Order issued by the SEC, the Fund may invest in the funds selected by the Trustee under
the plan without shareholder approval for the limited purpose of determining the value of the
Trustee’s deferred compensation account.
Major Shareholders. As of October 31, 2005, the only persons or entities who owned of
record or were known by the Fund to own beneficially 5% or more of any class of the Fund’s
outstanding shares were:
OppenheimerFunds Inc., c/o Tim Abbuhl, Bldg. 2, 6803 South Tucson Way, Centennial, Colorado
80112-3924, which owned 2,057,203.098 Class A shares or 49.66% of the Class A shares then
outstanding.
RPSS TR Rollover IRA, FBO Lewis E Linville, P.O. Box 803, Smithville, Missouri 64089-0803,
which owned 29,941.389 Class N shares or 9.40% of the Class N shares then outstanding.
NFSC LLC FEBO, Reading INT Medicine Inc. PSP, Joseph B. Taylor M.D., 20 Pond Meadow Drive,
Suite 206, Reading, Massachusetts 01867, which owned 21,637.224 Class N shares or 6.79% of
the Class N shares then outstanding.
RPSS TR, Craig Funeral Home, 401(k) Plan, Attn.: Cherre Kidd, P.O. Box 99, St. Augustine,
Florida 32084-0099, which owned 18,816.924 Class N shares or 5.90% of the Class N shares then
outstanding.
RPSS TR Hilec LLC, 401(k) Plan, Attn: Donald Hubert, 11 Railroad Avenue, Arcade, New York
14009-1407, which owned 18,077.641 Class N shares or 5.67% of the Class N shares then
outstanding.
MG Trust Cust, Trinity Furniture Inc., 401(k), 700 17th Street Suite 300, Denver, Colorado
80202-3531, which owned 17,909.269 Class N shares or 5.62% of the Class N shared then
outstanding.
o Control Persons. As of October 31 2005, the Manager beneficially owned 49.66% of the
Class A shares, which represent 35.718% of the outstanding voting securities of the Fund. In the
event that any matter is submitted to a vote of the Fund’s shareholders, the Manager has
undertaken to vote such securities of the Fund, and to cause any controlled companies to vote
such securities of the Fund, in the same proportion as the shares of other Fund shareholders are
voted on such matter. A withdrawal of the Manager’s investment could adversely affect the
expense ratio for Class A shares and/or lead to an increase in the Fund’s portfolio turnover.
The Manager is organized in the State of Colorado.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a holding company
controlled by Massachusetts Mutual Life Insurance Company, a global, diversified insurance and
financial services organization.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain employees, including
portfolio managers, that would compete with or take advantage of the Fund’s portfolio
transactions. Covered persons include persons with knowledge of the investments and investment
intentions of the Fund and other funds advised by the Manager. The Code of Ethics does permit
personnel subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls. Compliance with
the Code of Ethics is carefully monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund’s registration statement filed with the
SEC and can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You
can obtain information about the hours of operation of the Public Reference Room by calling the
SEC at 1.202.942.8090. The Code of Ethics can also be viewed as part of the Fund’s registration
statement on the SEC’s EDGAR database at the SEC’s Internet website at www.sec.gov. Copies may
be obtained, after paying a duplicating fee, by electronic request at the following E-mail
address: publicinfo@sec.gov, or by writing to the SEC’s Public Reference Section, Washington,
D.C. 20549-0102.
Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies and
Procedures under which the Fund votes proxies relating to securities (“portfolio proxies”) held
by the Fund. The Fund’s primary consideration in voting portfolio proxies is the financial
interests of the Fund and its shareholders. The Fund has retained an unaffiliated third-party as
its agent to vote portfolio proxies in accordance with the Fund’s Portfolio Proxy Voting
Guidelines and to maintain records of such portfolio proxy voting. The Proxy Voting Guidelines
include provisions to address conflicts of interest that may arise between the Fund and the
Manager where a directly-controlled affiliate of the Manager manages or administers the assets
of a pension plan of a company soliciting the proxy. The Fund’s Portfolio Proxy Voting
Guidelines on routine and non-routine proxy proposals are summarized below.
o The Fund votes with the recommendation of the issuer’s management on routine matters,
including election of directors nominated by management and ratification of the
independent registered public accounting firm, unless circumstances indicate
otherwise.
o In general, the Fund opposes "anti-takeover" proposals and supports the elimination of
anti-takeover proposals, absent unusual circumstances.
o The Fund supports shareholder proposals to reduce a super-majority vote requirement,
and opposes management proposals to add a super-majority vote requirement.
o The Fund opposes proposals to classify the board of directors.
o The Fund supports proposals to eliminate cumulative voting.
o The Fund opposes re-pricing of stock options.
o The Fund generally considers executive compensation questions such as stock option
plans and bonus plans to be ordinary business activity. The Fund analyzes stock
option plans, paying particular attention to their dilutive effect. While the Fund
generally supports management proposals, the Fund opposes plans it considers to be
excessive.
The Fund is required to file Form N-PX, with its complete proxy voting record for the
12 months ended June 30th, no later than August 31st of each year. The Fund’s Form N-PX filing
is available (i) without charge, upon request, by calling the Fund toll-free at 1.800.525.7048
and (ii) on the SEC’s website at www.sec.gov.
The Investment Advisory Agreement. The Manager provides investment advisory and
management services to the Fund under an investment advisory agreement between the Manager and
the Fund. The Manager selects securities for the Fund’s portfolio and handles its day-to-day
business. The portfolio managers of the Fund are employed by the Manager and are the persons who
are principally responsible for the day-to-day management of the Fund’s portfolio. Other members
of the Manager’s Fixed Income Portfolio Team provide the portfolio managers with counsel and
support in managing the Fund’s portfolio.
The agreement requires the Manager, at its expense, to provide the Fund with adequate
office space, facilities and equipment. It also requires the Manager to provide and supervise
the activities of all administrative and clerical personnel required to provide effective
administration for the Fund. Those responsibilities include the compilation and maintenance of
records with respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public sale of shares
of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the advisory
agreement. The advisory agreement lists examples of expenses paid by the Fund. The major
categories relate to interest, taxes, brokerage commissions, fees to certain Trustees, legal and
audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing
and registration costs and non-recurring expenses, including litigation costs. The management
fees paid by the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated to each class of
shares based upon the relative proportion of the Fund’s net assets represented by that class.
The management fees paid by the Fund to the Manager during its last three fiscal years were:
- --------------------------------------- ----------------------------------------------------------------------------
Fiscal Year ended 4/30: Management Fees Paid to OppenheimerFunds, Inc.
- --------------------------------------- ----------------------------------------------------------------------------
- --------------------------------------- ----------------------------------------------------------------------------
2003(1) $24,656
- --------------------------------------- ----------------------------------------------------------------------------
- --------------------------------------- ----------------------------------------------------------------------------
2004 $185,574
- --------------------------------------- ----------------------------------------------------------------------------
- --------------------------------------- ----------------------------------------------------------------------------
2005 $241,713
- --------------------------------------- ----------------------------------------------------------------------------
1 For the fiscal period from February 21, 2003 (commencement of operations) to April 30,
2003.
The investment advisory agreement states that in the absence of willful misfeasance,
bad faith, gross negligence in the performance of its duties or reckless disregard of its
obligations and duties under the investment advisory agreement, the Manager is not liable for
any loss the Fund sustains for any investment, adoption of any investment policy, or the
purchase, sale or retention of any security.
The agreement permits the Manager to act as investment advisor 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 advisor or general distributor. If the Manager
shall no longer act as investment advisor to the Fund, the Manager may withdraw the right of the
Fund to use the name “Oppenheimer” as part of its name.
Portfolio Manager. The Fund’s portfolio is managed by a team of investment professionals
comprised of Angelo Manioudakis, Benjamin J. Gord, Charles Moon, Geoffrey Caan and Antulio N.
Bomfim (each is referred to as a “portfolio manager” and collectively they are referred to as
the “portfolio managers”) who are responsible for the day-to-day management of the Fund’s
investments.
Other Accounts Managed. In addition to managing the Portfolios’ investments, the
portfolio managers also manage other investment portfolios and accounts. The following table
provides information regarding the other portfolios and accounts managed by the portfolio
managers as of April 30, 2005. No account has a performance-based advisory fee:
-----------------------------------------------------------------------------------------------------------------
Portfolio Manager Registered Total Assets Other Pooled Total Assets in Other Total Assets
in Registered Other Pooled
Investment Investment Investment Investment in Other
Companies Companies Vehicles Vehicles Accounts Accounts
Managed Managed* Managed Managed* Managed Managed*
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Angelo Manioudakis 17 $12,011.7 6 $170.4 1 $39.1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Benjamin J. Gord 14 $11,446.9 6 $170.4 1 $39.1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Geoffrey Caan 14 $11,446.9 6 $170.4 1 $39.1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Charles Moon 14 $11,446.9 6 $170.4 1 $39.1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Antulio N. Bomfim 14 $11,446.9 6 $170.4 1 $39.1
-----------------------------------------------------------------------------------------------------------------
* In millions.
As indicated above, each of the Portfolio Managers also manage other funds and
accounts. Potentially, at times, those responsibilities could conflict with the interests of the
Fund. That may occur whether the investment strategies of the other funds or accounts are the
same as, or different from, the Fund’s investment objectives and strategies. For example the
Portfolio Managers may need to allocate investment opportunities between the Fund and another
fund or account having similar objectives or strategies, or they may need to execute
transactions for another fund or account that could have a negative impact on the value of
securities held by the Fund. Not all funds and accounts advised by the Manager have the same
management fee. If the management fee structure of another fund or account is more advantageous
to the Manager than the fee structure of the Fund, the Manager could have an incentive to favor
the other fund or account. However, the Manager's compliance procedures and Code of Ethics
recognize the Manager’s fiduciary obligations to treat all of its clients, including the Fund,
fairly and equitably, and are designed to preclude the Portfolio Managers from favoring one
client over another. It is possible, of course, that those compliance procedures and the Code of
Ethics may not always be adequate to do so. At various times, the Fund’s Portfolio Managers may
manage other funds or accounts with investment objectives and strategies that are similar to
those of the Fund, or may manage funds or accounts with investment objectives and strategies
that are different from those of the Fund.
Compensation of the Portfolio Managers. The Fund’s Portfolio Managers are
employed and compensated by the Manager, not the Fund. Under the Manager’s compensation program
for its portfolio managers and portfolio analysts, their compensation is based primarily on the
investment performance results of the funds and accounts they manage, rather than on the
financial success of the Manager. This is intended to align the portfolio managers and analysts’
interests with the success of the funds and accounts and their shareholders. The Manager’s
compensation structure is designed to attract and retain highly qualified investment management
professionals and to reward individual and team contributions toward creating shareholder value.
As of April 30, 2005, each Portfolio Managers’ compensation consisted of three elements: a base
salary, an annual discretionary bonus and eligibility to participate in long-term awards of
options and appreciation rights in regard to the common stock of the Manager’s holding company
parent. Senior portfolio managers may also be eligible to participate in the Manager’s deferred
compensation plan.
To help the Manager attract and retain talent, the base pay component of each portfolio
manager is reviewed regularly to ensure that it reflects the performance of the individual, is
commensurate with the requirements of the particular portfolio, reflects any specific competence
or specialty of the individual manager, and is competitive with other comparable positions. The
annual discretionary bonus is determined by senior management of the Manager and is based on a
number of factors, including a fund’s pre-tax performance for periods of up to five years,
measured against an appropriate Lipper benchmark selected by management. The Lipper benchmark
with respect to the Fund is Lipper – Intermediate Investment Grade Debt Funds. Other factors
considered include management quality (such as style consistency, risk management, sector
coverage, team leadership and coaching) and organizational development. The Portfolio Managers’
compensation is not based on the total value of the Fund’s portfolio assets, although the Fund’s
investment performance may increase those assets. The compensation structure is also intended to
be internally equitable and serve to reduce potential conflicts of interest between the Fund and
other funds and accounts managed by the Portfolio Managers. The compensation structure of the
other funds and accounts managed by the Portfolio Managers is the same as the compensation
structure of the Fund, described above.
Ownership of Fund Shares. As of April 30, 2005, the Portfolio Managers did not
beneficially own any shares of the Fund.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager
under the investment advisory agreement is to arrange the portfolio transactions for the Fund.
The advisory agreement contains provisions relating to the employment of broker-dealers to
effect the Fund’s portfolio transactions. The Manager is authorized by the advisory agreement to
employ broker-dealers, including “affiliated” brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in its best judgment
based on all relevant factors, will implement the policy of the Fund to obtain, at reasonable
expense, the “best execution” of the Fund’s portfolio transactions. “Best execution” means
prompt and reliable execution at the most favorable price obtainable. The Manager need not seek
competitive commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund as established by its Board of Trustees.
Under the investment advisory agreement, in choosing brokers to execute portfolio
transactions for the Fund, the Manager may select brokers (other than affiliates) that provide
brokerage and/or research services to the Fund and/or the other accounts over which the Manager
or its affiliates have investment discretion. The commissions paid to those brokers may be
higher than another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the services provided.
Rule 12b-1 under the Investment Company Act prohibits any fund from compensating a broker
or dealer for promoting or selling the fund’s shares by (1) directing to that broker or dealer
any of the fund’s portfolio transactions, or (2) directing any other remuneration to that broker
or dealer, such as commissions, mark-ups, mark downs or other fees from the fund’s portfolio
transactions, that were effected by another broker or dealer (these latter arrangements are
considered to be a type of “step-out” transaction). In other words, a fund and its investment
adviser cannot use the fund’s brokerage for the purpose of rewarding broker-dealers for selling
the fund’s shares.
However, the Rule permits funds to effect brokerage transactions through firms that also
sell fund shares, provided that certain procedures are adopted to prevent a quid pro quo with
respect to portfolio brokerage allocations. As permitted by the Rule, the Manager has adopted
procedures (and the Fund’s Board of Trustees has approved those procedures) that permit the Fund
to direct portfolio securities transactions to brokers or dealers that also promote or sell
shares of the Fund, subject to the “best execution” considerations discussed above. Those
procedures are designed to prevent: (1) the Manager’s personnel who effect the Fund’s portfolio
transactions from taking into account a broker’s or dealer’s promotion or sales of the Fund
shares when allocating the Fund’s portfolio transactions, and (2) the Fund, the Manager and the
Distributor from entering into agreements or understandings under which the Manager directs or
is expected to direct the Fund’s brokerage directly, or through a “step-out” arrangement, to any
broker or dealer in consideration of that broker’s or dealer’s promotion or sale of the Fund’s
shares or the shares of any of the other Oppenheimer funds.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund
subject to the provisions of the investment advisory agreement and the procedures and rules
described above. Generally, the Manager’s portfolio traders allocate brokerage based upon
recommendations from the Manager’s portfolio managers. In certain instances, portfolio managers
may directly place trades and allocate brokerage. In either case, the Manager’s executive
officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the primary market
are generally done with principals or market makers. In transactions on foreign exchanges, the
Fund may be required to pay fixed brokerage commissions and therefore would not have the benefit
of negotiated commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency transactions in the
secondary market. Otherwise, brokerage commissions are paid only if it appears likely that a
better price or execution can be obtained by doing so. In an option transaction, the Fund
ordinarily uses the same broker for the purchase or sale of the option and any transaction in
the securities to which the option relates.
Other funds advised by the Manager have investment policies similar to those of the
Fund. Those other funds may purchase or sell the same securities as the Fund at the same time as
the Fund, which could affect the supply and price of the securities. If two or more funds
advised by the Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated in accordance
with the purchase or sale orders actually placed for each account.
In an option transaction, the Fund ordinarily uses the same broker for the purchase or
sale of the option and any transaction in the securities to which the option relates. When
possible, the Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The transactions
under those combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate brokerage for
research services. The research services provided by a particular broker may be useful only to
one or more of the advisory accounts of the Manager and its affiliates. The investment research
received for the commissions of those other accounts may be useful both to the Fund and one or
more of the Manager’s other accounts. Investment research may be supplied to the Manager by a
third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on particular companies
and industries as well as market or economic trends and portfolio strategy, market quotations
for portfolio evaluations, information systems, computer hardware and similar products and
services. If a research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may be paid in
commission dollars.
The Board of Trustees permits the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research if the broker represents to the Manager that: (i)
the trade is not from or for the broker’s own inventory, (ii) the trade was executed by the
broker on an agency basis at the stated commission, and (iii) the trade is not a riskless
principal transaction. The Board of Trustees permits the Manager to use commissions on
fixed-price offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broaden the scope and supplements the
research activities of the Manager. That research provides additional views and comparisons for
consideration, and helps the Manager to obtain market information for the valuation of
securities that are either held in the Fund’s portfolio or are being considered for purchase.
The Manager provides information to the Board about the commissions paid to brokers furnishing
such services, together with the Manager’s representation that the amount of such commissions
was reasonably related to the value or benefit of such services.
- --------------------------------------- -----------------------------------------------------------------------------
Fiscal Year Ended 4/30: Total Brokerage Commissions Paid by the Fund(1)
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2003(2) $1,033
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2004 $5,493
- --------------------------------------- -----------------------------------------------------------------------------
- --------------------------------------- -----------------------------------------------------------------------------
2005 $7,485(3)
- --------------------------------------- -----------------------------------------------------------------------------
1. Amounts do not include spreads or commissions on principal transactions on a net trade
basis.
2. For the fiscal period from February 21, 2003 (commencement of operations) to April 30,
2003.
3. In the fiscal year ended April 30, 2005, the amount of transactions directed to brokers
for research services was $0 and amount of the commissions paid to
broker-dealers for those services was $0.
Distribution and Service Plans
The Distributor. Under its General Distributor’s Agreement with the Fund, the Distributor acts
as the Fund’s principal underwriter in the continuous public offering of the Fund’s classes of
shares. The Distributor bears the expenses normally attributable to sales, including advertising
and the cost of printing and mailing prospectuses, other than those furnished to existing
shareholders. The Distributor is not obligated to sell a specific number of shares.
The sales charges and concessions paid to, or retained by, the Distributor from the
sale of shares and the contingent deferred sales charges retained by the Distributor on the
redemption of shares during the Fund’s three most recent fiscal years are shown in the tables
below.
- --------------- ----------------------- -----------------------
Fiscal Year Aggregate Front-End Class A Front-End
Sales Charges
Ended 4/30: Sales Charges on Retained by
Class A Shares Distributor(1)
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2003(2) $22,204 $9,189
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2004 $104,718 $35,933
- --------------- ----------------------- -----------------------
- --------------- ----------------------- -----------------------
2005 $152,109 $58,309
- --------------- ----------------------- -----------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a parent of the
distributor.
2. For the fiscal period from February 21, 2003 (commencement of operations) to April 30,
2003.
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
Fiscal Year Concessions on Class Concessions on Class Concessions on Class C Concessions on Class N
Ended 4/30: A Shares Advanced by B Shares Advanced by Shares Advanced by Shares Advanced by
Distributor(1) Distributor(1) Distributor(1) Distributor(1)
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2003(2) $10 $9,448 $2,528 $87
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2004 $18,313 $1,128,383 $151,970 $34,972
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
2005 $3,021 $48,935 $29,456 $16,499
- --------------- ----------------------- ---------------------- ------------------------ ------------------------
1. The Distributor advances concession payments to dealers for certain sales of Class A
shares and for sales of Class B, Class C and Class N shares from its own resources at the
time of sale.
2. For the fiscal period from February 21, 2003 (commencement of operations) to April 30,
2003.
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
Fiscal Year Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Deferred Sales Deferred Sales Deferred Sales
Ended 4/30: Charges Retained by Charges Retained by Deferred Sales Charges Charges Retained by
Distributor Distributor Retained by Distributor Distributor
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2003(1) $0 $0 $0 $0
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2004 $493 $6,156 $928 $927
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
2005 $0 $15,271 $1,143 $1,551
- --------------- ----------------------- ----------------------- ------------------------- -----------------------
1. For the fiscal period from February 21, 2003 (commencement of operations) to April 30,
2003.
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B, Class C and Class N shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all or a portion of
its costs incurred in connection with the distribution and/or servicing of the shares of the
particular class. Each plan has been approved by a vote of the Board of Trustees, including a
majority of the Independent Trustees(1), cast in person at a meeting called for the purpose of
voting on that plan.
Under the Plans, the Manager and the Distributor may make payments to affiliates. In
their sole discretion, they may also from time to time make substantial payments from their own
resources, which include the profits the Manager derives from the advisory fees it receives from
the Fund, to compensate brokers, dealers, financial institutions and other intermediaries for
providing distribution assistance and/or administrative services or that otherwise promote sales
of the Fund’s shares. These payments, some of which may be referred to as “revenue sharing,” may
relate to the Fund’s inclusion on a financial intermediary’s preferred list of funds offered to
its clients.
Financial intermediaries, brokers and dealers may receive other payments from the
Distributor or the Manager from their own resources in connection with the promotion and/or sale
of shares of the Fund, including payments to defray expenses incurred in connection with
educational seminars and meetings. The Manager or Distributor may share expenses incurred by
financial intermediaries in conducting training and educational meetings about aspects of the
Fund for employees of the intermediaries or for hosting client seminars or meetings at which the
Fund is discussed. In their sole discretion, the Manager and/or the Distributor may increase or
decrease the amount of payments they make from their own resources for these purposes.
Unless a plan is terminated as described below, the plan continues in effect from year
to year but only if the Fund’s Board of Trustees and its Independent Trustees specifically vote
annually to approve its continuance. Approval must be by a vote cast in person at a meeting
called for the purpose of voting on continuing the plan. A plan may be terminated at any time by
the vote of a majority of the Independent Trustees or by the vote of the holders of a “majority”
(as defined in the Investment Company Act) of the outstanding shares of that class.
The Board of Trustees and the Independent Trustees must approve all material amendments
to a plan. An amendment to increase materially the amount of payments to be made under a plan
must be approved by shareholders of the class affected by the amendment. Because Class B shares
of the Fund automatically convert into Class A shares 72 months after purchase, the Fund must
obtain the approval of both Class A and Class B shareholders for a proposed material amendment
to the Class A plan that would materially increase payments under the plan. That approval must
be by a majority of the shares of each class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide separate written
reports on the plans to the Board of Trustees at least quarterly for its review. The reports
shall detail the amount of all payments made under a plan and the purpose for which the payments
were made. Those reports are subject to the review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and nomination of those
Trustees of the Fund who are not “interested persons” of the Fund is committed to the discretion
of the Independent Trustees. This does not prevent the involvement of others in the selection
and nomination process as long as the final decision as to selection or nomination is approved
by a majority of the Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any period in
which the aggregate net asset value of all Fund shares of that class held by the recipient for
itself and its customers does not exceed a minimum amount, if any, that may be set from time to
time by a majority of the Independent Trustees.
|X| Class A Service Plan Fees. Under the Class A service plan, the Distributor currently
uses the fees it receives from the Fund to pay brokers, dealers and other financial institutions
(they are referred to as “recipients”) for personal services and account maintenance services
they provide for their customers who hold Class A shares. The services include, among others,
answering customer inquiries about the Fund, assisting in establishing and maintaining accounts
in the Fund, making the Fund’s investment plans available and providing other services at the
request of the Fund or the Distributor. The Class A service plan permits reimbursements to the
Distributor at a rate of up to 0.25% of average annual net assets of Class A shares. The Board
has set the rate at that level. The Distributor does not receive or retain the service fee on
Class A shares in accounts for which the Distributor has been listed as the broker-dealer of
record. While the plan permits the Board to authorize payments to the Distributor to reimburse
itself for services under the plan, the Board has not yet done so, except in the case of the
special arrangement described below, regarding grandfathered retirement accounts. The
Distributor makes payments to recipients periodically at an annual rate not to exceed 0.25% of
the average annual net assets consisting of Class A shares held in the accounts of the
recipients or their customers.
With respect to purchases of Class A shares subject to a contingent deferred sales
charge by certain retirement plans that purchased such shares prior to March 1, 2001
(“grandfathered retirement accounts”), the Distributor currently intends to pay the service fee
to recipients in advance for the first year after the shares are purchased. During the first
year the shares are sold, the Distributor retains the service fee to reimburse itself for the
costs of distributing the shares. After the first year shares are outstanding, the Distributor
makes service fee payments to recipients periodically on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not qualify for the
advance service fee payment. If Class A shares purchased by grandfathered retirement accounts
are redeemed during the first year after their purchase, the recipient of the service fees on
those shares will be obligated to repay the Distributor a pro rata portion of the advance
payment of the service fee made on those shares.
For the fiscal year ended April 30, 2005 payments under the Class A plan totaled
$31,747, of which $575 was retained by the Distributor under the arrangement described above,
regarding grandfathered retirement accounts, and included $3,200 paid to an affiliate of the
Distributor’s parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest expenses, carrying
charges, or other financial costs, or allocation of overhead.
|X| Class B, Class C and Class N Distribution and Service Plan Fees. Under each plan,
distribution and service fees are computed on the average of the net asset value of shares in
the respective class, determined as of the close of each regular business day during the period.
Each plan provides for the Distributor to be compensated at a flat rate, whether the
Distributor’s distribution expenses are more or less than the amounts paid by the Fund under the
plan during the period for which the fee is paid. The types of services that recipients provide
are similar to the services provided under the Class A service plan, described above.
Each plan permits the Distributor to retain both the asset-based sales charges and the
service fees or to pay recipients the service fee on a periodic basis, without payment in
advance. However, the Distributor currently intends to pay the service fee to recipients in
advance for the first year after Class B, Class C and Class N shares are purchased. After the
first year Class B, Class C or Class N shares are outstanding, after their purchase, the
Distributor makes service fee payments periodically on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not qualify for the
advance service fee payment. If Class B, Class C or Class N shares are redeemed during the first
year after their purchase, the recipient of the service fees on those shares will be obligated
to repay the Distributor a pro rata portion of the advance payment of the service fee made on
those shares. Class B, Class C or Class N shares may not be purchased by an investor directly
from the Distributor without the investor designating another registered broker-dealer. If the
investor no longer has another broker-dealer of record for an existing account, the Distributor
is automatically designated as the broker-dealer of record, but solely for the purpose of acting
as the investor’s agent to purchase the shares. In those cases, the Distributor retains the
asset-based sales charge paid on Class B, Class C and Class N shares, but does not retain any
service fees as to the assets represented by that account.
The asset-based sales charge and service fees increase Class B and Class C expenses by
1.00% and the asset-based sales charge and service fees increase Class N expenses by 0.50% of
the net assets per year of the respective classes.
The Distributor retains the asset-based sales charge on Class B and Class N shares. The
Distributor retains the asset-based sales charge on Class C shares during the first year the
shares are outstanding. It pays the asset-based sales charge as an ongoing concession to the
recipient on Class C shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B, Class C or Class N service fee and
the asset-based sales charge to the dealer periodically in lieu of paying the sales concession
and service fee in advance at the time of purchase.
The asset-based sales charge on Class B, Class C and Class N shares allow investors to
buy shares without a front-end sales charge while allowing the Distributor to compensate dealers
that sell those shares. The Fund pays the asset-based sales charge to the Distributor for its
services rendered in distributing Class B, Class C and Class N shares. The payments are made to
the Distributor in recognition that the Distributor:
o pays sales concessions to authorized brokers and dealers at the time of sale and pays
service fees as described above,
o may finance payment of sales concessions and/or the advance of the service fee payment
to recipients under the plans, or may provide such financing from its own resources
or from the resources of an affiliate,
o employs personnel to support distribution of Class B, Class C and Class N shares,
o bears the costs of sales literature, advertising and prospectuses (other than those
furnished to current shareholders) and state “blue sky” registration fees and
certain other distribution expenses,
o may not be able to adequately compensate dealers that sell Class B, Class C and Class N
shares without receiving payment under the plans and therefore may not be able to
offer such Classes for sale absent the plans,
o receives payments under the plans consistent with the service fees and asset-based
sales charges paid by other non-proprietary funds that charge 12b-1 fees,
o may use the payments under the plan to include the Fund in various third-party
distribution programs that may increase sales of Fund shares,
o may experience increased difficulty selling the Fund’s shares if payments under the
plan are discontinued because most competitor funds have plans that pay dealers for
rendering distribution services as much or more than the amounts currently being
paid by the Fund, and
o may not be able to continue providing, at the same or at a lesser cost, the same
quality distribution sales efforts and services, or to obtain such services from
brokers and dealers, if the plan payments were to be discontinued.
The Distributor’s actual expenses in selling Class B, Class C and Class N shares may be
more than the payments it receives from the contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. If either the Class B, Class C or Class N
plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of
the asset-based sales charge to the Distributor for distributing shares before the plan was
terminated.
- ----------------------------------------------------------------------------------------------------------------------
Distribution and Service Fees Paid to the Distributor in the Fiscal Year Ended April 30, 2005
- ----------------------------------------------------------------------------------------------------------------------
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
Class: Total Payments Amount Retained by Distributor’s Aggregate Distributor’s
Unreimbursed Expenses
Unreimbursed Expenses as % of Net Assets of
Under Plan Distributor Under Plan Class
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
Class B Plan $35,992 $29,302(1) $106,487 2.51%
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
Class C Plan $46,234 $24,506(2) $79,904 1.18%
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
Class N Plan $8,964 $5,800(3) $59,930 2.13%
- ------------------------ ------------------ --------------------- -------------------------- -------------------------
1. Includes $277 paid to an affiliate of the Distributor’s parent company.
2. Includes $728 paid to an affiliate of the Distributor’s parent company.
3. Includes $71 paid to an affiliate of the Distributor’s parent company.
All payments under the plans are subject to the limitations imposed by the Conduct
Rules of the National Association of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its
investment performance. Those terms include “cumulative total return,” “average annual total
return,” “average annual total return at net asset value” and “total return at net asset value.”
An explanation of how total returns are calculated is set forth below. The charts below show the
Fund’s performance as of the Fund’s most recent fiscal year end. You can obtain current
performance information by calling the Fund’s Transfer Agent at 1.800.225.5677 or by visiting
the OppenheimerFunds Internet website at www.oppenheimerfunds.com.
The Fund’s illustrations of its performance data in advertisements must comply with
rules of the SEC. Those rules describe the types of performance data that may be used and how it
is to be calculated. In general, any advertisement by the Fund of its performance data must
include the average annual total returns for the advertised class of shares of the Fund.
Use of standardized performance calculations enables an investor to compare the Fund’s
performance to the performance of other funds for the same periods. However, a number of factors
should be considered before using the Fund’s performance information as a basis for comparison
with other investments:
o Yields and total returns measure the performance of a hypothetical account in the Fund
over various periods and do not show the performance of each shareholder’s account.
Your account’s performance will vary from the model performance data if your
dividends are received in cash, or you buy or sell shares during the period, or you
bought your shares at a different time and price than the shares used in the model.
o The Fund’s performance returns may not reflect the effect of taxes on dividends and
capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other government agency.
o The principal value of the Fund’s shares, its yields and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor’s shares are redeemed, they may be worth more or less than their
original cost.
o Yields and total returns for any given past period represent historical performance
information and are not, and should not be considered, a prediction of future
yields or returns.
The performance of each class of shares is shown separately, because the performance of
each class of shares will usually be different. That is because of the different kinds of
expenses each class bears. The yields and total returns of each class of shares of the Fund are
affected by market conditions, the quality of the Fund’s investments, the maturity of debt
investments, the types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its current returns.
Each class of shares calculates its yield separately because of the different expenses that
affect each class.
o Standardized Yield. The “standardized yield” (sometimes referred to just as “yield”) is
shown for a class of shares for a stated 30-day period. It is not based on actual distributions
paid by the Fund to shareholders in the 30-day period, but is a hypothetical yield based upon
the net investment income from the Fund’s portfolio investments for that period. It may
therefore differ from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in rules adopted
by the SEC, designed to assure uniformity in the way that all funds calculate their yields:
Standardized Yield = 2[( a - b +1)(6) -1 ]
--------
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during the 30-day
period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day of the period,
adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the yield for
other periods. The SEC formula assumes that the standardized yield for a 30-day period occurs at
a constant rate for a six-month period and is annualized at the end of the six-month period.
Additionally, because each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund’s classes of shares will differ for any 30-day period.
o Dividend Yield. The Fund may quote a “dividend yield” for each class of its shares.
Dividend yield is based on the dividends paid on a class of shares during the actual dividend
period. To calculate dividend yield, the dividends of a class declared during a stated period
are added together, and the sum is multiplied by 12 (to annualize the yield) and divided by the
maximum offering price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum initial
sales charge. The maximum offering price for Class B, Class C and Class N shares is the net
asset value per share, without considering the effect of contingent deferred sales charges.
Class A dividend yield may also be quoted without deducting the maximum initial sales charge.
- ---------------------------------------------------------------------------------------------------
The Fund’s Yields for the 30-Day Periods Ended April 30, 2005
- ---------------------------------------------------------------------------------------------------
- ----------------- --------------------------------------- -----------------------------------------
Class of Shares Standardized Yield Dividend Yield
- ----------------- --------------------------------------- -----------------------------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class A 4.34% 4.13% 3.94% 3.76%
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class B 3.48% N/A 3.08% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class C 3.48% N/A 3.09% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
- ----------------- ------------------- ------------------- --------------------- -------------------
Class N 3.98% N/A 3.59% N/A
- ----------------- ------------------- ------------------- --------------------- -------------------
|X| Total Return Information. There are different types of “total returns” to measure
the Fund’s performance. Total return is the change in value of a hypothetical investment in the
Fund over a given period, assuming that all dividends and capital gains distributions are
reinvested in additional shares and that the investment is redeemed at the end of the period.
Because of differences in expenses for each class of shares, the total returns for each class
are separately measured. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return shows the average rate of
return for each year in a period that would produce the cumulative total return over the entire
period. However, average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the SEC. The
methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales charge of
4.75% (as a percentage of the offering price) is deducted from the initial investment (“P” in
the formula below) (unless the return is shown without sales charge, as described below). For
Class B shares, payment of the applicable contingent deferred sales charge is applied, depending
on the period for which the return is shown: 5.0% in the first year, 4.0% in the second year,
3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1.0% contingent deferred sales charge is deducted for
returns for the one-year period. For Class N shares, the 1.0% contingent deferred sales charge
is deducted for returns for the one-year and life-of-class periods, as applicable.
o Average Annual Total Return. The “average annual total return” of each class is an
average annual compounded rate of return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical initial investment of $1,000 (“P”
in the formula below) held for a number of years (“n” in the formula) to achieve an Ending
Redeemable Value (“ERV” in the formula) of that investment, according to the following formula:
ERV l/n - 1 = Average Annual Total Return
P
o Average Annual Total Return (After Taxes on Distributions). The “average annual total
return (after taxes on distributions)” of Class A shares is an average annual compounded rate of
return for each year in a specified number of years, adjusted to show the effect of federal
taxes (calculated using the highest individual marginal federal income tax rates in effect on
any reinvestment date) on any distributions made by the Fund during the specified period. It is
the rate of return based on the change in value of a hypothetical initial investment of $1,000
(“P” in the formula below) held for a number of years (“n” in the formula) to achieve an ending
value (“ATVD” in the formula) of that investment, after taking into account the effect of taxes
on Fund distributions, but not on the redemption of Fund shares, according to the following
formula:
ATVD l/n - 1 = Average Annual Total Return (After Taxes on Distributions)
P
o Average Annual Total Return (After Taxes on Distributions and Redemptions). The
“average annual total return (after taxes on distributions and redemptions)” of Class A shares is
an average annual compounded rate of return for each year in a specified number of years,
adjusted to show the effect of federal taxes (calculated using the highest individual marginal
federal income tax rates in effect on any reinvestment date) on any distributions made by the
Fund during the specified period and the effect of capital gains taxes or capital loss tax
benefits (each calculated using the highest federal individual capital gains tax rate in effect
on the redemption date) resulting from the redemption of the shares at the end of the period. It
is the rate of return based on the change in value of a hypothetical initial investment of
$1,000 (“P” in the formula below) held for a number of years (“n” in the formula) to achieve an
ending value (“ATVDR” in the formula) of that investment, after taking into account the effect
of taxes on Fund distributions and on the redemption of Fund shares, according to the following
formula:
ATVDR l/n - 1 = Average Annual Total Return (After Taxes on Distributions and Redemptions)
P
o Cumulative Total Return. The “cumulative total return” calculation measures the change
in value of a hypothetical investment of $1,000 over an entire period of years. Its calculation
uses some of the same factors as average annual total return, but it does not average the rate
of return on an annual basis. Cumulative total return is determined as follows:
ERV - P = Total Return
- ----------------
P
o Total Returns at Net Asset Value. From time to time the Fund may also quote a
cumulative or an average annual total return “at net asset value” (without deducting sales
charges) for Class A, Class B, Class C or Class N shares. Each is based on the difference in net
asset value per share at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent deferred sales charges) and
takes into consideration the reinvestment of dividends and capital gains distributions.
- --------------------------------------------------------------------------------------------------------------------
The Fund’s Total Returns for the Periods Ended April 30, 2005
- --------------------------------------------------------------------------------------------------------------------
- --------------- -------------------------------- -------------------------------------------------------------------
Class of Cumulative Total Returns (10
Shares Years or life-of-class if less) Average Annual Total Returns
- --------------- -------------------------------- -------------------------------------------------------------------
- --------------- -------------------------------- --------------------------------- ---------------------------------
1-Year 5-Year
(or life of class if less)
- --------------- -------------------------------- --------------------------------- ---------------------------------
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
After Sales Without Sales After Sales Without Sales After Sales Without Sales
Charge Charge Charge Charge Charge Charge
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
Class A(1) 3.71% 8.89% -0.09% 4.89% 1.68% 3.96%
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
Class B(2) 3.79% 6.79% -1.00% 4.00% 1.71% 3.04%
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
Class C(3) 6.68% 6.68% 2.99% 3.99% 2.99% 2.99%
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
Class N(4) 7.97% 7.97% 3.51% 4.51% 3.56% 3.56%
- --------------- --------------- ---------------- ---------------- ---------------- ---------------- ----------------
1. Inception of Class A: February 21, 2003
2. Inception of Class B: February 21, 2003
3. Inception of Class C: February 21, 2003
4. Inception of Class N: February 21, 2003
- --------------------------------------------------------------------------------------
Average Annual Total Returns for Class A1 Shares (After Sales Charge)
For the Periods Ended April 30, 2005
- --------------------------------------------------------------------------------------
- ------------------------------------------ ------------------- -----------------------
1-Year 5-Year
(or life of class if
less)
- ------------------------------------------ ------------------- -----------------------
- ------------------------------------------ ------------------- -----------------------
After Taxes on Distributions -1.59% 0.41%
- ------------------------------------------ ------------------- -----------------------
- ------------------------------------------ ------------------- -----------------------
After Taxes on Distributions and -0.06% 0.71%
Redemption of Fund Shares
- ------------------------------------------ ------------------- -----------------------
1. Inception of Class A: February 21, 2003
Other Performance Comparisons. The Fund compares its performance annually to that of an
appropriate broadly-based market index in its Annual Report to shareholders. You can obtain that
information by contacting the Transfer Agent at the addresses or telephone numbers shown on the
cover of this Statement of Additional Information. The Fund may also compare its performance to
that of other investments, including other mutual funds, or use rankings of its performance by
independent ranking entities. Examples of these performance comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its classes of shares by Lipper, Inc. (“Lipper”). Lipper is a widely-recognized
independent mutual fund monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for various periods in
categories based on investment styles. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and income dividends but do
not take sales charges or taxes into consideration. Lipper also publishes “peer-group” indices
of the performance of all mutual funds in a category that it monitors and averages of the
performance of the funds in particular categories.
|X| Morningstar Ratings. From time to time the Fund may publish the star rating of the
performance of its classes of shares by Morningstar, Inc., an independent mutual fund monitoring
service. Morningstar rates mutual funds in their specialized market sector. The Fund is rated
among the Intermediate-Term Bond category.
Morningstar proprietary star ratings reflect historical risk-adjusted total investment
return. For each fund with at least a three-year history, Morningstar calculates a Morningstar
Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a
fund’s monthly performance (including the effects of sales charges, loads, and redemption fees),
placing more emphasis on downward variations and rewarding consistent performance. The top 10%
of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive
3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is
counted as a fraction of one fund within this scale and rated separately, which may cause slight
variations in the distribution percentages.) The Overall Morningstar Rating for a fund is
derived from a weighted average of the performance figures associated with its three-, five-and
ten-year (if applicable) Morningstar Rating metrics.
|X| Performance Rankings and Comparisons by Other Entities and Publications. From time
to time the Fund may include in its advertisements and sales literature performance information
about the Fund cited in newspapers and other periodicals such as The New York Times, The Wall
Street Journal, Barron’s, or similar publications. That information may include performance
quotations from other sources, including Lipper and Morningstar. The performance of the Fund’s
classes of shares may be compared in publications to the performance of various market indices
or other investments, and averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund’s share classes to the
return on fixed-income investments available from banks and thrift institutions. Those include
certificates of deposit, ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such as Treasury bills.
However, the Fund’s returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be insured by the
FDIC and may provide fixed rates of return. Repayment of principal and payment of interest on
Treasury securities is backed by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager or Transfer
Agent, and of the investor services provided by them to shareholders of the Oppenheimer funds,
other than performance rankings of the Oppenheimer funds themselves. Those ratings or rankings
of shareholder and investor services by third parties may include comparisons of their services
to those provided by other mutual fund families selected by the rating or ranking services. They
may be based upon the opinions of the rating or ranking service itself, using its research or
judgment, or based upon surveys of investors, brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales literature the
total return performance of a hypothetical investment account that includes shares of the Fund
and other Oppenheimer funds. The combined account may be part of an illustration of an asset
allocation model or similar presentation. The account performance may combine total return
performance of the Fund and the total return performance of other Oppenheimer funds included in
the account. Additionally, from time to time, the Fund’s advertisements and sales literature may
include, for illustrative or comparative purposes, statistical data or other information about
general or specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities markets or
segments of those markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors,
securities markets, countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United
States or other countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or
other characteristics of the Fund.
about YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of
the Fund. Appendix C contains more information about the special sales charge arrangements
offered by the Fund, and the circumstances in which sales charges may be reduced or waived for
certain classes of investors.
When you purchase shares of the Fund, your ownership interest in the shares of the Fund will be
recorded as a book entry on the records of the Fund. The Fund will not issue or re-register
physical share certificates.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $50
and shareholders must invest at least $500 before an Asset Builder Plan (described below) can be
established on a new account. Accounts established prior to November 1, 2002 will remain at $25
for additional purchases. Shares will be purchased on the regular business day the Distributor
is instructed to initiate the Automated Clearing House (“ACH”) transfer to buy the shares.
Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the
business day the Fund receives Federal Funds for the purchase through the ACH system before the
close of the New York Stock Exchange (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 three days
after the transfers are initiated. If the proceeds of the ACH transfer are not received on a
timely basis, the Distributor reserves the right to cancel the purchase order. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting from delays in
ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be
obtained for Class A shares under Right of Accumulation and Letters of Intent because of the
economies of sales efforts and reduction in expenses realized by the Distributor, dealers and
brokers making such sales. No sales charge is imposed in certain other circumstances described
in Appendix C to this Statement of Additional Information because the Distributor or dealer or
broker incurs little or no selling expenses.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which the Distributor
acts as the distributor and currently include the following:
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund
Oppenheimer Core Bond Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Convertible Securities Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Developing Markets Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest Balanced Fund
Oppenheimer Discovery Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Dividend Growth Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Global Fund Oppenheimer Rochester National Municipals
Oppenheimer Global Opportunities Fund Oppenheimer Select Value Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Growth Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Diversified Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer Value Fund
Oppenheimer International Small Company Fund Limited-Term New York Municipal Fund
Oppenheimer International Value Fund Rochester Fund Municipals
Oppenheimer Limited Term California Municipal Fund Oppenheimer Portfolio Series:
Active Allocation Fund
Aggressive Investor Fund
Conservative Investor Fund
Oppenheimer Limited-Term Government Fund Moderate Investor Fund
And the following money market funds:
Oppenheimer Cash Reserves Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust
There is an initial sales charge on the purchase of Class A shares of each of the
Oppenheimer funds described above except the money market funds. Under certain circumstances
described in this Statement of Additional Information, redemption proceeds of certain money
market fund shares may be subject to a contingent deferred sales charge.
Letters of Intent. Under a Letter of Intent (“Letter”), you can reduce the sales charge rate
that applies to your purchases of Class A shares if you purchase Class A, Class B or Class C
shares of the Fund or other Oppenheimer funds during a 13-month period. The total amount of your
purchases of Class A, Class B and Class C shares will determine the sales charge rate that
applies to your Class A share purchases during that period. You can choose to include purchases
that you made up to 90 days before the date of the Letter. Class A shares of Oppenheimer Money
Market Fund and Oppenheimer Cash Reserves on which you have not paid a sales charge and any
Class N shares you purchase, or may have purchased, will not be counted towards satisfying the
purchases specified in a Letter.
A Letter is an investor’s statement in writing to the Distributor of his or her
intention to purchase a specified value of Class A, Class B and Class C shares of the Fund and
other Oppenheimer funds during a 13-month period (the “Letter period”). At the investor’s
request, this may include purchases made up to 90 days prior to the date of the Letter. The
Letter states the investor’s intention to make the aggregate amount of purchases of shares which
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of
dividends or capital gains distributions and purchases made at net asset value (i.e. without a
sales charge) do not count toward satisfying the amount of the Letter.
Each purchase of Class A shares under the Letter will be made at the offering price
(including the sales charge) that would apply to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However,
if the investor’s purchases of shares within the Letter period, when added to the value (at
offering price) of the investor’s holdings of shares on the last day of that period, do not
equal or exceed the intended purchase amount, the investor agrees to pay the additional amount
of sales charge applicable to such purchases. That amount is described in “Terms of Escrow,”
below (those terms may be amended by the Distributor from time to time). The investor agrees
that shares equal in value to 5% of the intended purchase amount will be held in escrow by the
Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the
terms of the Prospectus, this Statement of Additional Information and the application used for a
Letter. If those terms are amended, as they may be from time to time by the Fund, the investor
agrees to be bound by the amended terms and that those amendments will apply automatically to
existing Letters.
If the total eligible purchases made during the Letter period do not equal or exceed
the intended purchase amount, the concessions previously paid to the dealer of record for the
account and the amount of sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during the Letter period
exceed the intended purchase amount and exceed the amount needed to qualify for the next sales
charge rate reduction set forth in the Prospectus, the sales charges paid will be adjusted to
the lower rate. That adjustment will be made only if and when the dealer returns to the
Distributor the excess of the amount of concessions allowed or paid to the dealer over the
amount of concessions that apply to the actual amount of purchases. The excess concessions
returned to the Distributor will be used to purchase additional shares for the investor’s
account at the net asset value per share in effect on the date of such purchase, promptly after
the Distributor’s receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund
and other Oppenheimer funds by OppenheimerFunds prototype 401(k) plans under a Letter. If the
intended purchase amount under a Letter entered into by an OppenheimerFunds prototype 401(k)
plan is not purchased by the plan by the end of the Letter period, there will be no adjustment
of concessions paid to the broker-dealer or financial institution of record for accounts held in
the name of that plan.
In determining the total amount of purchases made under a Letter, shares redeemed by
the investor prior to the termination of the Letter period will be deducted. It is the
responsibility of the dealer of record and/or the investor to advise the Distributor about the
Letter when placing any purchase orders for the investor during the Letter period. All of such
purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to
a Letter, shares of the Fund equal in value up to 5% of the intended purchase amount specified
in the Letter shall be held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed
at the offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor’s account.
2. If the total minimum investment specified under the Letter is completed within the
13-month Letter period, the escrowed shares will be promptly released to the investor.
3. If, at the end of the 13-month Letter period the total purchases pursuant to the
Letter are less than the intended purchase amount specified in the Letter, the investor must
remit to the Distributor an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. That sales charge adjustment will apply to any
shares redeemed prior to the completion of the Letter. If the difference in sales charges is not
paid within twenty days after a request from the Distributor or the dealer, the Distributor
will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to redeem escrowed
shares prior to the payment of such additional sales charge, the sales charge will be withheld
from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the
Transfer Agent as attorney-in-fact to surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which may be
counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent
deferred sales charge,
(b) Class B and Class C shares of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and
(c) Class A, Class B or Class C shares acquired by exchange of either (1) Class A shares of
one of the other Oppenheimer funds that were acquired subject to a Class A
initial or contingent deferred sales charge or (2) Class B or Class C shares of
one of the other Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for shares of
another fund to which an exchange is requested, as described in the section of the Prospectus
entitled “How to Exchange Shares” and the escrow will be transferred to that other fund.
Asset Builder Plans. As explained in the Prospectus, you must initially establish your account
with $500. Subsequently, you can establish an Asset Builder Plan to automatically purchase
additional shares directly from a bank account for as little as $50. For those accounts
established prior to November 1, 2002 and which have previously established Asset Builder Plans,
additional purchases will remain at $25. Shares purchased by Asset Builder Plan payments from
bank accounts are subject to the redemption restrictions for recent purchases described in the
Prospectus. Asset Builder Plans are available only if your bank is an ACH member. Asset Builder
Plans may not be used to buy shares for OppenheimerFunds employer-sponsored qualified retirement
accounts.
If you make payments from your bank account to purchase shares of the Fund, your bank
account will be debited automatically. Normally the debit will be made two business days prior
to the investment dates you selected on your application. Neither the Distributor, the Transfer
Agent nor the Fund shall be responsible for any delays in purchasing shares that result from
delays in ACH transmissions.
Before you establish Asset Builder payments, you should obtain a prospectus of the
selected fund(s) from your financial advisor (or the Distributor) and request an application
from the Distributor. Complete the application and return it. You may change the amount of your
Asset Builder payment or you can terminate these automatic investments at any time by writing to
the Transfer Agent. The Transfer Agent requires a reasonable period (approximately 10 days)
after receipt of your instructions to implement them. The Fund reserves the right to amend,
suspend or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase shares of the Fund
without sales charges or at reduced sales charge rates, as described in Appendix C to this
Statement of Additional Information. Certain special sales charge arrangements described in that
Appendix apply to retirement plans whose records are maintained on a daily valuation basis by
Merrill Lynch Pierce Fenner & Smith, Inc. (“Merrill Lynch”) or an independent record keeper that
has a contract or special arrangement with Merrill Lynch. If on the date the plan sponsor signed
the Merrill Lynch record keeping service agreement the plan has less than $1 million in assets
invested in applicable investments (other than assets invested in money market funds), then the
retirement plan may purchase only Class C shares of the Oppenheimer funds. If on the date the
plan sponsor signed the Merrill Lynch record keeping service agreement the plan has $1 million
or more in assets but less than $5 million in assets invested in applicable investments (other
than assets invested in money market funds), then the retirement plan may purchase only Class N
shares of the Oppenheimer funds. If on the date the plan sponsor signed the Merrill Lynch record
keeping service agreement the plan has $5 million or more in assets invested in applicable
investments (other than assets invested in money market funds), then the retirement plan may
purchase only Class A shares of the Oppenheimer funds.
OppenheimerFunds has entered into arrangements with certain record keepers whereby the
Transfer Agent compensates the record keeper for its record keeping and account servicing
functions that it performs on behalf of the participant level accounts of a retirement plan.
While such compensation may act to reduce the record keeping fees charged by the retirement
plan’s record keeper, that compensation arrangement may be terminated at any time, potentially
affecting the record keeping fees charged by the retirement plan’s record keeper.
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 values of the Fund’s shares on the cancellation date is less than on the purchase
date. That loss is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor will do so. The
Fund may reimburse the Distributor for that amount by redeeming shares from any account
registered in that investor’s name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio
of investments of the Fund. However, each class has different shareholder privileges and
features. The net income attributable to Class B, Class C or Class N shares and the dividends
payable on Class B, Class C or Class N shares will be reduced by incremental expenses borne
solely by that class. Those expenses include the asset-based sales charges to which Class B,
Class C and Class N shares are subject.
The availability of different classes of shares permits an investor to choose the
method of purchasing shares that is more appropriate for the investor. That may depend on the
amount of the purchase, the length of time the investor expects to hold shares, and other
relevant circumstances. Class A shares normally are sold subject to an initial sales charge.
While Class B, Class C and Class N shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B, Class C and Class N shares is the
same as that of the initial sales charge on Class A shares – to compensate the Distributor and
brokers, dealers and financial institutions that sell shares of the Fund. A salesperson who is
entitled to receive compensation from his or her firm for selling Fund shares may receive
different levels of compensation for selling one class of shares rather than another.
The Distributor will not accept a purchase order of more than $100,000 for Class B
shares or a purchase order of $1 million or more to purchase Class C shares on behalf of a
single investor (not including dealer “street name” or omnibus accounts).
Class B, Class C or Class N shares may not be purchased by an investor directly from the
Distributor without the investor designating another registered broker-dealer.
Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of Class A
shares at net asset value whether or not subject to a contingent deferred sales charge as
described in the Prospectus, no sales concessions will be paid to the broker-dealer of record,
as described in the Prospectus, on sales of Class A shares purchased with the redemption
proceeds of shares of another mutual fund offered as an investment option in a retirement plan
in which Oppenheimer funds are also offered as investment options under a special arrangement
with the Distributor, if the purchase occurs more than 30 days after the Oppenheimer funds are
added as an investment option under that plan. Additionally, that concession will not be paid on
purchases of Class A shares by a retirement plan made with the redemption proceeds of Class N
shares of one or more Oppenheimer funds held by the plan for more than 18 months.
|X| Class B Conversion. Under current interpretations of applicable federal income tax
law by the Internal Revenue Service, the conversion of Class B shares to Class A shares 72
months after purchase is not treated as a taxable event for the shareholder. If those laws or
the IRS interpretation of those laws should change, the automatic conversion feature may be
suspended. In that event, no further conversions of Class B shares would occur while that
suspension remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for the shareholder, and
absent such exchange, Class B shares might continue to be subject to the asset-based sales
charge for longer than six years.
|X| Availability of Class N Shares. In addition to the description of the types of
retirement plans which may purchase Class N shares contained in the prospectus, Class N shares
also are offered to the following:
o to all rollover IRAs (including SEP IRAs and SIMPLE IRAs),
o to all rollover contributions made to Individual 401(k) plans, Profit-Sharing Plans and
Money Purchase Pension Plans,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and Ascender
retirement plans,
o to all trustee-to-trustee IRA transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix Cto this Statement of Additional
Information) which have entered into a special agreement with the Distributor
for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code, the recordkeeper or the plan sponsor for which has entered into a special
agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all such plans
invested in the Oppenheimer funds is $500,000 or more,
o to Retirement Plans with at least 100 eligible employees or $500,000 or more in plan
assets,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with the
redemption proceeds of Class A shares of one or more Oppenheimer funds,
o to certain customers of broker-dealers and financial advisors that are identified in a
special agreement between the broker-dealer or financial advisor and the
Distributor for that purpose, and
o to Retirement Plans with at least 100 eligible employees or $500,000 or more in plan
assets.
The sales concession and the advance of the service fee, as described in the
Prospectus, will not be paid to dealers of record on sales of Class N shares on:
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that
pays for the purchase with the redemption proceeds of Class A shares of one or
more Oppenheimer funds (other than rollovers from an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan to any IRA invested in the Oppenheimer funds),
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that
pays for the purchase with the redemption proceeds of Class C shares of one or
more Oppenheimer funds held by the plan for more than one year (other than
rollovers from an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan
to any IRA invested in the Oppenheimer funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored Pinnacle or Ascender
401(k) plan made with the redemption proceeds of Class A shares of one or more
Oppenheimer funds.
No sales concessions will be paid to the broker-dealer of record, as described in the
Prospectus, on sales of Class N shares purchased with the redemption proceeds of shares of
another mutual fund offered as an investment option in a retirement plan in which Oppenheimer
funds are also offered as investment options under a special arrangement with the Distributor,
if the purchase occurs more than 30 days after the Oppenheimer funds are added as an investment
option under that plan.
|X| Allocation of Expenses. The Fund pays expenses related to its daily operations,
such as custodian fees, Trustees’ fees, transfer agency fees, legal fees and auditing costs.
Those expenses are paid out of the Fund’s assets and are not paid directly by shareholders.
However, those expenses reduce the net asset values of shares, and therefore are indirectly
borne by shareholders through their investment.
The methodology for calculating the net asset value, dividends and distributions of the
Fund’s share classes recognizes two types of expenses. General expenses that do not pertain
specifically to any one class are allocated pro rata to the shares of all classes. The
allocation is based on the percentage of the Fund’s total assets that is represented by the
assets of each class, and then equally to each outstanding share within a given class. Such
general expenses include management fees, legal, bookkeeping and audit fees, printing and
mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and
other materials for current shareholders, fees to unaffiliated Trustees, custodian expenses,
share issuance costs, organization and start-up costs, interest, taxes and brokerage
commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated
equally to each outstanding share within that class. Examples of such expenses include
distribution and service plan (12b-1) fees, transfer and shareholder servicing agent fees and
expenses, and shareholder meeting expenses (to the extent that such expenses pertain only to a
specific class).
Fund Account Fees. As stated in the Prospectus, a $12 annual “Minimum Balance Fee” is assessed
on each Fund account with a share balance valued under $500. The Minimum Balance Fee is
automatically deducted from each such Fund account in September.
Listed below are certain cases in which the Fund has elected, in its discretion, not to
assess the Fund Account Fees. These exceptions are subject to change:
o A fund account whose shares were acquired after September 30th of the prior year;
o A fund account that has a balance below $500 due to the automatic conversion of shares
from Class B to Class A shares. However, once all Class B shares held in the
account have been converted to Class A shares the new account balance may
become subject to the Minimum Balance Fee;
o Accounts of shareholders who elect to access their account documents electronically via
eDoc Direct;
o A fund account that has only certificated shares and, has a balance below $500 and is
being escheated;
o Accounts of shareholders that are held by broker-dealers under the NSCC Fund/SERV
system;
o Accounts held under the Oppenheimer Legacy Program and/or holding certain Oppenheimer
Variable Account Funds;
o Omnibus accounts holding shares pursuant to the Pinnacle, Ascender, Custom Plus,
Recordkeeper Pro and Pension Alliance Retirement Plan programs; and
o A fund account that falls below the $500 minimum solely due to market fluctuations
within the 12-month period preceding the date the fee is deducted.
To access account documents electronically via eDocs Direct, please visit the Service
Center on our website at www.oppenheimerfunds.com or call 1.888.470.0862 for instructions.
The Fund reserves the authority to modify Fund Account Fees in its discretion.
Determination of Net Asset Values Per Share. The net asset values per share of each class of
shares of the Fund are determined as of the close of business of the NYSE on each day that the
NYSE is open. The calculation is done by dividing the value of the Fund’s net assets
attributable to a class by the number of shares of that class that are outstanding. The NYSE
normally closes at 4:00 p.m., Eastern time, but may close earlier on some other days (for
example, in case of weather emergencies or on days falling before a U.S. holiday). All
references to time in this Statement of Additional Information mean “Eastern time.” The NYSE’s
most recent annual announcement (which is subject to change) states that it will close on New
Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days.
Dealers other than NYSE members may conduct trading in certain securities on days on
which the NYSE is closed (including weekends and holidays) or after 4:00 p.m. on a regular
business day. Because the Fund’s net asset values 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. Additionally, trading on European and Asian stock exchanges
and over-the-counter markets normally is completed before the close of the NYSE.
Changes in the values of securities traded on foreign exchanges or markets as a result
of events that occur after the prices of those securities are determined, but before the close
of the NYSE, will not be reflected in the Fund’s calculation of its net asset values that day
unless the Manager determines that the event is likely to effect a material change in the value
of the security. The Manager, or an internal valuation committee established by the Manager, as
applicable, may establish a valuation, under procedures established by the Board and subject to
the approval, ratification and confirmation by the Board at its next ensuing meeting.
|X| Securities Valuation. The Fund’s Board of Trustees has established procedures for
the valuation of the Fund’s securities. In general those procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ® are valued as
follows:
(1) if last sale information is regularly reported, they are valued at the last reported
sale price on the principal exchange on which they are traded or on
NASDAQ®, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the
last reported sale price preceding the valuation date if it is within the
spread of the closing “bid” and “asked” prices on the valuation date or,
if not, at the closing “bid” price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are valued in one
of the following ways:
(1) at the last sale price available to the pricing service approved by the Board of
Trustees, or
(2) at the last sale price obtained by the Manager from the report of the principal
exchange on which the security is traded at its last trading session on or
immediately before the valuation date, or
(3) at the mean between the “bid” and “asked” prices obtained from the principal exchange
on which the security is traded or, on the basis of reasonable inquiry,
from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days are valued
based on the mean between the “bid” and “asked” prices determined by a portfolio pricing service
approved by the Fund’s Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the “bid” and “asked” prices
determined by a pricing service approved by the Fund’s Board of Trustees or obtained by the
Manager from two active market makers in the security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a
remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued
and which have a remaining maturity of 60 days or less.
o The following securities are valued at cost, adjusted for amortization of premiums and
accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of
less than 397 days when issued that have a remaining maturity of 60 days
or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days
or less.
o Securities (including restricted securities) not having readily-available market
quotations are valued at fair value determined under the Board’s procedures. If the Manager is
unable to locate two market makers willing to give quotes, a security may be priced at the mean
between the “bid” and “asked” prices provided by a single active market maker (which in certain
cases may be the “bid” price if no “asked” price is available).
In the case of U.S. government securities, mortgage-backed securities, corporate bonds
and foreign government securities, when last sale information is not generally available, the
Manager may use pricing services approved by the Board of Trustees. The pricing service may use
“matrix” comparisons to the prices for comparable instruments on the basis of quality, yield and
maturity. Other special factors may be involved (such as the tax-exempt status of the interest
paid by municipal securities). The Manager will monitor the accuracy of the pricing services.
That monitoring may include comparing prices used for portfolio valuation to actual sales prices
of selected securities.
The closing prices in the New York foreign exchange market on a particular business day
that are provided to the Manager by a bank, dealer or pricing service that the Manager has
determined to be reliable are used to value foreign currency, including forward contracts, and
to convert to U.S. dollars securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the principal exchange on
which they are traded or on NASDAQ®, as applicable, as determined by a pricing service approved
by the Board of Trustees or by the Manager. If there were no sales that day, they shall be
valued at the last sale price on the preceding trading day if it is within the spread of the
closing “bid” and “asked” prices on the principal exchange or on NASDAQ® on the valuation date.
If not, the value shall be the closing bid price on the principal exchange or on NASDAQ® on the
valuation date. If the put, call or future is not traded on an exchange or on NASDAQ®, it shall
be valued by the mean between “bid” and “asked” prices obtained by the Manager from two active
market makers. In certain cases that may be at the “bid” price if no “asked” price is available.
When the Fund writes an option, an amount equal to the premium received is included in
the Fund’s Statement of Assets and Liabilities as an asset. An equivalent credit is included in
the liability section. The credit is adjusted (“marked-to-market”) to reflect the current market
value of the option. In determining the Fund’s gain on investments, if a call or put written by
the Fund is exercised, the proceeds are increased by the premium received. If a call or put
written by the Fund expires, the Fund has a gain in the amount of the premium. If the Fund
enters into a closing purchase transaction, it will have a gain or loss, depending on whether
the premium received was more or less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale of the underlying investment
is reduced by the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the
Prospectus.
Checkwriting. When a check is presented to United Missouri Bank (the “Bank”) for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and fractional shares in the
shareholder’s account to cover the amount of the check. This enables the shareholder to continue
receiving dividends on those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund’s custodian bank. This limitation
does not affect the use of checks for the payment of bills or to obtain cash at other banks. The
Fund reserves the right to amend, suspend or discontinue offering checkwriting privileges at any
time. The Fund will provide you notice whenever it is required to do so by applicable law.
In choosing to take advantage of the Checkwriting privilege, by signing the account
application or by completing a Checkwriting card, each individual who signs:
(1) for individual accounts, represents that they are the registered owner(s) of the shares
of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities, represents that
they are an officer, general partner, trustee or other fiduciary or agent, as
applicable, duly authorized to act on behalf of the registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the Fund’s drafts
(checks) are payable to pay all checks drawn on the Fund account of such person(s)
and to redeem a sufficient amount of shares from that account to cover payment of
each check;
(4) specifically acknowledges that if they choose to permit checks to be honored if there
is a single signature on checks drawn against joint accounts, or accounts for
corporations, partnerships, trusts or other entities, the signature of any one
signatory on a check will be sufficient to authorize payment of that check and
redemption from the account, even if that account is registered in the names of
more than one person or more than one authorized signature appears on the
Checkwriting card or the application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended at any time by
the Fund and/or the Fund’s bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur any liability
for that amendment or termination of checkwriting privileges or for redeeming
shares to pay checks reasonably believed by them to be genuine, or for returning or
not paying checks that have not been accepted for any reason.
Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of redemption proceeds
may be delayed if the Fund’s custodian bank is not open for business on a day when the Fund
would normally authorize the wire to be made, which is usually the Fund’s next regular business
day following the redemption. In those circumstances, the wire will not be transmitted until the
next bank business day on which the Fund is open for business. No dividends will be paid on the
proceeds of redeemed shares awaiting transfer by Federal Funds wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or
part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A shares on which
a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred sales charge when
redeemed.
The reinvestment may be made without sales charge only in Class A shares of the Fund or
any of the other Oppenheimer funds into which shares of the Fund are exchangeable as described
in “How to Exchange Shares” below. Reinvestment will be at the net asset value next computed
after the Transfer Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent or financial intermediary for that privilege at the time of reinvestment. This privilege
does not apply to Class C, and Class N shares. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain. If there has been a
capital loss on the redemption, some or all of the loss may not be tax deductible, depending on
the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption
proceeds of Fund shares on which a sales charge was paid are reinvested in shares of the Fund or
another of the Oppenheimer funds within 90 days of payment of the sales charge, the
shareholder’s basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds.
Payments “In Kind”. The Prospectus states that payment for shares tendered for redemption is
ordinarily made in cash. However, under certain circumstances, the Board of Trustees of the Fund
may determine that it would be detrimental to the best interests of the remaining shareholders
of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the
Fund may pay the redemption proceeds in whole or in part by a distribution “in kind” of liquid
securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any one shareholder.
If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs
in selling the securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities described above under
“Determination of Net Asset Values Per Share.” That valuation will be made as of the time the
redemption price is determined.
Involuntary Redemptions. The Fund’s Board of Trustees has the right to cause the involuntary
redemption of the shares held in any account if the aggregate net asset value of those shares is
less than $500 or such lesser amount as the Board may fix. The Board will not cause the
involuntary redemption of shares in an account if the aggregate net asset value of such shares
has fallen below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively set requirements
for the shareholder to increase the investment, or set other terms and conditions so that the
shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that
triggers the payment of sales charges. Therefore, shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of transfer to the name of another
person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or
bequest, as long as it does not involve, directly or indirectly, a public sale of the shares.
When shares subject to a contingent deferred sales charge are transferred, the transferred
shares will remain subject to the contingent deferred sales charge. It will be calculated as if
the transferee shareholder had acquired the transferred shares in the same manner and at the
same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if redeemed at the time of
transfer, the priorities described in the Prospectus under “How to Buy Shares” for the
imposition of the Class B, Class C and Class N 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, SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial plans, 401(k) plans or pension or
profit-sharing plans should be addressed to “Trustee, OppenheimerFunds Retirement Plans,” c/o
the Transfer Agent at its address listed in “How To Sell Shares” in the Prospectus or on the
back cover of this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner’s awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund’s other redemption requirements.
Participants (other than self-employed plan sponsors) in OppenheimerFunds-sponsored
pension or profit-sharing plans with shares of the Fund held in the name of the plan or its
fiduciary may not directly request redemption of their accounts. The plan administrator or
fiduciary must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the
Fund’s agent to repurchase its shares from authorized dealers or brokers on behalf of their
customers. Shareholders should contact their broker or dealer to arrange this type of
redemption. The repurchase price per share will be the net asset value next computed after the
Distributor receives an order placed by the dealer or broker. However, if the Distributor
receives a repurchase order from a dealer or broker after the close of the NYSE 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 NYSE closes. Normally, the NYSE
closes at 4:00 p.m., but may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business that day (normally
5:00 p.m.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will
be made within three business days after the shares have been redeemed upon the Distributor’s
receipt of the required redemption documents in proper form. The signature(s) of the registered
owners on the redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or
more can authorize the Transfer Agent to redeem shares (having a value of at least $50)
automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Withdrawal
Plan. Shares will be redeemed three business days prior to the date requested by the shareholder
for receipt of the payment. Automatic withdrawals of up to $1,500 per month may be requested by
telephone if payments are to be made by check payable to all shareholders of record. Payments
must also be sent to the address of record for the account and the address must not have been
changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink privileges
(see “How To Buy Shares”) may arrange to have Automatic Withdrawal Plan payments transferred to
the bank account designated on the account application or by signature-guaranteed instructions
sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal
Plan three business days before the payment transmittal date you select in the account
application. If a contingent deferred sales charge applies to the redemption, the amount of the
check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves
the right to amend, suspend or discontinue offering these plans at any time without prior
notice. Because of the sales charge assessed on Class A share purchases, shareholders should not
make regular additional Class A share purchases while participating in an Automatic Withdrawal
Plan. Class B, Class C and Class N shareholders should not establish automatic withdrawal plans,
because of the potential imposition of the contingent deferred sales charge on such withdrawals
(except where the Class B, Class C or Class N contingent deferred sales charge is waived as
described in Appendix C to this Statement of Additional Information).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the
terms and conditions that apply to such plans, as stated below. These provisions may be amended
from time to time by the Fund and/or the Distributor. When adopted, any amendments will
automatically apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange
a pre-determined amount of shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-annual or annual basis under an
Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is
$50. Instructions should be provided on the OppenheimerFunds application or signature-guaranteed
instructions. Exchanges made under these plans are subject to the restrictions that apply to
exchanges as set forth in “How to Exchange Shares” in the Prospectus and below in this Statement
of Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet
withdrawal payments. Shares acquired without a sales charge will be redeemed first. Shares
acquired with reinvested dividends and capital gains distributions will be redeemed next,
followed by shares acquired with a sales charge, to the extent necessary to make withdrawal
payments. Depending upon the amount withdrawn, the investor’s principal may be depleted.
Payments made under these plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor’s Automatic Withdrawal Plan as agent
for the shareholder(s) (the “Planholder”) who executed the plan authorization and application
submitted to the Transfer Agent. Neither the Fund nor the Transfer Agent shall incur any
liability to the Planholder for any action taken or not taken by the Transfer Agent in good
faith to administer the plan. Share certificates will not be issued for shares of the Fund
purchased for and held under the plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates held by a
Planholder may be surrendered unendorsed to the Transfer Agent with the plan application so that
the shares represented by the certificate may be held under the plan.
For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must
be reinvested in shares of the Fund, which will be done at net asset value without a sales
charge. Dividends on shares held in the account may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value per share
determined on the redemption date. Checks or AccountLink payments representing the proceeds of
Plan withdrawals will normally be transmitted three business days prior to the date selected for
receipt of the payment, according to the choice specified in writing by the Planholder. Receipt
of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to which checks
are to be mailed or AccountLink payments are to be sent may be changed at any time by the
Planholder by writing to the Transfer Agent. The Planholder should allow at least two weeks’
time after mailing such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice to redeem all, or any
part of, the shares held under the plan. That notice must be in proper form in accordance with
the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in effect and will
mail a check for the proceeds to the Planholder.
The Planholder may terminate a plan at any time by writing to the Transfer Agent. The
Fund may also give directions to the Transfer Agent to terminate a plan. The Transfer Agent will
also terminate a plan upon its receipt of evidence satisfactory to it that the Planholder has
died or is legally incapacitated. Upon termination of a plan by the Transfer Agent or the Fund,
shares that have not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder, his or her executor or guardian,
or another authorized person.
If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will
be deemed to have appointed any successor transfer agent to act as agent in administering the
plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds having more than
one class of shares may be exchanged only for shares of the same class of other Oppenheimer
funds. Shares of Oppenheimer funds that have a single class without a class designation are
deemed “Class A” shares for this purpose. You can obtain a current list showing which funds
offer which classes of shares by calling the Distributor.
o All of the Oppenheimer funds currently offer Class A, B, C, N and Y shares with the
following exceptions:
The following funds only offer Class A shares:
Centennial California Tax Exempt Trust Centennial New York Tax Exempt Trust
Centennial Government Trust Centennial Tax Exempt Trust
Centennial Money Market Trust
The following funds do not offer Class N shares:
Limited Term New York Municipal Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main Street Fund II
Oppenheimer AMT-Free New York Municipals Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Rochester National Municipals
Oppenheimer International Value Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Limited Term California Municipal Fund Rochester Fund Municipals
Oppenheimer Limited Term Municipal Fund
Oppenheimer Money Market Fund, Inc.
The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer Limited Term California Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Rochester National Municipals
Oppenheimer Dividend Growth Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Total Return Bond Fund
o Oppenheimer Money Market Fund, Inc. only offers Class A and Class Y shares.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for shares of any
other fund.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally available only by
exchange from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds-sponsored 401(k) plans.
o Class M shares of Oppenheimer Convertible Securities Fund may be exchanged only for
Class A shares of other Oppenheimer funds. They may not be acquired by exchange of
shares of any class of any other Oppenheimer funds except Class A shares of Oppenheimer
Money Market Fund or Oppenheimer Cash Reserves acquired by exchange of Class M shares.
o Class A shares of Oppenheimer funds may be exchanged at net asset value for shares of
any money market fund offered by the Distributor. Shares of any money market fund
purchased without a sales charge may be exchanged for shares of Oppenheimer funds
offered with a sales charge upon payment of the sales charge. They may also be used to
purchase shares of Oppenheimer funds subject to an early withdrawal charge or
contingent deferred sales charge.
o Shares of the Fund acquired by reinvestment of dividends or distributions from any of
the other Oppenheimer funds or from any unit investment trust for which reinvestment
arrangements have been made with the Distributor may be exchanged at net asset value
for shares of any of the Oppenheimer funds.
o Shares of Oppenheimer Principal Protected Main Street Fund may be exchanged at net
asset value for shares of any of the Oppenheimer funds. However, shareholders are not
permitted to exchange shares of other Oppenheimer funds for shares of Oppenheimer
Principal Protected Main Street Fund until after the expiration of the warranty period
(8/5/2010).
o Shares of Oppenheimer Principal Protected Main Street Fund II may be exchanged at net
asset value for shares of any of the Oppenheimer funds. However, shareholders are not
permitted to exchange shares of other Oppenheimer funds for shares of Oppenheimer
Principal Protected Main Street Fund II until after the expiration of the warranty
period (3/3/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be exchanged at net
asset value for shares of any of the Oppenheimer funds. However, shareholders are not
permitted to exchange shares of other Oppenheimer funds for shares of Oppenheimer
Principal Protected Main Street Fund III until after the expiration of the warranty
period (12/16/2011).
The Fund may amend, suspend or terminate the exchange privilege at any time. Although
the Fund may impose these changes at any time, it will provide you with notice of those changes
whenever it is required to do so by applicable law. It may be required to provide 60 days’
notice prior to materially amending or terminating the exchange privilege. That 60 day notice is
not required in extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred
sales charge is imposed on exchanges of shares of any class purchased subject to a contingent
deferred sales charge, with the following exceptions:
o When Class A shares of any Oppenheimer fund (other than Rochester National Municipals
and Rochester Fund Municipals) acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed within 18 months
measured from the beginning 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.
o When Class A shares of Rochester National Municipals and Rochester Fund Municipals
acquired by exchange of Class A shares of any Oppenheimer fund purchased subject to a Class A
contingent deferred sales charge are redeemed within 24 months of the beginning 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.
o If any Class A shares of another Oppenheimer fund that are exchanged for Class A shares
of Oppenheimer Senior Floating Rate Fund are subject to the Class A contingent deferred sales
charge of the other Oppenheimer fund at the time of exchange, the holding period for that Class
A contingent deferred sales charge will carry over to the Class A shares of Oppenheimer Senior
Floating Rate Fund acquired in the exchange. The Class A shares of Oppenheimer Senior Floating
Rate Fund acquired in that exchange will be subject to the Class A Early Withdrawal Charge of
Oppenheimer Senior Floating Rate Fund if they are repurchased before the expiration of the
holding period.
o When Class A shares of Oppenheimer Cash Reserves and Oppenheimer Money Market Fund,
Inc. acquired by exchange of Class A shares of any Oppenheimer fund purchased subject to a Class
A contingent deferred sales charge are redeemed within the Class A holding period of the fund
from which the shares were exchanged, the Class A contingent deferred sales charge of the fund
from which the shares were exchanged is imposed on the redeemed shares.
o Except with respect to the Class B shares described in the next two paragraphs, the
contingent deferred sales charge is imposed on Class B shares acquired by exchange if they are
redeemed within six years of the initial purchase of the exchanged Class B shares.
o With respect to Class B shares of Limited Term California Municipal Fund, Limited-Term
Government Fund, Limited Term Municipal Fund, Limited Term New York Municipal Fund and
Oppenheimer Senior Floating Rate Fund, the Class B contingent deferred sales charge is imposed
on the acquired shares if they are redeemed within five years of the initial purchase of the
exchanged Class B shares.
o With respect to Class B shares of Cash Reserves that were acquired through the exchange
of Class B shares initially purchased in the Oppenheimer Capital Preservation Fund, the Class B
contingent deferred sales charge is imposed on the acquired shares if they are redeemed within
five years of that initial purchase.
o With respect to Class C 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.
o With respect to Class N shares, a 1% contingent deferred sales charge will be imposed
if the retirement plan (not including IRAs and 403(b) plans) is terminated or Class N shares of
all Oppenheimer funds are terminated as an investment option of the plan and Class N shares are
redeemed within 18 months after the plan’s first purchase of Class N shares of any Oppenheimer
fund or with respect to an individual retirement plan or 403(b) plan, Class N shares are
redeemed within 18 months of the plan’s first purchase of Class N shares of any Oppenheimer fund.
o When Class B, Class C or Class N 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,
Class C or Class N contingent deferred sales charge will be followed in determining the order in
which the shares are exchanged. Before exchanging shares, shareholders should take into account
how the exchange may affect any contingent deferred sales charge that might be imposed in the
subsequent redemption of remaining shares.
Shareholders owning shares of more than one class must specify which class of shares
they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone
or written exchange requests submitted in bulk by anyone on behalf of more than one account.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder
must have an existing account in the fund to which the exchange is to be made. Otherwise, the
investors must obtain a prospectus of that fund before the exchange request may be submitted. If
all telephone lines are busy (which might occur, for example, during periods of substantial
market fluctuations), shareholders might not be able to request exchanges by telephone and would
have to submit written exchange requests.
Processing Exchange Requests. Shares to be exchanged are redeemed on the regular
business day the Transfer Agent receives an exchange request in proper form (the “Redemption
Date”). Normally, shares of the fund to be acquired are purchased on the Redemption Date, but
such purchases may be delayed by either fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves
the right, in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might require the
disposition of portfolio securities at a time or at a price that might be disadvantageous to the
Fund, the Fund may refuse the request.
When you exchange some or all of your shares from one fund to another, any special
account feature such as an Asset Builder Plan or Automatic Withdrawal Plan, will be switched to
the new fund account unless you tell the Transfer Agent not to do so. However, special
redemption and exchange features such as Automatic Exchange Plans and Automatic Withdrawal Plans
cannot be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include shares subject
to a restriction cited in the Prospectus or this Statement of Additional Information, or would
include shares covered by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different investment
objectives, policies and risks. A shareholder should assure that the fund selected is
appropriate for his or her investment and should be aware of the tax consequences of an
exchange. For federal income tax purposes, an exchange transaction is treated as a redemption of
shares of one fund and a purchase of shares of another. “Reinvestment Privilege,” above,
discusses some of the tax consequences of reinvestment of redemption proceeds in such cases. The
Fund, the Distributor, and the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or any other investment
transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance
as to the payment of any dividends or the realization of any capital gains. The dividends and
distributions paid by a class of shares will vary from time to time depending on market
conditions, the composition of the Fund’s portfolio, and expenses borne by the Fund or borne
separately by a class. Dividends are calculated in the same manner, at the same time, and on the
same day for each class of shares. However, dividends on Class B, Class C and Class N shares are
expected to be lower than dividends on Class A shares. That is because of the effect of the
asset-based sales charge on Class B, Class C and Class N shares. Those dividends will also
differ in amount as a consequence of any difference in the net asset values of the different
classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares represented by
checks returned to the Transfer Agent by the Postal Service as undeliverable will be invested in
shares of Oppenheimer Money Market Fund, Inc. Reinvestment will be made as promptly as possible
after the return of such checks to the Transfer Agent, to enable the investor to earn a return
on otherwise idle funds. Unclaimed accounts may be subject to state escheatment laws, and the
Fund and the Transfer Agent will not be liable to shareholders or their representatives for
compliance with those laws in good faith.
Tax Status of the Fund’s Dividends, Distributions and Redemptions of Shares. The federal tax
treatment of the Fund’s dividends and capital gains distributions is briefly highlighted in the
Prospectus. The following is only a summary of certain additional tax considerations generally
affecting the Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional Information is
based on tax law in effect on the date of the Prospectus and this Statement of Additional
Information. Those laws and regulations may be changed by legislative, judicial, or
administrative action, sometimes with retroactive effect. State and local tax treatment of
ordinary income dividends and capital gain dividends from regulated investment companies may
differ from the treatment under the Internal Revenue Code described below. Potential purchasers
of shares of the Fund are urged to consult their tax advisers with specific reference to their
own tax circumstances as well as the consequences of federal, state and local tax rules
affecting an investment in the Fund.
Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As a regulated investment company, the Fund is not subject to federal income tax on the
portion of its net investment income (that is, taxable interest, dividends, and other taxable
ordinary income, net of expenses) and capital gain net income (that is, the excess of net
long-term capital gains over net short-term capital losses) that it distributes to shareholders.
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 their Fund shares are held in a retirement account or the
shareholder is otherwise exempt from tax).
The Internal Revenue Code contains a number of complex tests relating to qualification
that the Fund might not meet in a particular year. If it did not qualify as a regulated
investment company, the Fund would be treated for tax purposes as an ordinary corporation and
would receive no tax deduction for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute at least 90% of
its investment company taxable income (in brief, net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year. The Fund must
also satisfy certain other requirements of the Internal Revenue Code, some of which are
described below. Distributions by the Fund made during the taxable year or, under specified
circumstances, within 12 months after the close of the taxable year, will be considered
distributions of income and gains for the taxable year and will therefore count toward
satisfaction of the above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at least 90% of its
gross income from dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company’s principal
business of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund must satisfy an
asset diversification test in order to qualify as a regulated investment company. Under that
test, at the close of each quarter of the Fund’s taxable year, at least 50% of the value of the
Fund’s assets must consist of cash and cash items (including receivables), U.S. government
securities, securities of other regulated investment companies, and securities of other issuers.
As to each of those issuers, the Fund must not have invested more than 5% of the value of the
Fund’s total assets in securities of each such issuer and the Fund must not hold more than 10%
of the outstanding voting securities of each such issuer. No more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or businesses. For
purposes of this test, obligations issued or guaranteed by certain agencies or instrumentalities
of the U.S. government are treated as U.S. government securities.
Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, by
December 31 each year, the Fund must distribute 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it does not, the
Fund must pay an excise tax on the amounts not distributed. It is presently anticipated that the
Fund will meet those requirements. To meet this requirement, in certain circumstances the Fund
might be required to liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability. However, the Board of Trustees and the Manager might determine in a
particular year that it would be in the best interests of shareholders for the Fund not to make
such distributions at the required levels and to pay the excise tax on the undistributed
amounts. That would reduce the amount of income or capital gains available for distribution to
shareholders.
Taxation of Fund Distributions. The Fund anticipates distributing substantially all of
its investment company taxable income for each taxable year. Those distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility of the Fund’s
dividends for the dividends-received deduction for corporate shareholders. Long-term capital
gains distributions are not eligible for the deduction. The amount of dividends paid by the Fund
that may qualify for the deduction is limited to the aggregate amount of qualifying dividends
that the Fund derives from portfolio investments that the Fund has held for a minimum period,
usually 46 days. A corporate shareholder will not be eligible for the deduction on dividends
paid on Fund shares held for 45 days or less. To the extent the Fund’s dividends are derived
from gross income from option premiums, interest income or short-term gains from the sale of
securities or dividends from foreign corporations, those dividends will not qualify for the
deduction.
The Fund may either retain or distribute to shareholders its net capital gain for each
taxable year. The Fund currently intends to distribute any such amounts. If net long term
capital gains are distributed and designated as a capital gain distribution, it will be taxable
to shareholders as a long-term capital gain and will be properly identified in reports sent to
shareholders in January of each year. Such treatment will apply no matter how long the
shareholder has held his or her shares or whether that gain was recognized by the Fund before
the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be subject to tax on
it at the 35% corporate tax rate. If the Fund elects to retain its net capital gain, the Fund
will provide to shareholders of record on the last day of its taxable year information regarding
their pro rata share of the gain and tax paid. As a result, each shareholder will be required to
report his or her pro rata share of such gain on their tax return as long-term capital gain,
will receive a refundable tax credit for his/her pro rata share of tax paid by the Fund on the
gain, and will increase the tax basis for his/her shares by an amount equal to the deemed
distribution less the tax credit.
Investment income that may be received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United States has entered
into tax treaties with many foreign countries which entitle the Fund to a reduced rate of, or
exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income dividends or capital
gain distributions will be treated as a return of capital to the extent of the shareholder’s tax
basis in their shares. Any excess will be treated as gain from the sale of those shares, as
discussed below. Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year. If prior distributions made
by the Fund must be re-characterized as a non-taxable return of capital at the end of the fiscal
year as a result of the effect of the Fund’s investment policies, they will be identified as
such in notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above regardless of
whether the distributions are paid in cash or reinvested in additional shares of the Fund (or of
another fund). Shareholders receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
The Fund will be required in certain cases to withhold 28% of ordinary income
dividends, capital gains distributions and the proceeds of the redemption of shares, paid to any
shareholder (1) who has failed to provide a correct taxpayer identification number or to
properly certify that number when required, (2) who is subject to backup withholding for failure
to report the receipt of interest or dividend income properly, or (3) who has failed to certify
to the Fund that the shareholder is not subject to backup withholding or is an “exempt
recipient” (such as a corporation). Any tax withheld by the Fund is remitted by the Fund to the
U.S. Treasury and all income and any tax withheld is identified in reports mailed to
shareholders in January of each year with a copy sent to the IRS.
Tax Effects of Redemptions of Shares. If a shareholder redeems all or a portion of
his/her shares, the shareholder will recognize a gain or loss on the redeemed shares in an
amount equal to the difference between the proceeds of the redeemed shares and the shareholder’s
adjusted tax basis in the shares. All or a portion of any loss recognized in that manner may be
disallowed if the shareholder purchases other shares of the Fund within 30 days before or after
the redemption.
In general, any gain or loss arising from the redemption of shares of the Fund will be
considered capital gain or loss, if the shares were held as a capital asset. It will be
long-term capital gain or loss if the shares were held for more than one year. However, any
capital loss arising from the redemption of shares held for six months or less will be treated
as a long-term capital loss to the extent of the amount of capital gain dividends received on
those shares. Special holding period rules under the Internal Revenue Code apply in this case to
determine the holding period of shares and there are limits on the deductibility of capital
losses in any year.
Foreign Shareholders. Under U.S. tax law, taxation of a shareholder who is a foreign
person (to include, but not limited to, a nonresident alien individual, a foreign trust, a
foreign estate, a foreign corporation, or a foreign partnership) primarily depends on whether
the foreign person’s income from the Fund is effectively connected with the conduct of a U.S.
trade or business. Typically, ordinary income dividends paid from a mutual fund are not
considered “effectively connected” income.
Ordinary income dividends that are paid by the Fund (and are deemed not
“effectively connected income”) to foreign persons will be subject to
a U.S. tax withheld by the Fund at a rate of 30%, provided the Fund obtains a
properly completed and signed Certificate of Foreign Status. The tax rate may be
reduced if the foreign person’s country of residence has a tax treaty with
the U.S. allowing for a reduced tax rate on ordinary income dividends paid by
the Fund. Any tax withheld by the Fund is remitted by the Fund to the U.S.
Treasury and all income and any tax withheld is identified in reports mailed to
shareholders in March of each year with a copy sent to the IRS.
If the ordinary income dividends from the Fund are effectively connected
with the conduct of a U.S. trade or business, then the foreign person may claim
an exemption from the U.S. tax described above provided the Fund obtains a
properly completed and signed Certificate of Foreign Status. If the foreign
person fails to provide a certification of his/her foreign status, the Fund will
be required to withhold U.S. tax at a rate of 28% on ordinary income dividends,
capital gains distributions and the proceeds of the redemption of shares, paid
to any foreign person. Any tax withheld by the Fund is remitted by the Fund to
the U.S. Treasury and all income and any tax withheld is identified in reports
mailed to shareholders in January of each year with a copy sent to the IRS.
The tax consequences to foreign persons entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors or the U.S. Internal
Revenue Service with respect to the particular tax consequences to them of an
investment in the Fund, including the applicability of the U.S. withholding
taxes described above.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds may be invested in shares of this Fund
on the same basis.
Additional Information About the Fund
The Distributor. The Fund’s shares are sold through dealers, brokers and
other financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund’s
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund’s Transfer Agent,
is a division of the Manager. It is responsible for maintaining the Fund’s
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It serves as the Transfer Agent for an
annual per account fee. It also acts as shareholder servicing agent for the
other Oppenheimer funds. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown on the
back cover.
The Custodian. Citibank, N.A. is the custodian of the Fund’s assets. The
custodian’s responsibilities include safeguarding and controlling the
Fund’s portfolio securities and handling the delivery of such securities to
and from the Fund. It is 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 Registered Public Accounting Firm. Ernst & Young, LLP serves as
the independent registered public accounting firm for the Fund. Ernst &
Young, LLP audits the Fund’s financial statements and performs other
related audit services. Ernst & Young, LLP also acts as the independent
registered public accounting firm for certain other funds advised by the Manager
and its affiliates. Audit and non-audit services provided by Ernst & Young
LLP to the Fund must be pre-approved by the Audit Committee.
TOTAL RETURN BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF OPPENHEIMER TOTAL RETURN BOND FUND
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Total Return Bond Fund (the "Fund"), including the statement of
investments, as of April 30, 2005, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of periods
indicated therein. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned
as of April 30, 2005, by correspondence with the custodian and others. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Total Return Bond Fund at April 30, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
/s/ Ernest & Young LLP
- ----------------------------
Ernest & Young LLP
New York, New York
May 26, 2005
STATEMENT OF INVESTMENTS April 30, 2005
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--12.8%
- -----------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 3.05%, 4/20/08 1,2 $ 70,000 $ 69,888
- -----------------------------------------------------------------------------------------------------------------------------
Bank One Auto Securitization Trust, Automobile Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%, 8/21/06 12,547 12,541
- -----------------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates:
Series 2004-A, Cl. A2, 1.88%, 10/25/06 112,202 111,917
Series 2005-A, Cl. A2, 3.65%, 12/26/07 270,000 269,875
- -----------------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.,
Series 2004-2, Cl. A3, 3.58%, 1/15/09 220,000 217,422
- -----------------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 10,625 10,608
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 1 80,510 80,085
Series 2005-B, Cl. AF1, 4.02%, 3/26/35 1 78,251 78,236
- -----------------------------------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home Equity
Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%, 4/25/23 3,253 3,248
Series 2003-1, Cl. 1A3, 3.14%, 7/25/23 36,249 36,190
Series 2003-4, Cl. 1A2, 2.138%, 7/25/18 93,405 93,185
Series 2003-5, Cl. 1A2, 2.451%, 11/25/18 50,000 49,747
Series 2004-1, Cl. 1A2, 2.427%, 6/25/19 140,000 139,166
- -----------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates, Series 2002-A, Cl. A4, 4.24%, 9/15/08 38,448 38,608
- -----------------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06 1 170,000 169,013
- -----------------------------------------------------------------------------------------------------------------------------
CIT Group Home Equity Loan Trust, Home Equity Loan Asset-Backed
Certificates, Series 2003-1, Cl. A2, 2.35%, 4/20/27 38,447 38,349
- -----------------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.:
Series 2001-A6, Cl. A6, 5.65%, 6/16/08 210,000 214,383
Series 2002-A3, Cl. A3, 4.40%, 5/15/07 160,000 160,185
Series 2003-C4, Cl. C4, 5%, 6/10/15 30,000 30,019
- -----------------------------------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity Collateralized Mtg.
Obligations, Series 2003-3, Cl. AF1, 3.14%, 8/25/33 2 18,840 18,851
- -----------------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Home Equity Mtg. Obligations,
Series 2004-OPT1, Cl. A1B, 2.388%, 9/1/34 1 28,411 28,376
- -----------------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc., Home Equity Asset-Backed
Certificates, Series 2002-4, Cl. A1, 3.39%, 2/25/33 2 21,136 21,400
- -----------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2001-D, Cl. A4, 3.78%, 2/6/07 36,892 36,948
Series 2002-A, Cl. A4, 4.49%, 10/6/08 82,626 83,004
Series 2003-B, Cl. A2, 1.61%, 7/10/06 67,996 67,973
Series 2004-B, Cl. A2, 2.48%, 2/8/07 1 75,709 75,548
Series 2004-C, Cl. A2, 2.62%, 6/8/07 310,000 308,907
Series 2005-A, Cl. A2, 3.17%, 9/8/07 1 270,000 269,374
- -----------------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Mtg. Pass-Through Certificates,
Series 2004-3, Cl. AF2, 3.80%, 7/25/34 40,000 39,705
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -----------------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2004-A, Cl. A2, 2.13%, 10/15/06 $ 243,984 $ 243,185
Series 2005-A, Cl. A3, 3.48%, 11/17/08 160,000 159,006
Series 2005-B, Cl. A2, 3.77%, 9/15/07 240,000 240,199
- -----------------------------------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08 74,451 74,187
- -----------------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2003-1, Cl. A3, 1.92%, 11/20/06 94,856 94,612
Series 2003-3, Cl. A2, 1.52%, 4/21/06 14,636 14,629
Series 2003-4, Cl. A2, 1.58%, 7/17/06 74,875 74,775
Series 2005-1, Cl. A2, 3.21%, 5/21/07 1 110,000 109,783
- -----------------------------------------------------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%, 12/18/06 14,526 14,522
- -----------------------------------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 35,565 35,544
Series 2003-1, Cl. A2, 1.60%, 7/20/06 721 721
- -----------------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 4.304%, 3/15/16 2 310,000 328,973
- -----------------------------------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2, 1.50%, 2/15/07 68,560 68,385
- -----------------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series 2004-A,
Cl. A2, 2.55%, 1/15/07 150,000 149,404
- -----------------------------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06 22,623 22,662
Series 2002-C, Cl. A3, 2.60%, 8/15/06 29,789 29,788
Series 2003-C, Cl. A2, 1.62%, 4/17/06 7,784 7,784
Series 2004-A, Cl. A2, 1.40%, 7/17/06 77,605 77,367
- -----------------------------------------------------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 3.17%, 11/25/34 1,2 55,616 55,657
- -----------------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity
Pass-Through Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34 1 60,000 59,494
Series 2005-1, Cl. A F2, 3.914%, 5/25/35 50,000 49,646
Series 2005-2, Cl. A F2, 4.415%, 4/25/35 1 80,000 80,000
- -----------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations,
Mtg. Pass-Through Certificates, Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 401,674 404,378
- -----------------------------------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed
Obligations, Series 2002-B, Cl. A4, 4.39%, 5/15/09 341,967 343,263
- -----------------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 8,116 8,117
Series 2004-1, Cl. A2, 1.43%, 9/15/06 148,960 148,672
Series 2004-2, Cl. A2, 2.41%, 2/15/07 167,516 167,073
Series 2004-3, Cl. A2, 2.79%, 6/15/07 150,000 149,491
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -----------------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07 $ 190,000 $ 189,206
Series 2005-A, Cl. A2, 3.52%, 4/20/07 200,000 199,873
- -----------------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust, Automobile Loan Receivable
Certificates, Series 2003-2, Cl. A2, 1.55%, 6/20/06 31,971 31,940
- -----------------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts., Series 2004-B,
Cl. A2, 2.40%, 5/21/07 140,000 139,517
- -----------------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 237,056 235,408
- -----------------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates:
Series 2002-1, Cl. A3, 2.60%, 8/15/06 105,410 105,332
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 25,442 25,436
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 190,000 189,151
-------------
Total Asset-Backed Securities (Cost $7,120,969) 7,099,931
- -----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--69.2%
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--59.6%
- -----------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--59.4%
Fannie Mae Whole Loan, Collateralized Mtg. Obligations Pass-Through
Certificates, Trust 2004-W9, Cl. 2A2, 7%, 2/25/44 325,506 344,426
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
6%, 9/1/34 1,722,185 1,769,308
6.50%, 4/1/18 3 132,173 137,701
6.50%, 7/1/28-4/1/34 216,081 225,298
7%, 7/1/21-3/1/33 1,424,035 1,503,753
7%, 5/1/35 3 480,000 506,550
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations, Gtd.
Multiclass Mtg. Participation Certificates, Series 2046, Cl. G, 6.50%, 4/15/28 609,727 635,644
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 28,320 28,443
Series 2034, Cl. Z, 6.50%, 2/15/28 76,541 79,960
Series 2053, Cl. Z, 6.50%, 4/15/28 86,439 90,024
Series 2055, Cl. ZM, 6.50%, 5/15/28 97,016 100,771
Series 2075, Cl. D, 6.50%, 8/15/28 236,104 245,832
Series 2080, Cl. Z, 6.50%, 8/15/28 65,389 67,812
Series 2387, Cl. PD, 6%, 4/15/30 113,566 115,369
Series 2466, Cl. PD, 6.50%, 4/15/30 1,631 1,631
Series 2498, Cl. PC, 5.50%, 10/15/14 12,021 12,092
Series 2500, Cl. FD, 3.454%, 3/15/32 2 35,509 35,625
Series 2526, Cl. FE, 3.354%, 6/15/29 2 33,991 34,260
Series 2550, Cl. QK, 4.50%, 4/15/22 46,021 46,076
Series 2551, Cl. FD, 3.354%, 1/15/33 2 27,975 28,194
Series 2583, Cl. KA, 5.50%, 3/15/22 303,243 306,083
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 7.283%, 6/1/26 4 $ 65,196 $ 13,004
Series 183, Cl. IO, 4.66%, 4/1/27 4 104,481 20,588
Series 184, Cl. IO, 9.55%, 12/1/26 4 108,725 21,318
Series 192, Cl. IO, 10.921%, 2/1/28 4 29,543 5,557
Series 200, Cl. IO, 10.315%, 1/1/29 4 35,606 7,053
Series 2130, Cl. SC, 13.484%, 3/15/29 4 78,778 6,474
Series 2796, Cl. SD, 20.553%, 7/15/26 4 114,049 11,582
Series 2920, Cl. S, 30.158%, 1/15/35 4 769,753 46,579
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 5.626%, 6/1/26 5 32,026 27,712
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
5%, 6/1/18-3/1/34 1,590,353 1,590,583
5%, 5/1/20-5/1/35 3 4,856,000 4,853,643
5.50%, 5/1/20-5/12/35 3 6,601,000 6,688,820
5.50%, 3/1/33-1/1/34 1,334,725 1,349,695
6%, 5/1/20 3 728,000 754,390
6%, 3/1/23-8/1/24 1,319,918 1,354,529
6.50%, 10/1/30 40,572 42,335
6.50%, 5/14/31 3 4,699,000 4,886,960
7%, 5/1/20 330,000 347,325
7%, 5/1/31 3 1,636,000 1,727,515
7.50%, 3/1/30 75,690 81,216
8.50%, 7/1/32 6,160 6,705
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 181,804 189,808
Trust 1996-35, Cl. Z, 7%, 7/25/26 284,507 298,542
Trust 1998-63, Cl. PG, 6%, 3/25/27 27,113 27,164
Trust 2001-50, Cl. NE, 6%, 8/25/30 63,744 64,529
Trust 2001-70, Cl. LR, 6%, 9/25/30 64,293 65,418
Trust 2001-72, Cl. NH, 6%, 4/25/30 47,943 48,623
Trust 2001-74, Cl. PD, 6%, 5/25/30 20,729 20,954
Trust 2002-77, Cl. WF, 3.37%, 12/18/32 2 43,244 43,528
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 69,596 69,599
Trust 2002-T1, Cl. A2, 7%, 11/25/31 239,526 253,449
Trust 2003-10, Cl. HP, 5%, 2/25/18 300,000 302,820
Trust 2003-21, Cl. FK, 3.25%, 3/25/33 2 76,880 77,398
Trust 2003-81, Cl. PA, 5%, 2/25/12 15,708 15,707
Trust 2004-101, Cl. BG, 5%, 1/25/20 186,000 188,152
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 319, Cl. 2, 5.122%, 2/1/32 4 72,862 14,339
Trust 2002-38, Cl. SO, 16.272%, 4/25/32 4 145,425 10,293
Trust 2002-47, Cl. NS, 12.53%, 4/25/32 4 141,188 14,231
Trust 2002-51, Cl. S, 12.782%, 8/25/32 4 129,654 13,071
Trust 2002-77, Cl. IS, 14.451%, 12/18/32 4 247,761 26,098
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, 5.18%, 6/1/23 4 $ 214,280 $ 43,293
Trust 240, Cl. 2, 8.33%, 9/1/23 4 327,992 64,801
Trust 247, Cl. 2, 6.999%, 10/1/23 4 391,859 89,177
Trust 252, Cl. 2, (1.03)%, 11/1/23 4 595,872 121,275
Trust 254, Cl. 2, 4.379%, 1/1/24 4 84,715 17,415
Trust 273, Cl. 2, 7.477%, 7/1/26 4 47,130 9,304
Trust 321, Cl. 2, (0.37)%, 3/1/32 4 740,506 148,830
Trust 329, Cl. 2, 8.72%, 1/1/33 4 331,251 69,205
Trust 331, Cl. 9, (14.513)%, 12/1/32 4 223,584 44,115
Trust 333, Cl. 2, 9.64%, 3/1/33 4 512,476 108,397
Trust 334, Cl. 17, (6.827)%, 2/1/33 4 124,990 24,483
Trust 2001-81, Cl. S, 17.012%, 1/25/32 4 79,626 8,079
Trust 2002-9, Cl. MS, 14.102%, 3/25/32 4 94,052 9,960
Trust 2002-52, Cl. SD, 8.349%, 9/25/32 4 166,842 16,223
Trust 2002-77, Cl. SH, 22.46%, 12/18/32 4 98,625 9,924
Trust 2004-54, Cl. DS, 17.68%, 11/25/30 4 147,743 11,992
Trust 2005-6, Cl. SE, 27.136%, 2/25/35 4 528,507 33,632
Trust 2005-19, Cl. SA, 26.97%, 3/25/35 4 2,077,902 127,503
Trust 2005-40, Cl. SA, 27.355%, 5/25/35 4 515,000 30,263
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 7.641%, 9/25/23 5 69,692 59,574
-------------
32,949,603
- -----------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 9.217%, 1/16/27 4 256,562 24,656
Series 2002-15, Cl. SM, 5.223%, 2/16/32 4 257,438 23,933
Series 2002-76, Cl. SY, 6.698%, 12/16/26 4 304,222 31,290
Series 2004-11, Cl. SM, 4.425%, 1/17/30 4 117,291 9,863
-------------
89,742
- -----------------------------------------------------------------------------------------------------------------------------
NON-AGENCY--9.6%
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--9.1%
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series 2004-6, Cl. A3, 4.512%, 12/10/42 170,000 168,542
- -----------------------------------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 115,164 115,200
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34 2 43,657 43,610
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 242,858 247,101
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 197,961 203,900
- -----------------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc.,
Commercial Mtg. Obligations:
Series 2003-T10, Cl. A1, 4%, 3/13/40 239,813 235,649
Series 2005-PWR7, Cl. A2, 4.945%, 2/11/41 90,000 91,308
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL Continued
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1, 3.20%, 10/25/34 2 $ 162,122 $ 162,298
- -----------------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%, 11/18/35 110,000 116,098
- -----------------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2003-C1, Cl. A2, 4.093%, 1/10/38 215,000 212,437
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 120,000 120,043
Series 2005-C1, Cl. A3, 4.578%, 6/10/48 80,000 79,699
- -----------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg. Obligations,
Series 2004-C3, Cl. A4, 4.547%, 12/10/41 110,000 109,307
- -----------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 80,230 84,067
- -----------------------------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 150,000 149,119
- -----------------------------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%, 10/10/28 118,740 116,200
Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 70,000 70,423
- -----------------------------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations, Series 04-12,
Cl. 3A1, 4.504%, 12/25/34 1,2 220,459 220,078
- -----------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2003-ML1A, Cl. A1, 3.972%, 3/12/39 148,949 146,334
- -----------------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg. Obligations,
Series 2004-6, Cl. 10A1, 6%, 7/25/34 300,339 308,631
- -----------------------------------------------------------------------------------------------------------------------------
Mastr Asset Securitization Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3, 4.70%, 8/25/34 2 251,558 251,869
- -----------------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 130,000 138,084
- -----------------------------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 182,000 206,436
- -----------------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C16, Cl. A2, 4.38%, 10/15/41 230,000 229,073
Series 2005-C17, Cl. A2, 4.763%, 3/15/42 270,000 273,064
- -----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.852%, 4/25/35 330,000 331,371
- -----------------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-DD, Cl. 2 A1, 4.544%, 1/25/35 2 324,917 326,267
Series 2004-N, Cl. A10, 3.803%, 8/25/34 1 214,437 214,836
Series 2004-W, Cl. A2, 4.616%, 11/25/34 2 108,537 108,424
-------------
5,079,468
- -----------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.5%
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 279,573 284,049
-------------
Total Mortgage-Backed Obligations (Cost $38,338,926) 38,402,862
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--18.6%
- -----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
3.625%, 9/15/06 $ 370,000 $ 369,416
6.875%, 9/15/10 300,000 337,118
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.75%, 5/17/07 530,000 527,835
4.25%, 7/15/07 6 365,000 367,742
7.25%, 1/15/10-5/15/30 430,000 513,269
- -----------------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30 60,000 78,972
Series A, 6.79%, 5/23/12 2,193,000 2,507,636
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.375%, 8/15/12 60,000 61,397
5.375%, 2/15/31 249,000 281,312
5.50%, 8/15/28 165,000 185,844
6.875%, 8/15/25 1,310,000 1,698,191
STRIPS, 1.65%, 2/15/11 7 555,000 442,088
STRIPS, 3.86%, 2/15/13 7 1,089,000 787,911
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06-10/31/06 1,310,000 1,291,380
3%, 2/15/08 870,000 853,620
-------------
Total U.S. Government Obligations (Cost $10,299,248) 10,303,731
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.2%
- -----------------------------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $81,883) 75,000 83,438
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--28.9%
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.0%
- -----------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS--0.5%
Delphi Corp., 6.55% Nts., 6/15/06 130,000 122,200
- -----------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B, 5/15/09 165,000 166,818
-------------
289,018
- -----------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES--2.3%
American Honda Finance Corp., 3.85% Nts., 11/6/08 8 150,000 147,423
- -----------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler NA Holdings Corp., 7.20% Unsec. Nts., 9/1/09 230,000 243,982
- -----------------------------------------------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec. Unsub. Debs., 3/1/30 45,000 43,127
- -----------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
6.50% Unsec. Nts., 1/25/07 160,000 160,048
7.375% Nts., 10/28/09 45,000 43,330
- -----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
7.25% Nts., 3/2/11 220,000 197,547
8% Bonds, 11/1/31 180,000 151,829
- -----------------------------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 275,000 269,340
-------------
1,256,626
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.9%
Hilton Hotels Corp., 7.95% Sr. Nts., 4/15/07 $ 75,000 $ 80,024
- -----------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts., 5/1/07 175,000 182,000
- -----------------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 195,000 203,215
-------------
465,239
- -----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.7%
Beazer Homes USA, Inc., 8.625% Sr. Unsec. Nts., 5/15/11 90,000 95,850
- -----------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 90,000 91,176
- -----------------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 105,000 110,152
- -----------------------------------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 90,000 96,638
-------------
393,816
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA--2.3%
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 205,000 221,654
- -----------------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.875% Unsec. Nts., 8/15/09 25,000 27,874
- -----------------------------------------------------------------------------------------------------------------------------
Cox Enterprises, Inc., 7.375% Unsec. Debs., 6/15/09 8 115,000 124,258
- -----------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13 130,000 123,118
- -----------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 220,000 280,666
- -----------------------------------------------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs., 1/15/13 150,000 188,588
- -----------------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 29,000 28,494
3.50% Sr. Unsec. Nts., 10/15/07 155,000 152,028
- -----------------------------------------------------------------------------------------------------------------------------
Walt Disney Co. (The), 5.375% Sr. Unsec. Nts., 6/1/07 125,000 127,805
-------------
1,274,485
- -----------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.9%
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 150,000 159,377
- -----------------------------------------------------------------------------------------------------------------------------
J. C. Penney Co., Inc., 7.40% Nts., 4/1/37 165,000 165,000
- -----------------------------------------------------------------------------------------------------------------------------
May Department Stores Co.:
3.95% Nts., 7/15/07 95,000 94,133
7.90% Unsec. Debs., 10/15/07 90,000 96,638
-------------
515,148
- -----------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Gap, Inc. (The):
6.90% Nts., 9/15/07 1 185,000 192,730
10.05% Unsub. Nts., 12/15/08 2 23,000 26,599
-------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.2%
- -----------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.3%
Albertson's, Inc.:
8% Sr. Unsec. Debs., 5/1/31 $ 110,000 $ 128,633
8.70% Sr. Unsec. Debs., 5/1/30 56,000 70,018
- -----------------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 100,000 118,323
- -----------------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 135,000 144,640
- -----------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.80% Sr. Unsec. Nts., 7/16/07 245,000 246,565
-------------
708,179
- -----------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.9%
ConAgra Foods, Inc., 6% Nts., 9/15/06 110,000 112,715
- -----------------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 170,000 168,533
- -----------------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 230,000 234,521
-------------
515,769
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY--0.6%
- -----------------------------------------------------------------------------------------------------------------------------
OIL & GAS--0.6%
Chesapeake Energy Corp., 7.50% Sr. Nts., 6/15/14 105,000 110,513
- -----------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 90,000 98,475
- -----------------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 7.875% Unsec. Unsub. Nts., 2/1/09 65,000 70,688
- -----------------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 8 60,515 58,003
-------------
337,679
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIALS--8.9%
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.5%
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 15,000 16,344
- -----------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston (USA), Inc., 5.50% Nts., 8/15/13 250,000 261,376
-------------
277,720
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.7%
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13 3,000 3,033
- -----------------------------------------------------------------------------------------------------------------------------
Mellon Bank NA, 4.75% Unsec. Sub. Nts., 12/15/14 210,000 208,385
- -----------------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 15,000 16,291
- -----------------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 115,000 114,360
7.75% Unsec. Sub. Nts., 5/1/10 10,000 11,474
-------------
353,543
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.5%
HSBC Finance Corp., 4.75% Sr. Unsec. Nts., 7/15/13 265,000 262,523
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.3%
AIG SunAmerica Global Financing II, 7.60% Sr. Sec. Nts., 6/15/05 8 $ 80,000 $ 80,376
- -----------------------------------------------------------------------------------------------------------------------------
American Express Centurion Bank, 4.375% Nts., 7/30/09 250,000 250,413
- -----------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 175,000 204,341
- -----------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32 230,000 265,326
- -----------------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 50,000 49,522
- -----------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70% Sr. Unsec. Nts., 9/1/12 245,000 257,241
- -----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 140,000 150,189
- -----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 20,000 21,221
- -----------------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F, 3/15/12 200,000 227,854
- -----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C, 2/3/14 260,000 261,720
- -----------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 70,000 76,764
-------------
1,844,967
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.2%
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 8 40,000 39,857
- -----------------------------------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts., 7/30/07 60,000 59,266
- -----------------------------------------------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30 90,000 120,499
- -----------------------------------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375% Nts., 6/1/06 50,000 49,017
- -----------------------------------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10 8 145,000 167,735
- -----------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.375% Sr. Unsec. Nts., 3/15/07 150,000 152,689
- -----------------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 110,000 117,757
- -----------------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 8 105,000 136,615
- -----------------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 145,000 194,204
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts., 3/15/08 190,000 186,715
-------------
1,224,354
- -----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE--1.7%
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 98,000 102,667
8.10% Unsec. Nts., 8/1/10 95,000 109,138
- -----------------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc., 4.875% Sr. Unsec. Nts., Series B, 1/15/09 205,000 203,385
- -----------------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 115,000 118,764
- -----------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP:
5.45% Unsec. Nts., 3/15/13 102,000 104,240
5.625% Unsec. Unsub. Nts., 8/15/14 100,000 102,507
- -----------------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 195,000 200,615
-------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.5%
- -----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.1%
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 $ 190,000 $ 195,234
- -----------------------------------------------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts., 5/15/07 225,000 238,064
- -----------------------------------------------------------------------------------------------------------------------------
HCA Healthcare Corp., 6.91% Sr. Sub. Nts., 6/15/05 81,000 81,286
- -----------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06 60,000 61,870
- -----------------------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc., 4.875% Bonds, 3/15/15 65,000 65,349
-------------
641,803
- -----------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--0.4%
Merck & Co., Inc., 4.726% Nts., 2/22/06 8 210,000 211,179
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--2.2%
- -----------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.6%
Boeing Capital Corp., 5.75% Sr. Nts., 2/15/07 17,000 17,471
- -----------------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp., 7.65% Unsec. Unsub. Debs., 5/1/16 82,000 99,774
- -----------------------------------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875% Unsec. Unsub. Nts., 11/1/06 26,000 27,008
- -----------------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 135,000 152,022
- -----------------------------------------------------------------------------------------------------------------------------
Raytheon Co., 6.50% Unsec. Nts., 7/15/05 32,000 32,186
-------------
328,461
- -----------------------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.4%
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 215,000 209,048
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.6%
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B, 4/1/08 85,000 87,763
- -----------------------------------------------------------------------------------------------------------------------------
Waste Management, Inc.:
7% Sr. Nts., 7/15/28 70,000 79,994
7.125% Sr. Unsec. Nts., 10/1/07 145,000 154,194
-------------
321,951
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.3%
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 135,000 137,603
6.75% Sr. Unsub. Nts., 2/15/11 61,000 67,050
-------------
204,653
- -----------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL--0.3%
Canadian National Railway Co., 4.25% Nts., 8/1/09 29,000 28,897
- -----------------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 140,000 148,263
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.0%
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.6%
British Telecommunications plc, 8.625% Bonds, 12/15/30 $ 115,000 $ 157,512
- -----------------------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 34,000 36,975
- -----------------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts., 6/15/10 125,000 145,122
- -----------------------------------------------------------------------------------------------------------------------------
France Telecom SA:
8% Sr. Unsec. Nts., 3/1/11 2 125,000 144,226
8.75% Sr. Unsec. Nts., 3/1/31 2 45,000 61,108
- -----------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp.:
6% Sr. Unsec. Nts., 1/15/07 100,000 102,692
8.75% Nts., 3/15/32 80,000 107,906
- -----------------------------------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.75% Nts., 1/27/10 8 130,000 127,895
-------------
883,436
- -----------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.4%
AT&T Wireless Services, Inc., 8.125% Sr. Unsec. Nts., 5/1/12 180,000 213,103
- -----------------------------------------------------------------------------------------------------------------------------
UTILITIES--3.5%
- -----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.0%
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08 105,000 108,748
8.125% Unsec. Nts., Series B, 7/15/05 50,000 50,472
- -----------------------------------------------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts., Series B, 6/1/05 26,000 26,032
- -----------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7% Unsec. Nts., 4/1/12 180,000 202,152
- -----------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 80,000 92,239
- -----------------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 100,000 102,546
- -----------------------------------------------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts., 8/15/14 120,000 123,639
- -----------------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06 90,000 91,698
7.375% Sr. Unsub. Nts., Series C, 11/15/31 105,000 124,140
- -----------------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 1,2 100,000 108,000
- -----------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 130,000 137,145
- -----------------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts., 2/1/10 8 120,000 133,636
- -----------------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06 105,000 107,802
- -----------------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 1 95,000 97,850
- -----------------------------------------------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts., 12/1/07 65,000 73,450
- -----------------------------------------------------------------------------------------------------------------------------
TXU Corp., 4.80% Nts., 11/15/09 8 95,000 93,216
-------------
1,672,765
PRINICIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.5%
NiSource Finance Corp.:
3.20% Nts., 11/1/06 $ 30,000 $ 29,608
7.875% Sr. Unsec. Nts., 11/15/10 125,000 144,501
- -----------------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts., 3/1/10 103,000 117,191
-------------
291,300
-------------
Total Corporate Bonds and Notes (Cost $16,175,874) 16,034,570
- -----------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--4.8%
- -----------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.20% in joint repurchase agreement (Principal Amount/Value
$1,318,039,000, with a maturity value of $1,318,355,329) with UBS Warburg LLC, 2.88%,
dated 4/29/05, to be repurchased at $2,688,645 on 5/2/05, collateralized by Federal
National Mortgage Assn., 5%--6%, 3/1/34--8/1/34, with a value of
$1,345,611,059 (Cost $2,688,000) 2,688,000 2,688,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $74,704,900) 134.5% 74,612,532
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (34.5) (19,151,429)
---------------------------------
NET ASSETS 100.0% $ 55,461,103
=================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Illiquid security. The aggregate value of illiquid securities as of April 30,
2005 was $1,908,948, which represents 3.44% of the Fund's net assets. See Note 6
of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. When-issued security or forward commitment to be delivered and settled after
April 30, 2005. See Note 1 of Notes to Financial Statements.
4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $1,287,800 or 2.32% of the Fund's net assets
as of April 30, 2005.
5. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these 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. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $87,286 or 0.16% of the Fund's net assets as of April
30, 2005.
6. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. The collateralized
portion has an aggregate market value of $302,254. See Note 5 of Notes to
Financial Statements.
7. Zero coupon bond reflects effective yield on the date of purchase.
8. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $1,320,193 or 2.38% of the Fund's net
assets as of April 30, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES April 30, 2005
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments, at value (cost $74,704,900)--see accompanying statement of investments $ 74,612,532
- ---------------------------------------------------------------------------------------------------------
Cash 200,744
- ---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 536,230
Investments sold on a when-issued basis or forward commitment 333,415
Shares of beneficial interest sold 156,234
Futures margins 22,074
Other 3,637
-------------
Total assets 75,864,866
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $19,785,237 purchased on a when-issued basis
or forward commitment) 20,222,925
Dividends 83,153
Shares of beneficial interest redeemed 46,411
Shareholder communications 18,588
Transfer and shareholder servicing agent fees 6,641
Distribution and service plan fees 5,800
Trustees' compensation 225
Other 20,020
-------------
Total liabilities 20,403,763
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $ 55,461,103
=============
- ---------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 5,527
- ---------------------------------------------------------------------------------------------------------
Additional paid-in capital 55,519,994
- ---------------------------------------------------------------------------------------------------------
Accumulated net investment income 96,126
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (123,217)
- ---------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (37,327)
-------------
NET ASSETS $ 55,461,103
=============
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $41,647,660 and
4,150,188 shares of beneficial interest outstanding) $10.04
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $10.54
- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $4,244,435 and 422,922 shares of
beneficial interest outstanding) $10.04
- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $6,757,125 and 673,574 shares of
beneficial interest outstanding) $10.03
- ---------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $2,811,883 and 280,171 shares of
beneficial interest outstanding) $10.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS For the Year Ended April 30, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $ 1,644,789
- --------------------------------------------------------------------------------
Fee income 463,463
-------------
Total investment income 2,108,252
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 241,713
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 31,747
Class B 35,992
Class C 46,234
Class N 8,964
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 27,622
Class B 16,266
Class C 15,081
Class N 5,160
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 5,684
Class B 12,103
Class C 10,022
Class N 1,629
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees 37,326
- --------------------------------------------------------------------------------
Trustees' compensation 8,360
- --------------------------------------------------------------------------------
Custodian fees and expenses 2,032
- --------------------------------------------------------------------------------
Other 14,811
-------------
Total expenses 520,746
Less reduction to custodian expenses (1,583)
Less waivers and reimbursements of expenses (58,795)
-------------
Net expenses 460,368
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,647,884
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments $ (45,736)
Closing of futures contracts 172,301
Swap contracts (2,677)
-------------
Net realized gain 123,888
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 316,373
Futures contracts 90,170
Swap contracts 24,851
-------------
Net change in unrealized depreciation 431,394
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,203,166
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 2005 2004
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,647,884 $ 995,619
- -------------------------------------------------------------------------------------------------------------------
Net realized gain 123,888 526,743
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation 431,394 (695,353)
---------------------------------
Net increase in net assets resulting from operations 2,203,166 827,009
- -------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (1,371,124) (937,199)
Class B (97,975) (49,017)
Class C (126,494) (34,611)
Class N (58,268) (9,716)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (321,230) (179,397)
Class B (31,264) (14,472)
Class C (43,977) (10,826)
Class N (18,161) (2,729)
- -------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A 5,992,710 8,253,430
Class B 1,339,849 2,136,318
Class C 3,818,993 2,587,144
Class N 1,982,293 821,065
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Total increase 13,268,518 13,386,999
- -------------------------------------------------------------------------------------------------------------------
Beginning of period 42,192,585 28,805,586
---------------------------------
End of period (including accumulated net investment income
of $96,126 and $7,543, respectively) $ 55,461,103 $ 42,192,585
=================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 2 .28 .03
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .48 .26 .11
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.29) (.03)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.44) (.34) (.03)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.89% 2.64% 1.14%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 41,648 $ 35,522 $ 27,598
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 38,411 $ 32,578 $ 26,027
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.56% 2.78% 1.77%
Total expenses 0.80% 0.79% 1.29%
Expenses after payments and waivers and
reduction to custodian expenses 0.79% 0.73% 0.90%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 2 .19 .02
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .39 .17 .10
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.20) (.02)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.35) (.25) (.02)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.00% 1.69% 0.97%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 4,244 $ 2,896 $ 798
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 3,610 $ 2,444 $ 340
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.70% 1.91% 0.85%
Total expenses 2.41% 2.20% 2.36%
Expenses after payments and waivers and reduction
to custodian expenses 1.65% 1.65% 1.65%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CLASS C YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.99 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 2 .19 .02
Net realized and unrealized gain (loss) .12 (.03) .08
-------------------------------------------------
Total from investment operations .39 .16 .10
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.20) (.02)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.35) (.25) (.02)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.03 $ 9.99 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 3.99% 1.60% 0.96%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 6,757 $ 2,943 $ 388
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 4,641 $ 1,679 $ 126
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.71% 1.95% 0.59%
Total expenses 2.17% 2.12% 2.28%
Expenses after payments and waivers and reduction
to custodian expenses 1.65% 1.65% 1.65%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED APRIL 30, 2005 2004 2003 1
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00 $ 10.08 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .32 2 .24 .03
Net realized and unrealized gain (loss) .12 (.02) .08
-------------------------------------------------
Total from investment operations .44 .22 .11
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.25) (.03)
Distributions from net realized gain (.08) (.05) --
-------------------------------------------------
Total dividends and/or distributions to shareholders (.40) (.30) (.03)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.04 $ 10.00 $ 10.08
=================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 4.51% 2.20% 1.08%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,812 $ 831 $ 22
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,802 $ 386 $ 6
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.22% 2.40% 1.50%
Total expenses 1.51% 1.34% 2.63%
Expenses after payments and waivers and reduction
to custodian expenses 1.15% 1.15% 1.15%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 5 131% 5 77%
1. For the period from February 21, 2003 (commencement of operations) to April
30, 2003.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment at net asset value 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. Returns do not reflect the deduction of
taxes a shareholder would pay on Fund distributions or the redemption of Fund
shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchases and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------
April 30, 2005 $280,759,754 $281,155,514
April 30, 2004 198,777,129 189,672,219
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Total Return Bond Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek to maximize total return through both
capital appreciation and income. As a secondary objective, it emphasizes
preservation of capital. The Fund's investment advisor is OppenheimerFunds, Inc.
(the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. As of April 30, 2005, the Manager owned 45% of the
Fund's shares. Class B, Class C and Class N shares are sold without a front-end
sales charge but may be subject to a contingent deferred sales charge (CDSC).
Class N shares are sold only through retirement plans. Retirement plans that
offer Class N shares may impose charges on those accounts. All classes of shares
have identical rights and voting privileges with respect to the Fund in general
and exclusive voting rights on matters that affect that class alone. Earnings,
net assets and net asset value per share may differ due to each class having its
own expenses, such as transfer and shareholder servicing agent fees and
shareholder communications, directly attributable to that class. Class A, B, C
and N have separate distribution and/or service plans. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing "bid" and "asked" prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of sixty days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Futures contracts traded on a
commodities or futures exchange will be valued at the final settlement price or
official closing price on the principal exchange as reported by such principal
exchange at its trading session ending at, or most recently prior to, the time
when the Fund's assets are valued. Securities may be valued primarily using
dealer-supplied valuations or a portfolio pricing service authorized by the
Board of Trustees. Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value. Foreign and
domestic securities whose values have been materially affected by what the
Manager identifies as a significant event occurring before the Fund's assets are
valued but after
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
the close of their respective exchanges will be fair valued. Fair value is
determined in good faith using consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of April 30, 2005, the Fund had purchased $19,785,237
of securities issued on a when-issued basis or forward commitment and sold
$333,415 of securities issued on a when-issued basis or forward commitment.
In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.
Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be
42 | OPPENHEIMER TOTAL RETURN BOND FUND
sufficient to cover payments of interest and principal. In the event of default
by the other party to the agreement, retention of the collateral may be subject
to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
DEPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3,4 TAX PURPOSES
------------------------------------------------------------------------------
$109,345 $ -- $81,399 $92,368
1. As of April 30, 2005, the Fund had $67,482 of post-October losses available
to offset future realized capital gains, if any. Such losses, if unutilized,
will expire in 2014.
2. The Fund had $13,917 of straddle losses which were deferred.
3. During the fiscal year ended April 30, 2005, the Fund did not utilize any
capital loss carryforward.
4. During the fiscal year ended April 30, 2004, the Fund did not utilize any
capital loss carryforward.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for April 30, 2005. Net assets of the
Fund were unaffected by the reclassifications.
INCREASE TO INCREASE TO
ACCUMULATED ACCUMULATED NET
NET INVESTMENT REALIZED LOSS
INCOME ON INVESTMENTS
---------------------------------------------
$94,560 $94,560
43 | OPPENHEIMER TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
The tax character of distributions paid during the years ended April 30, 2005
and April 30, 2004 was as follows:
YEAR ENDED YEAR ENDED
APRIL 30, 2005 APRIL 30, 2004
-----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 2,009,882 $ 1,099,958
Long-term capital gain 58,611 138,009
----------------------------------
Total $ 2,068,493 $ 1,237,967
==================================
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments
for federal income tax purposes as of April 30, 2005 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.
Federal tax cost of securities $ 74,704,900
Federal tax cost of other investments (12,934,048)
-------------
Total federal tax cost $ 61,770,852
=============
Gross unrealized appreciation $ 469,710
Gross unrealized depreciation (562,078)
-------------
Net unrealized depreciation $ (92,368)
=============
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
daily and paid monthly. Capital gain distributions, if any, are declared and
paid annually.
- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
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 APRIL 30, 2005 YEAR ENDED APRIL 30, 2004
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
CLASS A
Sold 1,066,067 $ 10,715,419 1,097,321 $ 11,099,906
Dividends and/or
distributions reinvested 54,023 543,541 23,011 231,801
Redeemed (523,711) (5,266,250) (304,660) (3,078,277)
-------------------------------------------------------------
Net increase 596,379 $ 5,992,710 815,672 $ 8,253,430
=============================================================
- ------------------------------------------------------------------------------------------------
CLASS B
Sold 248,698 $ 2,501,568 338,504 $ 3,425,891
Dividends and/or
distributions reinvested 11,443 115,136 5,465 55,025
Redeemed (126,951) (1,276,855) (133,432) (1,344,598)
-------------------------------------------------------------
Net increase 133,190 $ 1,339,849 210,537 $ 2,136,318
=============================================================
- ------------------------------------------------------------------------------------------------
CLASS C
Sold 458,302 $ 4,615,150 299,731 $ 3,028,348
Dividends and/or
distributions reinvested 16,060 161,543 4,441 44,736
Redeemed (95,285) (957,700) (48,158) (485,940)
-------------------------------------------------------------
Net increase 379,077 $ 3,818,993 256,014 $ 2,587,144
=============================================================
- ------------------------------------------------------------------------------------------------
CLASS N
Sold 218,611 $ 2,199,418 97,335 $ 983,787
Dividends and/or
distributions reinvested 7,583 76,293 1,242 12,515
Redeemed (29,185) (293,418) (17,548) (175,237)
-------------------------------------------------------------
Net increase 197,009 $ 1,982,293 81,029 $ 821,065
=============================================================
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
April 30, 2005, were $44,859,618 and $25,833,181, respectively. There were
purchases of $9,916,152 and sales of $10,466,880 of U.S. government and
government agency obligations for the year ended April 30, 2005. In addition,
there were purchases of $280,759,754 and sales of $281,155,514 of To Be
Announced (TBA) mortgage-related securities for the year ended April 30, 2005.
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.50% of the first $250 million of average annual net assets of
the Fund, 0.475% of the next $500 million, and 0.45% of average annual net
assets in excess of $750 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended April 30, 2005, the Fund paid $56,737
to OFS for services to the Fund.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses all of those fees to
pay dealers, brokers, banks and other financial institutions quarterly for
providing personal services and maintenance of accounts of their customers that
hold Class A shares. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
years. Fees incurred by the Fund under the Plan are detailed in the Statement of
Operations.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Trustees and its independent trustees must determine whether the
Distributor shall be entitled to payment from the Fund of all or a portion of
the service
46 | OPPENHEIMER TOTAL RETURN BOND FUND
fee and/or asset-based sales charge in respect to shares sold prior to the
effective date of such termination. The Distributor's aggregate uncompensated
expenses under the plan at April 30, 2005 for Class B, Class C and Class N
shares were $106,487, $79,904 and $59,930, respectively. Fees incurred by the
Fund under the plans are detailed in the Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- --------------------------------------------------------------------------------------------------------------
April 30, 2005 $58,309 $-- $15,271 $1,143 $1,551
- --------------------------------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager has voluntarily agreed to
waive management fees and/or reimburse expenses such that "Total Annual
Operating Expenses" will not exceed 0.90% for Class A shares, 1.65% for Class B
shares, 1.65% for Class C shares and 1.15% for Class N shares, respectively.
During the year ended April 30, 2005, the Manager reimbursed the Fund $1,130,
$23,935, $23,903 and $6,387 for Class A, Class B, Class C and Class N shares,
respectively. The voluntary waiver described above may be amended or withdrawn
at any time.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class.
During the year ended April 30, 2005, OFS waived $3,440 for Class B shares. This
undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS CONTINUED
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation or depreciation is reported
in the Statement of Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of April 30, 2005, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS APRIL 30, 2005 (DEPRECIATION)
- ---------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 6/21/05 37 $ 4,249,219 $ 80,302
U.S. Treasury Nts., 10 yr. 6/21/05 24 2,674,125 36,722
-----------
117,024
-----------
CONTRACTS TO SELL
U. S. Treasury Nts., 2 yr. 6/30/05 46 9,554,344 (12,463)
U. S. Treasury Nts., 5 yr. 6/21/05 95 10,303,047 (49,520)
-----------
(61,983)
-----------
$ 55,041
===========
- --------------------------------------------------------------------------------
6. ILLIQUID SECURITIES
As of April 30, 2005, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund will not invest more than 15% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.
- --------------------------------------------------------------------------------
7. LITIGATION
A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor, as well as 51 of the
Oppenheimer funds (as "Nominal Defendants") including the Fund, 30 present and
former Directors or Trustees and 8 present and former officers of the funds.
This complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.
The defendants believe that the allegations contained in the Complaints
are without merit and that they have meritorious defenses against the claims
asserted. The defendants intend to defend these lawsuits vigorously and to
contest any claimed liability. The defendants believe that it is premature to
render any opinion as to the likelihood of an outcome unfavorable to them and
that no estimate can yet be made with any degree of certainty as to the amount
or range of any potential loss.
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies
listed below. Those ratings represent the opinion of the agency as to the credit quality of
issues that they rate. The summaries below are based upon publicly available information
provided by the rating organizations.
Moody’s Investors Service, Inc. (“Moody’s”)
Long-Term Ratings: Bonds and Preferred Stock Issuer Ratings
Aaa: Bonds and preferred stock rated “Aaa” are judged to be the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various protective elements are
likely to change, the changes that can be expected are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds and preferred stock 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 risk appear somewhat larger than that of
“Aaa” securities.
A: Bonds and preferred stock 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 some time in the future.
Baa: Bonds and preferred stock rated “Baa” are considered medium-grade obligations; that is,
they are neither highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and have speculative characteristics as well.
Ba: Bonds and preferred stock 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 thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock rated “B” generally lack characteristics of the 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 and preferred stock rated “Caa” are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or interest.
Ca: Bonds and preferred stock rated “Ca” represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds and preferred stock rated “C” are the lowest class of rated bonds and can be regarded
as having extremely poor prospects of ever attaining any real investment standing.
Moody’s applies numerical modifiers 1, 2, and 3 in each generic rating classification from “Aa”
through “Caa.” The modifier “1” indicates that the obligation ranks in the higher end of its
generic rating category; the modifier “2” indicates a mid-range ranking; and the modifier “3”
indicates a ranking in the lower end of that generic rating category. Advanced refunded issues
that are secured by certain assets are identified with a # symbol.
Prime Rating System (Short-Term Ratings – Taxable Debt)
These ratings are opinions of the ability of issuers to honor senior financial obligations and
contracts. Such obligations generally have an original maturity not exceeding one year, unless
explicitly noted.
Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations.
Earnings trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more pronounced. Variability
in earnings and profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor’s Ratings Services (“Standard & Poor’s”), a division of The McGraw-Hill
Companies, Inc.
Long-Term Issue Credit Ratings
Issue credit ratings are based in varying degrees, on the following considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other
laws affecting creditors’ rights.
The issue ratings definitions are expressed in terms of default risk. As such, they pertain
to senior obligations of an entity. Junior obligations are typically rated lower than senior
obligations, to reflect the lower priority in bankruptcy, as noted above.
AAA: An obligation rated “AAA” have the highest rating assigned by
Standard & Poor’s. The obligor’s capacity to meet its financial
commitment on the obligation is extremely strong.
AA: An obligation rated “AA” differ from the highest rated obligations
only in small degree. The obligor’s capacity to meet its financial
commitment on the obligation is very strong.
A: An obligation rated “A” are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor’s capacity to
meet its financial commitment on the obligation is still strong.
BBB: An obligation rated “BBB” exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC, and C
An obligation rated ‘BB’, ‘B’, ‘CCC’,
‘CC’, and ‘C’ are regarded as having significant speculative
characteristics. ‘BB’ indicates the least degree of speculation and
‘C’ the highest. While such obligations will likely have some quality
and protective characteristics, these may be outweighed by large uncertainties
or major exposures to adverse conditions.
BB: An obligation rated “BB” are less vulnerable to nonpayment than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to the obligor’s inadequate capacity to meet its financial commitment on
the obligation.
B: An obligation rated “B” are more vulnerable to nonpayment than
obligations rated “BB”, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or
willingness to meet its financial commitment on the obligation.
CCC: An obligation rated “CCC” are currently vulnerable to nonpayment,
and are dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the event
of adverse business, financial, or economic conditions, the obligor is not
likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated “CC” are currently highly vulnerable to
nonpayment.
C: Subordinated debt or preferred stock obligations rated “C” are
currently highly vulnerable to nonpayment. The “C” rating may be used
to cover a situation where a bankruptcy petition has been filed or similar
action taken, but payments on this obligation are being continued. A
“C” also will be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
D: An obligation rated “D” are in payment default. The “D”
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor’s believes that such payments will be made during such grace period.
The “D” rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
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.
c: The ‘c’ subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer’s bonds are deemed taxable.
p: The letter ‘p’ indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor’s receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
r: The ‘r’ highlights derivative, hybrid, and certain other
obligations that Standard & Poor’s believes may experience high
volatility or high variability in expected returns as a result of noncredit
risks. Examples of such obligations are securities with principal or interest
return indexed to equities, commodities, or currencies; certain swaps and
options; and interest-only and principal-only mortgage securities. The absence
of an ‘r’ symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R. Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories (‘AAA’,
‘AA’, ‘A’, ‘BBB’, commonly known as
investment-grade ratings) generally are regarded as eligible for bank
investment. Also, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies, and fiduciaries in general
Short-Term Issue Credit Ratings Short-term ratings are generally assigned to
those obligations considered short-term in the relevant market. In the U.S., for
example, that means obligations with an original maturity of no more than 365
days-including commercial paper.
A-1: A short-term obligation rated “A-1” is rated in the highest
category by Standard & Poor’s. The obligor’s capacity to meet its
financial commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations is
extremely strong.
A-2: A short-term obligation rated “A-2” is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to
meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated “A-3” exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated “B” is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor’s inadequate capacity to meet
its financial commitment on the obligation.
C: A short-term obligation rated “C” is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated “D” is in payment default. The
“D” rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not expired, unless
Standard & Poor’s believes that such payments will be made during such
grace period. The “D” rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Notes:
A Standard & Poor’s note rating reflects the liquidity factors and market access risks unique to
notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond
three years will most likely receive a long-term debt rating. The following criteria will be
used in making that assessment:
o Amortization schedule-the larger the final maturity relative to other maturities, the
more likely it will
be treated as a note; and
o Source of payment-the more dependent the issue is on the market for its refinancing,
the more likely
it will be treated as a note.
SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
International credit ratings assess the capacity to meet foreign currency or
local currency commitments. Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local currency rating measures
the probability of payment within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency rating, does not take
account of the possibility of foreign exchange controls limiting transfer into
foreign currency.
International Long-Term Credit Ratings
The following ratings scale applies to foreign currency and local currency ratings.
Investment Grade:
AAA: Highest Credit Quality. “AAA” ratings denote the lowest
expectation of credit risk. They are assigned only in the case of exceptionally
strong capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events. AA: Very High
Credit Quality. “AA” ratings denote a very low expectation of credit
risk. They indicate a very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High Credit Quality. “A” ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. “BBB” ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative Grade:
BB: Speculative. “BB” ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. “B” ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial commitments
are currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A “CC” rating indicates that
default of some kind appears probable. “C” ratings signal imminent
default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. “DDD” obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and accrued interest.
“DD” indicates potential recoveries in the range of 50%-90%, and
“D” the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated “DDD” have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated “DD” and “D” are
generally undergoing a formal reorganization or liquidation process; those rated
“DD” are likely to satisfy a higher portion of their outstanding
obligations, while entities rated “D” have a poor prospect for
repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the “AAA” category or to categories below “CCC,”
nor to short-term ratings other than “F1” (see below).
International Short-Term Credit Ratings The following ratings scale applies to
foreign currency and local currency ratings. A short-term rating has a time
horizon of less than 12 months for most obligations, or up to three years for
U.S. public finance securities, and thus places greater emphasis on the
liquidity necessary to meet financial commitments in a timely manner.
F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added “+” to denote any exceptionally strong
credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is
adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
Appendix B
Industry Classifications
Aerospace & Defense Household Products
Air Freight & Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet & Catalog Retail
Automobiles Internet Software & Services
Beverages IT Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals & Mining
Commercial Services & Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers & Peripherals Office Electronics
Construction & Engineering Oil & Gas
Construction Materials Paper & Forest Products
Containers & Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Services Road & Rail
Electric Utilities Semiconductors and Semiconductor Equipment
Electrical Equipment Software
Electronic Equipment & Instruments Specialty Retail
Energy Equipment & Services Textiles, Apparel & Luxury Goods
Food & Staples Retailing Thrifts & Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies & Distributors
Health Care Equipment & Supplies Transportation Infrastructure
Health Care Providers & Services Water Utilities
Hotels Restaurants & Leisure Wireless Telecommunication Services
Household Durables
(1) In accordance with Rule 12b-1 of the Investment Company Act, the term “Independent
Trustees/Directors” in this Statement of Additional Information refers to those Trustees who are
not “interested persons” of the Fund and who do not have any direct or indirect financial
interest in the operation of the distribution plan or any agreement under the plan.
(2) Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.
(3) In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered closed-end
fund, references to contingent deferred sales charges mean the Fund’s Early Withdrawal Charges
and references to “redemptions” mean “repurchases” of shares.
(4) An “employee benefit plan” means any plan or arrangement, whether or not it is “qualified”
under the Internal Revenue Code, under which Class N shares of an Oppenheimer fund or funds are
purchased by a fiduciary or other administrator for the account of participants who are
employees of a single employer or of affiliated employers. These may include, for example,
medical savings accounts, payroll deduction plans or similar plans. The fund accounts must be
registered in the name of the fiduciary or administrator purchasing the shares for the benefit
of participants in the plan.
(5) The term “Group Retirement Plan” means any qualified or non-qualified retirement plan for
employees of a corporation or sole proprietorship, members and employees of a partnership or
association or other organized group of persons (the members of which may include other groups),
if the group has made special arrangements with the Distributor and all members of the group
participating in (or who are eligible to participate in) the plan purchase shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other financial
institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE
plans and 403(b) plans other than plans for public school employees. The term “Group Retirement
Plan” also includes qualified retirement plans and non-qualified deferred compensation plans and
IRAs that purchase shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution that has made special arrangements with the Distributor.
(6) However, that concession will not be paid on purchases of shares in amounts of $1 million or
more (including any right of accumulation) by a Retirement Plan that pays for the purchase with
the redemption proceeds of Class C shares of one or more Oppenheimer funds held by the Plan for
more than one year.
(7) This provision does not apply to IRAs.
(8) This provision only applies to qualified retirement plans and 403(b)(7) custodial plans
after your separation from service in or after the year you reached age 55.
(9) The distribution must be requested prior to Plan termination or the elimination of the
Oppenheimer funds as an investment option under the Plan.
(10) This provision does not apply to IRAs.
(11) This provision does not apply to loans from 403(b)(7) custodial plans and loans from the
OppenheimerFunds-sponsored Single K retirement plan.
(12) This provision does not apply to 403(b)(7) custodial plans if the participant is less than
age 55, nor to IRAs.
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares(2) of the Oppenheimer funds or the contingent deferred sales
charge that may apply to Class A, Class B or Class C shares may be waived.(3)
That is because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the
“Distributor”), or by dealers or other financial institutions that
offer those shares to certain classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term “Retirement Plan” refers to the following types of
plans:
1) plans created or qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
2) non-qualified deferred compensation plans,
3) employee benefit plans(4)
4) Group Retirement Plans(5)
5) 403(b)(7) custodial plan accounts
6) Individual Retirement Accounts (“IRAs”), including traditional
IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the
“Transfer Agent”) of the particular Oppenheimer fund. These waivers
and special arrangements may be amended or terminated at any time by a
particular fund, the Distributor, and/or OppenheimerFunds, Inc. (referred to in
this document as the “Manager”).
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- --------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months (24 months in the case of Oppenheimer Rochester National Municipals and
Rochester Fund Municipals) of the beginning of the calendar month of their
purchase, as described in the Prospectus (unless a waiver described elsewhere in
this Appendix applies to the redemption). Additionally, on shares purchased
under these waivers that are subject to the Class A contingent deferred sales
charge, the Distributor will pay the applicable concession described in the
Prospectus under “Class A Contingent Deferred Sales Charge.”(6) This
waiver provision applies to:
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases of Class A shares by a Retirement Plan that was permitted to purchase such
shares at net asset value but subject to a contingent deferred sales charge prior
to March 1, 2001. That included plans (other than IRA or 403(b)(7) Custodial Plans)
that: 1) bought shares costing $500,000 or more, 2) had at the time of purchase 100
or more eligible employees or total plan assets of $500,000 or more, or 3)
certified to the Distributor that it projects to have annual plan purchases of
$200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases are made:
1) through a broker, dealer, bank or registered investment adviser that has made
special arrangements with the Distributor for those purchases, or
2) by a direct rollover of a distribution from a qualified Retirement Plan if the
administrator of that Plan has made special arrangements with the Distributor
for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the following
record-keeping arrangements:
1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
(“Merrill Lynch”) on a daily valuation basis for the Retirement Plan. On the
date the plan sponsor signs the record-keeping service agreement with Merrill
Lynch, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill Lynch Investment
Management, L.P. (“MLIM”), that are made available under a Service Agreement
between Merrill Lynch and the mutual fund’s principal underwriter or
distributor, and (b) funds advised or managed by MLIM (the funds described in
(a) and (b) are referred to as “Applicable Investments”).
2) The record keeping for the Retirement Plan is performed on a daily valuation
basis by a record keeper whose services are provided under a contract or
arrangement between the Retirement Plan and Merrill Lynch. On the date the plan
sponsor signs the record keeping service agreement with Merrill Lynch, the Plan
must have $5 million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
3) The record keeping for a Retirement Plan is handled under a service agreement
with Merrill Lynch and on the date the plan sponsor signs that agreement, the
Plan has 500 or more eligible employees (as determined by the Merrill Lynch
plan conversion manager).
II. Waivers of Class A Sales Charges of Oppenheimer Funds
- --------------------------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.
Class A shares purchased by the following investors are not subject to any Class A sales charges
(and no concessions are paid by the Distributor on such purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and their “immediate
families”) of the Fund, the Manager and its affiliates, and retirement plans
established by them for their employees. The term “immediate family” refers to
one’s spouse, children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling’s spouse, a spouse’s
siblings, aunts, uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of insurance companies
having an agreement with the Manager or the Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if they purchase
shares for their own accounts or for retirement plans for their employees.
|_| Employees and registered representatives (and their spouses) of dealers or brokers
described above or financial institutions that have entered into sales arrangements
with such dealers or brokers (and which are identified as such to the Distributor)
or with the Distributor. The purchaser must certify to the Distributor at the time
of purchase that the purchase is for the purchaser’s own account (or for the
benefit of such employee’s spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have entered into an
agreement with the Distributor providing specifically for the use of shares of the
Fund in particular investment products made available to their clients. Those
clients may be charged a transaction fee by their dealer, broker, bank or advisor
for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an agreement for this
purpose with the Distributor and who charge an advisory, consulting or other fee
for their services and buy shares for their own accounts or the accounts of their
clients.
|_| “Rabbi trusts” that buy shares for their own accounts, if the purchases are made
through a broker or agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered into an
agreement for this purpose with the Distributor) who buy shares for their own
accounts may also purchase shares without sales charge but only if their accounts
are linked to a master account of their investment advisor or financial planner on
the books and records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these investors may be
charged a fee by the broker, agent or financial intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors or its
affiliates, their relatives or any trust, pension, profit sharing or other benefit
plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the investment advisor
(the Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement with the
Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have entered into an
agreement with the Distributor to sell shares to defined contribution employee
retirement plans for which the dealer, broker or investment adviser provides
administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund those plans
(including, for example, plans qualified or created under sections 401(a), 401(k),
403(b) or 457 of the Internal Revenue Code), in each case if those purchases are
made through a broker, agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors) whose Class
B or Class C shares of a Former Quest for Value Fund were exchanged for Class A
shares of that Fund due to the termination of the Class B and Class C TRAC-2000
program on November 24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for Value Advisors to
purchase shares of any of the Former Quest for Value Funds at net asset value, with
such shares to be held through DCXchange, a sub-transfer agency mutual fund
clearinghouse, if that arrangement was consummated and share purchases commenced by
December 31, 1996.
|_| Effective October 1, 2005, taxable accounts established with the proceeds of Required
Minimum Distributions from Retirement Plans.
|_| Clients of Edward D. Jones & Co., L.P. who purchase Class A shares of the Fund between
August 19, 2005 and November 16, 2005 with the proceeds of shares redeemed form
other mutual funds, as a part of the Edward Jones “Free Switch” program, may
purchase those shares at net asset value and no concession will be paid by the
Distributor on such purchases.
B. Waivers of the Class A Initial and Contingent Deferred Sales Charges in Certain Transactions.
1. Class A shares issued or purchased in the following transactions are not subject to
sales charges (and no concessions are paid by the Distributor on such purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions reinvested
from the Fund or other Oppenheimer funds or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased by certain Retirement Plans that are part of a retirement plan or
platform offered by banks, broker-dealers, financial advisors or insurance
companies, or serviced by recordkeepers.
|_| Shares purchased by the reinvestment of loan repayments by a participant in a
Retirement Plan for which the Manager or an affiliate acts as sponsor.
|_| Shares purchased in amounts of less than $5.
2. Class A shares issued and purchased in the following transactions are not subject to
sales charges (a dealer concession at the annual rate of 0.25% is paid by the Distributor on
purchases made within the first 6 months of plan establishment):
|_| Retirement Plans that have $5 million or more in plan assets.
|_| Retirement Plans with a single plan sponsor that have $5 million or more in aggregate
assets invested in Oppenheimer funds.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would otherwise be
subject to the contingent deferred sales charge are redeemed in the following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually to no more than
12% of the account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary redemptions of
small accounts (please refer to “Shareholder Account Rules and Policies,” in the
applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or other employee
benefit plans for any of the following purposes:
1) Following the death or disability (as defined in the Internal Revenue Code) of
the participant or beneficiary. The death or disability must occur after the
participant’s account was established.
2) To return excess contributions.
3) To return contributions made due to a mistake of fact.
4) Hardship withdrawals, as defined in the plan.(7)
5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue
Code, or, in the case of an IRA, a divorce or separation agreement described in
Section 71(b) of the Internal Revenue Code.
6) To meet the minimum distribution requirements of the Internal Revenue Code.
7) To make “substantially equal periodic payments” as described in Section 72(t)
of the Internal Revenue Code.
8) For loans to participants or beneficiaries.
9) Separation from service.(8)
10) Participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manager or a subsidiary of the Manager) if the plan
has made special arrangements with the Distributor.
11) Plan termination or “in-service distributions,” if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from 401(k) plans sponsored by broker-dealers that have entered into
a special agreement with the Distributor allowing this waiver.
|_| For distributions from retirement plans that have $10 million or more in plan assets
and that have entered into a special agreement with the Distributor.
|_| For distributions from retirement plans which are part of a retirement plan product or
platform offered by certain banks, broker-dealers, financial advisors, insurance
companies or record keepers which have entered into a special agreement with the
Distributor.
III. Waivers of Class B, Class C and Class N Sales Charges of Oppenheimer Funds
- --------------------------------------------------------------------------------------------------
The Class B, Class C and Class N contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions or redeemed in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B, Class C and Class N contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
|_| Shares redeemed involuntarily, as described in “Shareholder Account Rules and
Policies,” in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the death or disability
of the last surviving shareholder. The death or disability must have occurred after
the account was established, and for disability you must provide evidence of a
determination of disability by the Social Security Administration.
|_| The contingent deferred sales charges are generally not waived following the death or
disability of a grantor or trustee for a trust account. The contingent deferred
sales charges will only be waived in the limited case of the death of the trustee
of a grantor trust or revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability (as defined in the Internal Revenue Code).
|_| Distributions from accounts for which the broker-dealer of record has entered into a
special agreement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records are maintained on
a daily valuation basis by Merrill Lynch or an independent record keeper under a
contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from accounts of
clients of financial institutions that have entered into a special arrangement with
the Distributor for this purpose.
|_| Redemptions of Class C shares of an Oppenheimer fund in amounts of $1 million or more
requested in writing by a Retirement Plan sponsor and submitted more than 12 months
after the Retirement Plan’s first purchase of Class C shares, if the redemption
proceeds are invested to purchase Class N shares of one or more Oppenheimer funds.
|_| Distributions(9) from Retirement Plans or other employee benefit plans for any of the
following purposes:
1) Following the death or disability (as defined in the Internal Revenue Code) of
the participant or beneficiary. The death or disability must occur after the
participant’s account was established in an Oppenheimer fund.
2) To return excess contributions made to a participant’s account.
3) To return contributions made due to a mistake of fact.
4) To make hardship withdrawals, as defined in the plan.(10)
5) To make distributions required under a Qualified Domestic Relations Order or,
in the case of an IRA, a divorce or separation agreement described in Section
71(b) of the Internal Revenue Code.
6) To meet the minimum distribution requirements of the Internal Revenue Code.
7) To make “substantially equal periodic payments” as described in Section 72(t)
of the Internal Revenue Code.
8) For loans to participants or beneficiaries.(11)
9) On account of the participant’s separation from service.(12)
10) Participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manager or a subsidiary of the Manager) offered as
an investment option in a Retirement Plan if the plan has made special
arrangements with the Distributor.
11) Distributions made on account of a plan termination or “in-service”
distributions, if the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
12) For distributions from a participant’s account under an Automatic Withdrawal
Plan after the participant reaches age 59½, as long as the aggregate value of
the distributions does not exceed 10% of the account’s value, adjusted annually.
13) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account
other than a Retirement Plan, if the aggregate value of the redeemed shares
does not exceed 10% of the account’s value, adjusted annually.
14) For distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special arrangement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from
an account other than a Retirement Plan if the aggregate value of the redeemed
shares does not exceed 10% of the account’s value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued
in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
|_| Shares sold to present or former officers, directors, trustees or employees (and their
“immediate families” as defined above in Section I.A.) of the Fund, the Manager and
its affiliates and retirement plans established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds Who
Were Shareholders of Former Quest for Value Funds
- ---------------------------------------------------------------------------------------------------
The initial and contingent deferred sales charge rates and waivers for Class A, Class B and
Class C shares described in the Prospectus or Statement of Additional Information of the
Oppenheimer funds are modified as described below for certain persons who were shareholders of
the former Quest for Value Funds. To be eligible, those persons must have been shareholders on
November 24, 1995, when OppenheimerFunds, Inc. became the investment advisor to those former
Quest for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Quest Balanced Fund Oppenheimer Quest International Value
Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when they merged
(were reorganized) into various Oppenheimer funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt
Fund
Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt
Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the “Former Quest for
Value Funds.” The waivers of initial and contingent deferred sales charges described in this
Appendix apply to shares of an Oppenheimer fund that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an Oppenheimer fund
that was one of the Former Quest for Value Funds, or
|_| purchased by such shareholder by exchange of shares of another Oppenheimer fund that
were acquired pursuant to the merger of any of the Former Quest for Value Funds
into that other Oppenheimer fund on November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds
Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial sales charge
rates for Class A shares purchased by members of “Associations” formed for any purpose other
than the purchase of securities. The rates in the table apply if that Association purchased
shares of any of the Former Quest for Value Funds or received a proposal to purchase such shares
from OCC Distributors prior to November 24, 1995.
- -------------------------------- ---------------------------- --------------------------------- ---------------------
Number of Eligible Employees Initial Sales Charge as a Initial Sales Charge as a % of Concession as % of
or Members % of Offering Price Net Amount Invested Offering Price
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- -------------------------------- ---------------------------- --------------------------------- ---------------------
9 or Fewer 2.50% 2.56% 2.00%
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- -------------------------------- ---------------------------- --------------------------------- ---------------------
At least 10 but not more than 2.00% 2.04% 1.60%
49
- -------------------------------- ---------------------------- --------------------------------- ---------------------
- --------------------------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or members, there is
no initial sales charge on purchases of Class A shares, but those shares are subject to the
Class A contingent deferred sales charge described in the applicable fund’s Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge
rate in the table based on the number of members of an Association, or the sales charge rate
that applies under the Right of Accumulation described in the applicable fund’s Prospectus and
Statement of Additional Information. Individuals who qualify under this arrangement for reduced
sales charge rates as members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the Distributor.
Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by
the following investors are not subject to any Class A initial or contingent deferred sales
charges:
o Shareholders who were shareholders of the AMA Family of Funds on February 28, 1991 and
who acquired shares of any of the Former Quest for Value Funds by merger of a
portfolio of the AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of
the portfolios of the Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A
contingent deferred sales charge will not apply to redemptions of Class A shares purchased by
the following investors who were shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to
receive a sales load or redemption fee imposed on a shareholder with whom that dealer has a
fiduciary relationship, under the Employee Retirement Income Security Act of 1974 and
regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following
cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B
or Class C shares of an Oppenheimer fund. The shares must have been acquired by the merger of a
Former Quest for Value Fund into the fund or by exchange from an Oppenheimer fund that was a
Former Quest for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
o withdrawals under an automatic withdrawal plan holding only either Class B or Class C
shares if the annual withdrawal does not exceed 10% of the initial value of the
account value, adjusted annually, and
o liquidation of a shareholder’s account if the aggregate net asset value of shares held
in the account is less than the required minimum value of such accounts.
Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to
November 24, 1995. In the following cases, the contingent deferred sales charge will be waived
for redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The shares must
have been acquired by the merger of a Former Quest for Value Fund into the fund or by exchange
from an Oppenheimer fund that was a Former Quest For Value Fund or into which such Former Quest
for Value Fund merged. Those shares must have been purchased on or after March 6, 1995, but
prior to November 24, 1995:
o redemptions following the death or disability of the shareholder(s) (as evidenced by a
determination of total disability by the U.S. Social Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares)
where the annual withdrawals do not exceed 10% of the initial value of the
account value; adjusted annually, and
o liquidation of a shareholder’s account if the aggregate net asset value of shares held
in the account is less than the required minimum account value.
A shareholder’s account will be credited with the amount of any contingent deferred
sales charge paid on the redemption of any Class A, Class B or Class C shares of the Oppenheimer
fund described in this section if the proceeds are invested in the same Class of shares in that
fund or another Oppenheimer fund within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds Who
Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- ----------------------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for Class A and Class B shares
described in the respective Prospectus (or this Appendix) of the following Oppenheimer funds
(each is referred to as a “Fund” in this section):
Oppenheimer U. S. Government Trust,
Oppenheimer Core Bond Fund,
Oppenheimer Value Fund and
Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the
following funds (referred to as the “Former Connecticut Mutual Funds”) on March 1, 1996, when
OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total
Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital
Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other
Former Connecticut Mutual Funds are entitled to continue to make additional purchases of Class A
shares at net asset value without a Class A initial sales charge, but subject to the Class A
contingent deferred sales charge that was in effect prior to March 18, 1996 (the “prior Class A
CDSC”). Under the prior Class A CDSC, if any of those shares are redeemed within one year of
purchase, they will be assessed a 1% contingent deferred sales charge on an amount equal to the
current market value or the original purchase price of the shares sold, whichever is smaller (in
such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
1) persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a result of
direct purchases or purchases pursuant to the Fund’s policies on Combined
Purchases or Rights of Accumulation, who still hold those shares in that Fund
or other Former Connecticut Mutual Funds, and
2) persons whose intended purchases under a Statement of Intention entered into
prior to March 18, 1996, with the former general distributor of the Former
Connecticut Mutual Funds to purchase shares valued at $500,000 or more over a
13-month period entitled those persons to purchase shares at net asset value
without being subject to the Class A initial sales charge
Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that
were purchased at net asset value prior to March 18, 1996, remain subject to the prior Class A
CDSC, or if any additional shares are purchased by those shareholders at net asset value
pursuant to this arrangement they will be subject to the prior Class A CDSC.
Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased
without a sales charge, by a person who was in one (or more) of the categories below and
acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
1) any purchaser, provided the total initial amount invested in the Fund or any
one or more of the Former Connecticut Mutual Funds totaled $500,000 or more,
including investments made pursuant to the Combined Purchases, Statement of
Intention and Rights of Accumulation features available at the time of the
initial purchase and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
2) any participant in a qualified plan, provided that the total initial amount
invested by the plan in the Fund or any one or more of the Former Connecticut
Mutual Funds totaled $500,000 or more;
3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds
and members of their immediate families;
4) employee benefit plans sponsored by Connecticut Mutual Financial Services,
L.L.C. (“CMFS”), the prior distributor of the Former Connecticut Mutual Funds,
and its affiliated companies;
5) one or more members of a group of at least 1,000 persons (and persons who are
retirees from such group) engaged in a common business, profession, civic or
charitable endeavor or other activity, and the spouses and minor dependent
children of such persons, pursuant to a marketing program between CMFS and such
group; and
6) an institution acting as a fiduciary on behalf of an individual or individuals,
if such institution was directly compensated by the individual(s) for
recommending the purchase of the shares of the Fund or any one or more of the
Former Connecticut Mutual Funds, provided the institution had an agreement with
CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the
Class A CDSC of the Former Connecticut Mutual Funds described above.
Additionally, Class A shares of a Fund may be purchased without a sales charge by any
holder of a variable annuity contract issued in New York State by Connecticut Mutual Life
Insurance Company through the Panorama Separate Account which is beyond the applicable surrender
charge period and which was used to fund a qualified plan, if that holder exchanges the variable
annuity contract proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix, above, the
contingent deferred sales charge will be waived for redemptions of Class A and Class B shares of
a Fund and exchanges of Class A or Class B shares of a Fund into Class A or Class B shares of a
Former Connecticut Mutual Fund provided that the Class A or Class B shares of the Fund to be
redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund. Additionally, the
shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18, 1996:
1) by the estate of a deceased shareholder;
2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal
Revenue Code;
3) for retirement distributions (or loans) to participants or beneficiaries from
retirement plans qualified under Sections 401(a) or 403(b)(7)of the Code, or from IRAs,
deferred compensation plans created under Section 457 of the Code, or other employee
benefit plans;
4) as tax-free returns of excess contributions to such retirement or employee benefit
plans;
5) in whole or in part, in connection with shares sold to any state, county, or city, or
any instrumentality, department, authority, or agency thereof, that is prohibited by
applicable investment laws from paying a sales charge or concession in connection with
the purchase of shares of any registered investment management company;
6) in connection with the redemption of shares of the Fund due to a combination with
another investment company by virtue of a merger, acquisition or similar reorganization
transaction;
7) in connection with the Fund’s right to involuntarily redeem or liquidate the Fund;
8) in connection with automatic redemptions of Class A shares and Class B shares in
certain retirement plan accounts pursuant to an Automatic Withdrawal Plan but limited
to no more than 12% of the original value annually; or
9) as involuntary redemptions of shares by operation of law, or under procedures set forth
in the Fund’s Articles of Incorporation, or as adopted by the Board of Directors of the
Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.
- --------------------------------------------------------------------------------------------------
Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S. Government Trust, Oppenheimer
Strategic Income Fund and Oppenheimer Capital Income Fund who acquired (and still hold) shares
of those funds as a result of the reorganization of series of Advance America Funds, Inc. into
those Oppenheimer funds on October 18, 1991, and who held shares of Advance America Funds, Inc.
on March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a maximum
sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer Convertible
Securities Fund
- --------------------------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the “Fund” in this section) may sell
Class M shares at net asset value without any initial sales charge to the classes of investors
listed below who, prior to March 11, 1996, owned shares of the Fund’s then-existing Class A and
were permitted to purchase those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and their “immediate
families” as defined in the Fund’s Statement of Additional Information) of the
Fund, the Manager and its affiliates, and retirement plans established by them or
the prior investment advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of insurance companies
that had an agreement with the Fund’s prior investment advisor or distributor for
that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if they purchase
shares for their own accounts or for retirement plans for their employees,
|_| employees and registered representatives (and their spouses) of dealers or brokers
described in the preceding section or financial institutions that have entered into
sales arrangements with those dealers or brokers (and whose identity is made known
to the Distributor) or with the Distributor, but only if the purchaser certifies to
the Distributor at the time of purchase that the purchaser meets these
qualifications,
|_| dealers, brokers, or registered investment advisors that had entered into an agreement
with the Distributor or the prior distributor of the Fund specifically providing
for the use of Class M shares of the Fund in specific investment products made
available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered into an agreement
with the Distributor or prior distributor of the Fund’s shares to sell shares to
defined contribution employee retirement plans for which the dealer, broker, or
investment advisor provides administrative services.
Oppenheimer Total Return Bond Fund
Internet Website
www.oppenheimerfunds.com
Investment Advisor
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Distributor
OppenheimerFunds Distributor, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1.800.CALL OPP (225.5677)
Custodian Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005
Independent Registered Public Accounting Firm
Ernst & Young LLP
5 Times Square
New York, New York 10036
Legal Counsel
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019
1234
PX0535.001.1105
CORE BOND FUND (Semi-Annual Report)
STATEMENT OF INVESTMENTS June 30, 2005
Unaudited
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--12.3%
- -------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 3.32%, 4/20/08
1,2 $ 890,000 $
888,665
- -------------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates:
Series 2004-A, Cl. A2, 1.88%,
10/25/06
996,818 995,115
Series 2005-A, Cl. A2, 3.65%,
12/26/07
3,540,000 3,538,893
- -------------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.:
Series 2004-2, Cl. A3, 3.58%,
1/15/09
2,850,000 2,823,550
Series 2005-1, Cl. A2B, 3.73%,
7/16/07
1,820,000 1,820,563
- -------------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20
1 1,021,235
1,015,338
Series 2005-B, Cl. AF1, 4.02%, 3/26/35
1 977,196
975,377
Series 2005-C, Cl. AF1, 4.196%, 6/25/35
1 2,740,000
2,738,288
- -------------------------------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2003-1, Cl. 1A3, 3.14%,
7/25/23
185,613 185,292
Series 2003-5, Cl. 1A2, 2.451%,
11/25/18
488,687 486,835
Series 2004-1, Cl. 1A2, 2.427%,
6/25/19
1,770,000 1,761,383
- -------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.24%,
9/15/08
470,767 471,966
Series 2005-A, Cl. A2, 3.72%,
12/15/07
3,190,000 3,184,577
- -------------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06
1 2,360,000
2,347,868
- -------------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.:
Series 2001-A6, Cl. A6, 5.65%,
6/16/08
2,580,000 2,622,793
Series 2003-C4, Cl. C4, 5%,
6/10/15
430,000 438,289
- -------------------------------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity Collateralized Mtg.
Obligations, Series 2003-3, Cl. AF1, 3.434%, 8/25/33
2 165,782 165,886
- -------------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc.,
Home Equity Asset-Backed Certificates:
Series 2002-4, Cl. A1, 3.684%, 2/25/33
2 223,972
227,083
Series 2005-7, Cl. AF1B, 4.317%,
6/1/35 2,840,000
2,839,716
- -------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2001-D, Cl. A4, 3.78%,
2/6/07
370,580 370,831
Series 2002-A, Cl. A4, 4.49%,
10/6/08
900,169 902,702
Series 2004-B, Cl. A2, 2.48%, 2/8/07
1 748,489
747,057
Series 2004-C, Cl. A2, 2.62%,
6/8/07
3,733,597 3,720,840
Series 2005-A, Cl. A2, 3.17%, 9/8/07
1 3,430,000
3,421,282
Series 2005-B, Cl. A2, 3.75%,
12/8/07
3,150,000 3,149,980
- -------------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Mtg. Pass-Through Certificates,
Series 2004-3, Cl. AF2, 3.80%,
7/25/34
570,000 565,853
- -------------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2004-A, Cl. A2, 2.13%,
10/15/06
1,012,489 1,009,689
Series 2005-A, Cl. A3, 3.48%,
11/17/08
2,060,000 2,047,855
Series 2005-B, Cl. A2, 3.77%,
9/15/07
3,140,000 3,139,399
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -------------------------------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%,
1/15/08 $ 1,159,266
$ 1,156,125
- -------------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2003-4, Cl. A2, 1.58%,
7/17/06
476,880 476,790
Series 2005-1, Cl. A2, 3.21%, 5/21/07
1 1,370,000
1,366,670
Series 2005-3, Cl. A2, 3.73%,
10/18/07
2,960,000 2,960,000
- -------------------------------------------------------------------------------------------------------------------------
Litigation Settlement Monetized Fee Trust, Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31
1 2,037,531
2,116,994
- -------------------------------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates, Series 2002-1,
Cl. A3, 2.49%,
10/22/07
335,756 335,657
- -------------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 4.57%, 3/15/16
2 4,070,000
4,335,836
- -------------------------------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable Obligations,
Series 2004-A, Cl. A2, 1.50%,
2/15/07
402,541 401,974
- -------------------------------------------------------------------------------------------------------------------------
NC Finance Trust, Collateralized Mtg. Obligations, Series 1999-I, Cl
ECFD, 8.75%, 1/25/29
1
1,750,658 472,678
- -------------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series 2004-A,
Cl. A2, 2.55%,
1/15/07
1,836,683 1,831,232
- -------------------------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.,
Series 2002-A, Cl. A4, 4.28%,
10/16/06
214,611 214,811
- -------------------------------------------------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, Automobile Receivable Obligations,
Series 2002-B, Cl. A4, 4.71%,
3/15/09
2,269,442 2,275,987
- -------------------------------------------------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 3.464%, 11/25/34
1,2 420,417
420,714
- -------------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through
Certificates:
Series 2004-5, Cl. AF2, 3.735%, 11/10/34
1 780,000
773,136
Series 2005-1, Cl. AF2, 3.914%,
5/25/35
570,000 565,742
Series 2005-2, Cl. AF2, 4.415%, 4/25/35
1 1,030,000
1,031,017
- -------------------------------------------------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc., Home Equity Asset-Backed
Pass-Through Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28
3 2,350,000 2,356,252
- -------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations,
Pass-Through Certificates, Series 2005-4XS, Cl. 3A1, 5.18%,
3/26/35 5,076,224 5,103,059
- -------------------------------------------------------------------------------------------------------------------------
Tobacco Settlement Authority, Asset-Backed Securities,
Series 2001-A, 6.79%,
6/1/10
1,230,000 1,224,650
- -------------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2001-2, Cl. A4, 3.91%,
4/16/07
200,135 200,283
Series 2004-2, Cl. A2, 2.41%,
2/15/07
1,806,587 1,802,139
Series 2004-3, Cl. A2, 2.79%,
6/15/07
1,960,000 1,954,219
- -------------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%,
1/22/07
2,527,708 2,519,444
Series 2005-A, Cl. A2, 3.52%,
4/20/07
2,580,000 2,576,537
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -------------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts.,
Series 2004-B, Cl. A2, 2.40%,
5/21/07 $ 1,536,066
$ 1,531,049
- -------------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%,
9/25/18
2,848,327 2,826,750
- -------------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%,
5/15/07
2,345,252 2,335,394
- ---------------
Total Asset-Backed Securities (Cost
$95,100,677)
93,768,104
- -------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--72.0%
- -------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--59.1%
- -------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--58.9%
Fannie Mae Whole Loan, Collateralized Mtg. Obligations Pass-Through
Certificates, Trust 2004-W9, Cl. 2A2, 7%,
2/25/44 2,737,552 2,892,393
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
6%,
7/1/24-10/1/34
22,142,727 22,729,391
6.50%,
4/1/18-4/1/34
4,799,915 4,989,721
7%,
3/1/31-3/1/33
10,867,349 11,446,307
7%, 7/1/35
4
6,731,000 7,086,478
8%,
4/1/16
1,135,484 1,214,207
9%,
3/1/17-5/1/25
330,699 359,496
12.50%,
4/1/14
2,069 2,322
13.50%,
11/1/10
4,784 5,357
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Pass-Through Participation Certificates, Series 151, Cl. F, 9%,
5/15/21 63,046 63,029
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 2075, Cl. D, 6.50%,
8/15/28
722,948 751,740
Series 2456, Cl. BD, 6%,
3/15/30
1,149,692 1,157,157
Series 2500, Cl. FD, 3.72%, 3/15/32
2 714,923
717,389
Series 2526, Cl. FE, 3.62%, 6/15/29
2 954,740
957,863
Series 2550, Cl. QK, 4.50%,
4/15/22
285,564 285,542
Series 2551, Cl. FD, 3.62%, 1/15/33
2 760,810
766,690
Series 2583, Cl. KA, 5.50%,
3/15/22
3,551,329 3,575,032
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 3.686%, 6/1/26
5 1,212,328
217,348
Series 183, Cl. IO, 1.13%, 4/1/27
5
1,860,993 335,578
Series 184, Cl. IO, 5.86%, 12/1/26
5 1,970,858
342,950
Series 192, Cl. IO, 4.038%, 2/1/28
5
470,495 79,897
Series 200, Cl. IO, 2.912%, 1/1/29
5
563,254 97,284
Series 206, Cl. IO, (16.145)%, 12/1/29
5 735,917
146,003
Series 2130, Cl. SC, 7.611%, 3/15/29
5 1,300,245
113,758
Series 2134, Cl. SB, 14.487%, 3/15/29
5 1,427,903
127,201
Series 2796, Cl. SD, 13.76%, 7/15/26
5 2,036,116
188,220
Series 2920, Cl. S, 15.485%, 1/15/35
5 8,880,457
531,590
Series 3000, Cl. SE, 7/15/25
4,5
10,840,000 497,963
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 6.268%, 6/1/26
6 $ 514,211 $ 453,871
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 7/17/20
4
22,187,000 22,089,932
5%,
6/1/18
4,946,490 5,007,328
5%, 7/1/18-8/11/35
4
52,026,417 52,223,600
5.50%,
3/1/33-1/1/34
28,666,457 29,093,861
5.50%, 7/17/20-7/1/35
4
39,992,000 40,623,836
6%,
8/1/29
1,233,470 1,267,873
6%, 8/1/16-7/1/35
4
58,366,463 60,174,068
6.50%,
11/1/31
6,291,000 6,541,657
6.50%, 7/1/35
4
111,846,000 115,760,610
7%,
1/1/09-11/1/17
4,065,313 4,261,298
7.50%,
2/1/08-3/1/08
27,718 28,558
8%,
8/1/17
14,945 15,542
8.50%,
7/1/32
159,056 172,907
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust, Collateralized Mtg.
Obligations, Trust 2002-T1, Cl. A2, 7%,
11/25/31 2,960,661
3,129,296
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1992-34, Cl. G, 8%,
3/25/22
46,182 47,446
Trust 1993-87, Cl. Z, 6.50%,
6/25/23
557,708 584,885
Trust 2001-51, Cl. OD, 6.50%,
10/25/31
4,158,764 4,320,740
Trust 2001-70, Cl. LR, 6%,
9/25/30
965,980 979,996
Trust 2001-72, Cl. NH, 6%,
4/25/30
701,922 707,308
Trust 2001-74, Cl. PD, 6%,
5/25/30
296,431 298,821
Trust 2002-77, Cl. WF, 3.66%, 12/18/32
2 1,181,834
1,189,736
Trust 2003-10, Cl. HP, 5%,
2/25/18
3,670,000 3,751,727
Trust 2003-17, Cl. EQ, 5.50%,
3/25/23
6,305,000 6,586,433
Trust 2003-23, Cl. EQ, 5.50%,
4/25/23
8,316,000 8,677,740
Trust 2003-28, Cl. KG, 5.50%,
4/25/23
1,074,000 1,133,734
Trust 2003-81, Cl. PA, 5%,
2/25/12
112,361 112,180
Trust 2004-101, Cl. BG, 5%,
1/25/20
2,417,000 2,473,356
Trust 2005-71, Cl. DB, 4.50%, 7/25/05
4 1,170,000
1,134,900
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates, Interest-
Only Stripped Mtg.-Backed Security:
Trust 2002-38, Cl. SO, 5.026%, 4/25/32
5 643,980
46,125
Trust 2002-47, Cl. NS, 1.647%, 4/25/32
5 2,516,681
249,938
Trust 2002-51, Cl. S, 1.873%, 8/25/32
5 2,310,856
231,794
Trust 2002-77, Cl. IS, 4.035%, 12/18/32
5 1,097,151
122,342
Trust 2005-71, Cl. SA, 7/25/25
4,5
6,950,000 423,516
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, 1.12%, 6/1/23
5
3,748,558 660,833
Trust 240, Cl. 2, 2.55%, 9/1/23
5
4,363,357 787,305
Trust 252, Cl. 2, (1.734)%, 11/1/23
5 3,004,149
574,861
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security: Continued
Trust 254, Cl. 2, 1.651%, 1/1/24
5 $ 1,479,847
$ 272,911
Trust 273, Cl. 2, 3.068%, 7/1/26
5
883,852 156,928
Trust 301, Cl. 2, (5.605)%, 4/1/29
5 2,409,888
412,138
Trust 303, Cl. IO, (13.206)%, 11/1/29
5 311,076
57,475
Trust 319, Cl. 2, (3.36)%, 2/1/32
5
938,046 167,680
Trust 321, Cl. 2, (5.72)%, 3/1/32
5
5,427,576 986,667
Trust 322, Cl. 2, 1.65%, 4/1/32
5
9,410,684 1,559,917
Trust 324, Cl. 2, (9.19)%, 6/1/32
5
4,876,209 862,186
Trust 329, Cl. 2, (0.561)%, 1/1/33
5 3,986,936
704,963
Trust 331, Cl. 9, (6.031)%, 12/1/32
5 2,747,925
472,898
Trust 333, Cl. 2, (1.42)%, 3/1/33
5
5,195,517 933,008
Trust 334, Cl. 17, (4.492)%, 2/1/33
5 383,076
62,324
Trust 338, Cl. 2, (2.837)%, 6/1/33
5 1,567,360
281,708
Trust 346, Cl. 2, 9.24%, 12/1/33
5
4,630,125 812,312
Trust 2001-81, Cl. S, 5.117%, 1/25/32
5 1,021,865
104,861
Trust 2002-52, Cl. SD, (1.38)%, 9/25/32
5 2,873,886
312,534
Trust 2002-77, Cl. SH, 9.708%, 12/18/32
5 1,295,317
138,372
Trust 2003-4, Cl. S, 18.483%, 2/25/33
5 2,816,384
277,044
Trust 2004-54, Cl. DS, 8.941%, 11/25/30
5 443,749
36,192
Trust 2005-6, Cl. SE, 15.541%, 2/25/35
5 6,141,130
373,323
Trust 2005-19, Cl. SA, 14.04%, 3/25/35
5 31,952,129
1,990,420
Trust 2005-40, Cl. SA, 18.084%, 5/25/35
5 6,108,403
375,030
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 8.765%, 9/25/23
6 1,042,773 915,854
- ---------------
449,884,604
- -------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage Assn.:
3.75%, 7/20/25-7/20/27
2
41,008 41,714
7%,
7/15/09
29,115 30,206
8%,
9/15/05-10/15/06
13,586 13,818
8.50%,
8/15/17-12/15/17
416,457 453,390
9%,
2/15/09-6/15/09
19,790 20,950
10%,
11/15/09
22,767 24,423
10.50%,
12/15/17-5/15/21
39,896 45,633
11%,
10/20/19
75,233 83,550
12%,
5/15/14
361 421
- -------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 2.354%, 1/16/27
5 2,404,907
225,492
Series 2002-15, Cl. SM, (2.418)%, 2/16/32
5 2,386,871 209,254
Series 2002-76, Cl. SY, 1.396%, 12/16/26
5 970,806
93,095
Series 2004-11, Cl. SM, (2.233)%, 1/17/30
5 373,110 30,895
- ---------------
1,272,841
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
NON-AGENCY--12.9%
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--11.7%
Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates,
Series 1996-MD6, Cl. A3, 7.691%, 11/13/29
2 $ 800,000 $ 849,544
- -------------------------------------------------------------------------------------------------------------------------
Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security
Collateralized Mtg. Obligations, Series 1997-D4, Cl. PS1, 5.657%, 4/14/29
5 41,727,021 1,432,155
- -------------------------------------------------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-6, Cl. A3, 4.512%,
12/10/42
2,160,000 2,168,421
Series 2005-2, Cl. A4, 4.783%,
7/10/42
3,980,000 4,048,406
Series 2005-3, Cl. A2, 4.501%, 7/10/43
4 3,330,000
3,350,813
- -------------------------------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg.
Obligations Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%,
7/20/32
3,179,007 3,223,435
Series 2004-8, Cl. 5A1, 6.50%,
5/25/32
2,645,989 2,712,967
Series 2004-E, Cl. 2A9, 3.712%,
6/25/34
1,353,003 1,352,993
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34
2 184,125
184,053
Series 2005-E, Cl. 2A2, 4.994%,
6/25/35
1,053,919 1,054,528
- -------------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl. A2, 4.945%,
2/11/41 1,210,000 1,243,857
- -------------------------------------------------------------------------------------------------------------------------
Capital Lease Funding Securitization LP, Interest-Only Corporate-Backed
Pass-Through Certificates, Series 1997-CTL1, 6.738%, 6/22/24
5 8,843,689 355,362
- -------------------------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations:
Series 2004-J9, Cl. 1A1, 3.494%, 10/25/34
2 1,837,097 1,839,004
Series 2005-J3, Cl. 3A1, 6.50%,
9/25/34
6,502,379 6,694,026
- -------------------------------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Commercial Mtg. Obligations,
Series 1996-CF1, Cl. A3, 7.906%, 3/13/28
2 227,124
228,909
- -------------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%,
11/18/35 1,762,181 1,857,172
- -------------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%,
7/10/39
1,730,000 1,742,326
Series 2005-CA, Cl. A3, 4.578%,
6/10/48
1,000,000 1,008,268
- -------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg. Obligations,
Series 2004-C3, Cl. A4, 4.547%,
12/10/41
1,410,000 1,420,673
- -------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. A3, 6.869%,
7/15/29 1,215,849 1,270,371
- -------------------------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-GG3, Cl. A2, 4.305%,
8/10/42 1,850,000 1,850,605
- -------------------------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%,
10/10/28
1,609,959 1,588,911
Series 2004-GG2, Cl. A3, 4.602%,
8/10/38 1,100,000
1,113,828
- -------------------------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1, 4.495%, 12/25/34
1,2 2,522,493
2,516,475
- -------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 800,000
807,294
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL Continued
J.P. Morgan Commercial Mortgage Finance Corp., Commercial Mtg. Obligations,
Series 2000-C9, Cl. A2, 7.77%, 10/15/32 $ 5,000,000 $ 5,634,064
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only
Stripped Mtg.-Backed Security, Series 1998-C1, Cl. IO, 9.885%, 2/18/30
5 11,827,898 353,957
- -------------------------------------------------------------------------------------------------------------------------
Lehman Structured Securities Corp., Collateralized Mtg. Obligations,
Series 2002-GE1, Cl. A, 2.514%, 7/26/24
1 253,635
220,593
- -------------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg. Obligations,
Series 2004-6, Cl. 10A1, 6%,
7/25/34
3,765,306 3,844,553
- -------------------------------------------------------------------------------------------------------------------------
Mastr Asset Securitization Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3, 4.70%, 8/25/34
2 3,427,696 3,433,020
- -------------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. A1, 6.50%, 8/25/32
4 7,628,105
7,775,904
- -------------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 1998-D6, Cl. A1B, 6.59%, 3/15/30
3 2,010,000
2,134,627
- -------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through Certificates,
Series 2003-QS1, Cl. A2, 5.75%,
1/25/33
2,786,573 2,824,766
- -------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc., Interest-Only Commercial
Mtg. Pass-Through Certificates, Series 1999-C1, Cl. X, 5.682%, 5/18/32
5 247,279,808 923,541
- -------------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C16, Cl. A2, 4.38%,
10/15/41
2,800,000 2,809,364
Series 2005-C17, Cl. A2, 4.782%,
3/15/42 3,560,000
3,626,751
- -------------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.69%, 5/25/35
2 4,048,493 4,060,089
- -------------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-DD, Cl. 2A1, 4.54%, 1/25/35
2 2,312,269
2,312,911
Series 2004-N, Cl. A10, 3.803%, 8/25/34
1 2,461,410
2,464,278
Series 2004-W, Cl. A2, 4.611%, 11/25/34
2 1,204,841
1,202,728
- ---------------
89,535,542
- -------------------------------------------------------------------------------------------------------------------------
OTHER--0.0%
Salomon Brothers Mortgage Securities VI, Inc., Interest-Only Stripped
Mtg.-Backed Security, Series 1987-3, Cl. B, (7.37)%, 10/23/17
5 21,005 4,699
- -------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI, Inc., Principal-Only Stripped
Mtg.-Backed Security, Series 1987-3, Cl. A, 2.10%, 10/23/17
6 31,088 28,542
- ---------------
33,241
- -------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--1.2%
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2005-J1, Cl. 3A1, 6.50%,
8/25/32
6,502,079 6,644,312
- -------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2002-AL1, Cl. B2, 3.45%,
2/25/32 2,763,130 2,495,495
- ---------------
9,139,807
- ---------------
Total Mortgage-Backed Obligations (Cost
$550,939,700)
549,866,035
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.3% Fannie Mae Unsec. Nts., 3.58%, 1/31/07
7 $ 9,150,000 $
8,614,579
- -------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.125%,
7/12/10
12,399,000 12,453,593
6.625%, 9/15/09
3
3,435,000 3,785,329
- -------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.01%,
6/2/06
6,600,000 6,551,054
3.75%,
5/17/07
1,290,000 1,286,658
6.625%,
9/15/09
7,630,000 8,415,699
7.25%,
5/15/30
2,180,000 3,036,603
- -------------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
4.65%,
6/15/35
3,718,000 3,739,505
5.375%, 11/13/08
3
2,000,000 2,091,578
Series A, 6.79%,
5/23/12
14,531,000 16,846,384
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds: 4.375%, 8/15/12
3
125,000 129,678
5.375%, 2/15/31
3
824,000 972,578
5.50%, 8/15/28
3,8
13,654,000 16,083,456
8.875%, 8/15/17
3
6,664,000 9,687,530
STRIPS, 2.99%, 2/15/10
3,7
2,490,000 2,102,815
STRIPS, 3.38%, 2/15/11
3,7
4,621,000 3,747,834
STRIPS, 3.86%, 2/15/13
7
1,520,000 1,128,980
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.: 3.625%, 6/15/10
3
4,527,000 4,508,611
3.75%,
3/31/07
7,420,000 7,433,623
4%, 3/15/10-2/15/15
3
13,300,000 13,395,466
4.875%,
2/15/12
5,000,000 5,311,720
5.75%, 8/15/10
3
715,000 781,669
- ---------------
Total U.S. Government Obligations (Cost
$130,050,607)
132,104,942
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.3%
United Mexican States Nts., 7.50%, 1/14/12 3 (Cost
$2,388,794) 2,370,000 2,693,505
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--30.7%
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.2%
- -------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS--0.7%
Delphi Corp., 6.55% Nts., 6/15/06
3 1,707,000
1,668,593
- -------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B,
5/15/09 2,660,000 2,752,807
- -------------------------------------------------------------------------------------------------------------------------
Visteon Corp., 7.95% Sr. Unsec. Nts., 8/1/05
3 1,073,000 1,074,610
- ---------------
5,496,010
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES--1.9% DaimlerChrysler NA Holdings Corp.:
7.20% Unsec. Nts.,
9/1/09 $
1,850,000 $ 2,015,579
8% Nts.,
6/15/10
950,000 1,074,936
- -------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
6.50% Unsec. Nts.,
1/25/07
2,050,000 2,065,469
7.375% Nts.,
10/28/09
620,000 606,405
7.60% Nts.,
8/1/05
1,195,000 1,197,700
- -------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
6.125% Nts., 9/15/06
3
1,840,000 1,841,840
7.50% Nts.,
7/15/05
3,330,000 3,331,462
- -------------------------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10
3 2,860,000
2,737,972
- ---------------
14,871,363
- -------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.0%
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts.,
2/15/11 1,590,000 1,846,618
- -------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts.,
5/1/07 2,240,000 2,352,000
- -------------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts.,
4/15/06 3,594,000 3,714,025
- ---------------
7,912,643
- -------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.9%
Beazer Homes USA, Inc., 8.625% Sr. Unsec. Nts.,
5/15/11 1,685,000 1,794,525
- -------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 1,660,000 1,725,117
- -------------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13
3 1,535,000 1,633,794
- -------------------------------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts.,
12/1/11 1,685,000
1,819,800
- ---------------
6,973,236
- -------------------------------------------------------------------------------------------------------------------------
MEDIA--2.4%
AOL Time Warner, Inc., 7.70% Debs.,
5/1/32 1,980,000
2,512,818
- -------------------------------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts.,
11/1/08 3,070,000 3,303,173
- -------------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.875% Unsec. Nts.,
8/15/09 395,000 442,976
- -------------------------------------------------------------------------------------------------------------------------
Cox Enterprises, Inc., 7.375% Unsec. Debs., 6/15/09
9 1,740,000 1,883,959
- -------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13
3 1,720,000 1,602,249
- -------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs.,
2/1/12 3,400,000 4,336,074
- -------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts.,
5/1/12 1,037,000 1,342,329
- -------------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts.,
10/15/06
433,000 424,753
3.50% Sr. Unsec. Nts.,
10/15/07
2,255,000 2,206,682
- ---------------
18,055,013
- -------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.9%
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts.,
9/1/08 2,165,000 2,310,287
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL Continued
J.C. Penney Co., Inc., 7.40% Nts., 4/1/37
3 $ 2,095,000 $ 2,273,075
- -------------------------------------------------------------------------------------------------------------------------
May Department Stores Co.:
3.95% Nts.,
7/15/07
1,221,000 1,213,145
7.90% Unsec. Debs.,
10/15/07
1,095,000 1,170,259
- ---------------
6,966,766
- -------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Gap, Inc. (The):
6.90% Nts., 9/15/07
1
2,095,000 2,198,604
9.55% Unsub. Nts., 12/15/08
2
507,000 585,011
- ---------------
2,783,615
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.4%
- -------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.3%
Albertson's, Inc.:
8% Sr. Unsec. Debs.,
5/1/31
1,440,000 1,751,096
8.70% Sr. Unsec. Debs.,
5/1/30
743,000 964,655
- -------------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs.,
4/15/31 1,275,000
1,598,186
- -------------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts.,
8/15/07 2,545,000
2,720,284
- -------------------------------------------------------------------------------------------------------------------------
Real Time Data Co., 11% Disc. Nts., 5/31/09
1,10,11 476,601 --
- -------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.80% Sr. Unsec. Nts.,
7/16/07 3,060,000
3,084,330
- ---------------
10,118,551
- -------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--1.1%
ConAgra Foods, Inc., 6% Nts.,
9/15/06
1,615,000 1,642,975
- -------------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts.,
11/30/07 2,515,000
2,495,499
- -------------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts.,
6/1/07
3,835,000 3,911,363
- ---------------
8,049,837
- -------------------------------------------------------------------------------------------------------------------------
ENERGY--0.8%
- -------------------------------------------------------------------------------------------------------------------------
OIL & GAS--0.8%
Chesapeake Energy Corp., 7.50% Sr. Nts.,
6/15/14 1,665,000
1,814,850
- -------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts.,
9/1/12 1,650,000 1,820,178
- -------------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 7.875% Unsec. Unsub. Nts.,
2/1/09 1,195,000 1,308,525
- -------------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13
9 1,542,750 1,490,659
- ---------------
6,434,212
- -------------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.6%
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.8%
Credit Suisse First Boston, Inc. (USA), 5.50% Nts.,
8/15/13 3,300,000 3,500,366
- -------------------------------------------------------------------------------------------------------------------------
JPMorgan Capital XV, 5.875% Nts.,
3/15/35 2,490,000
2,564,852
- ---------------
6,065,218
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.0%
Bank of America Corp., 4.875% Sr. Unsec. Nts.,
1/15/13 $ 41,000 $ 42,124
- -------------------------------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bond
12 2,950,000
3,013,425
- -------------------------------------------------------------------------------------------------------------------------
Mellon Bank NA, 4.75% Unsec. Sub. Nts.,
12/15/14 2,770,000
2,816,752
- -------------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts.,
12/15/11 216,000
237,568
- -------------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts.,
10/15/08
1,680,000 1,672,195
7.75% Unsec. Sub. Nts.,
5/1/10
150,000 172,367
- ---------------
7,954,431
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--0.5%
HSBC Finance Corp., 4.75% Sr. Unsec. Nts.,
7/15/13 3,475,000 3,486,002
- -------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.9%
American Express Centurion Bank, 4.375% Nts.,
7/30/09 1,155,000 1,164,471
- -------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts.,
4/2/12 1,325,000 1,556,095
- -------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts.,
6/15/32 2,995,000 3,587,558
- -------------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts.,
4/15/08 1,500,000
1,477,940
- -------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70% Sr. Unsec. Nts.,
9/1/12 3,195,000 3,404,550
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts.,
2/1/08 2,030,000
2,168,710
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts.,
2/15/08 325,000 344,558
- -------------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F,
3/15/12 2,630,000
3,069,660
- -------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C,
2/3/14 3,415,000 3,504,685
- -------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts.,
4/1/12
1,610,000 1,792,463
- ---------------
22,070,690
- -------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.4%
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08
9 635,000 637,384
- -------------------------------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts.,
7/30/07 860,000 850,259
- -------------------------------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10
9 2,487,000 2,895,241
- -------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr. Unsec. Bonds,
8/1/33 2,005,000 1,917,446
- -------------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5% Nts., 6/15/15
3
1,230,000 1,250,719
- -------------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts.,
7/1/12 1,430,000 1,546,601
- -------------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23
9 2,675,000 3,543,530
- -------------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts.,
7/1/25 2,670,000 3,572,027
- -------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts.,
3/15/08 2,320,000 2,285,757
- ---------------
18,498,964
- -------------------------------------------------------------------------------------------------------------------------
REAL ESTATE--1.7%
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07
3
560,000 585,076
8.10% Unsec. Nts.,
8/1/10
1,890,000 2,180,281
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
REAL ESTATE Continued
iStar Financial, Inc., 4.875% Sr. Unsec. Nts., Series B,
1/15/09 $ 2,645,000 $ 2,640,501
- -------------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts.,
8/15/14 1,625,000
1,708,408
- -------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP:
5.45% Unsec. Nts., 3/15/13
3
1,335,000 1,391,107
5.625% Unsec. Unsub. Nts.,
8/15/14
1,295,000 1,352,959
- -------------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts.,
6/15/07 3,160,000 3,222,344
- ---------------
13,080,676
- -------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.3%
Countrywide Financial Corp., 4.50% Nts., Series A,
6/15/10 1,970,000 1,969,724
- -------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.2%
- -------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.2%
Aetna, Inc., 7.375% Sr. Unsec. Nts.,
3/1/06 3,200,000
3,267,290
- -------------------------------------------------------------------------------------------------------------------------
CIGNA Corp.:
7% Sr. Unsec. Nts.,
1/15/11
1,240,000 1,391,454
7.40% Unsec. Nts.,
5/15/07
2,505,000 2,643,479
- -------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts.,
6/1/06 736,000
755,458
- -------------------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc., 4.875% Bonds,
3/15/15 853,000
872,790
- ---------------
8,930,471
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--2.7%
- -------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.7%
Boeing Capital Corp., 5.75% Sr. Nts., 2/15/07
3 503,000 516,695
- -------------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp.:
7.65% Unsec. Unsub. Debs.,
5/1/16
1,070,000 1,332,442
8.50% Bonds,
12/1/29
645,000 934,399
- -------------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts.,
2/15/11 2,040,000
2,309,870
- -------------------------------------------------------------------------------------------------------------------------
Raytheon Co., 6.50% Unsec. Nts.,
7/15/05
224,000 224,153
- ---------------
5,317,559
- -------------------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.4%
FedEx Corp., 2.65% Unsec. Nts.,
4/1/07
3,490,000 3,400,485
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B,
4/1/08 1,570,000 1,656,350
- -------------------------------------------------------------------------------------------------------------------------
Waste Management, Inc.:
6.875% Sr. Unsec. Nts.,
5/15/09
3,165,000 3,429,464
7% Sr. Nts.,
7/15/28
700,000 814,372
- ---------------
5,900,186
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.5%
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts.,
2/15/06 $ 2,225,000
$ 2,255,098
6.75% Sr. Unsub. Nts.,
2/15/11
1,140,000 1,267,006
- ---------------
3,522,104
- -------------------------------------------------------------------------------------------------------------------------
MARINE--0.0%
Navigator Gas Transport plc, 10.50% First Priority Ship Mtg. Nts., 6/30/07
1,10,11 171,000 149,625
- -------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL--0.3%
Canadian National Railway Co., 4.25% Nts., 8/1/09
3 434,000 434,036
- -------------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts.,
10/15/08
1,795,000 1,898,925
- ---------------
2,332,961
- -------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.0%
- -------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.0%
Orion Network Systems, Inc., 12.50% Sr. Unsub. Disc. Nts., 1/15/07
1,10,11 200,000 110,000
- -------------------------------------------------------------------------------------------------------------------------
MATERIALS--0.2%
- -------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.0%
Morton International, Inc., 9.65% Credit Sensitive Nts.,
6/1/20 85,000 126,697
- -------------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.2%
Ford Motor Credit Co., 6.25% Unsec. Nts.,
12/8/05 1,557,000 1,564,643
- -------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.1%
- -------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.7%
British Telecommunications plc, 8.875% Bonds,
12/15/30 1,520,000 2,152,288
- -------------------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts., 5/15/11
3 1,029,000 1,153,766
- -------------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts.,
6/15/10 2,070,000 2,401,482
- -------------------------------------------------------------------------------------------------------------------------
France Telecom SA:
8% Sr. Unsec. Nts., 3/1/11
2
1,600,000 1,858,923
8.75% Sr. Unsec. Nts., 3/1/31
2
520,000 727,259
- -------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts.,
3/15/32 2,140,000
2,986,289
- -------------------------------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.75% Nts., 1/27/10
9 1,600,000 1,606,656
- ---------------
12,886,663
- -------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.4%
AT&T Wireless Services, Inc., 8.125% Sr. Unsec. Nts.,
5/1/12 2,350,000 2,819,441
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES--3.5%
- -------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.0%
CenterPoint Energy, Inc.:
7.25% Sr. Nts., Series B,
9/1/10
2,020,000 2,243,673
8.125% Unsec. Nts., Series B,
7/15/05
840,000 840,884
- -------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7% Unsec. Nts.,
4/1/12 2,375,000 2,682,814
- -------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts.,
6/15/10 1,425,000 1,643,568
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
DTE Energy Co., 6.45% Sr. Unsub. Nts.,
6/1/06 $ 1,035,000 $
1,056,382
- -------------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06
3 1,260,000 1,282,003
7.375% Sr. Unsub. Nts., Series C,
11/15/31 1,455,000
1,784,300
- -------------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08
1,2 1,435,000 1,553,388
- -------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts.,
10/1/12 3,015,000 3,207,312
- -------------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts., 2/1/10
9 1,505,000 1,721,654
- -------------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07
1,3 1,810,000 1,877,875
- -------------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06
3 645,000 658,511
- -------------------------------------------------------------------------------------------------------------------------
TXU Corp., 6.55% Nts., 11/15/34
3,9
2,345,000 2,314,801
- ---------------
22,867,165
- -------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.5%
NiSource Finance Corp., 7.875% Sr. Unsec. Nts.,
11/15/10 2,260,000 2,599,784
- -------------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts.,
3/1/10 1,260,000 1,432,214
- ---------------
4,031,998
- ---------------
Total Corporate Bonds and Notes (Cost
$230,833,983)
234,746,949
SHARES
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--0.0%
Chesapeake Energy
Corp.
181 4,127
- -------------------------------------------------------------------------------------------------------------------------
Geotek Communications, Inc., Series B, Escrow Shares
1,11,13 25 --
- ---------------
Total Common Stocks (Cost
$109)
4,127
UNITS
- -------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Concentric Network Corp. Wts., Exp. 12/15/07
1,11 50 --
- -------------------------------------------------------------------------------------------------------------------------
e.spire Communications, Inc. Wts., Exp. 11/1/05
1,11 300 3
- -------------------------------------------------------------------------------------------------------------------------
HF Holdings, Inc. Wts., Exp. 9/27/09
1,11
1,063 11
- -------------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05
1,11 1,980 --
- -------------------------------------------------------------------------------------------------------------------------
Long Distance International, Inc. Wts., Exp. 4/13/08
9,11 150 --
- -------------------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts., Exp. 1/15/07
1,11 200 --
- -------------------------------------------------------------------------------------------------------------------------
Orion Network Systems, Inc. Rts., Exp. 7/8/05
11 34 --
- -------------------------------------------------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts., Exp. 9/19/10
11 2,028
750
- ---------------
Total Rights, Warrants and Certificates (Cost
$25,015) 764
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--3.2%
Undivided interest of 1.97% in joint repurchase agreement (Principal
Amount/Value $1,234,399,000, with a maturity value of $1,234,508,724) with UBS
Warburg LLC, 3.20%, dated 6/30/05, to be repurchased at $24,376,167 on 7/1/05,
collateralized by Federal Home Loan Mortgage Corp., 5.50%, 2/1/35, with a value
of $1,260,871,334 (Cost $24,374,000) $ 24,374,000 $ 24,374,000
- -------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments Purchased with Cash
Collateral from Securities Loaned) (Cost
$1,033,712,885)
1,037,558,426
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--7.5%
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED FLOATING NOTE--0.7%
Trust Money Market Securities, Series A-2, 3.295%, 7/15/05
14 2,000,000 2,000,000
- -------------------------------------------------------------------------------------------------------------------------
Whitehawk CDO Funding Corp., 3.48%, 9/15/05
14 3,000,000 3,000,000
- ---------------
5,000,000
- -------------------------------------------------------------------------------------------------------------------------
FUNDING AGREEMENT/GIC--0.5%
Allstate Life Insurance, 3.301%, 7/1/05
14 2,000,000
2,000,000
- -------------------------------------------------------------------------------------------------------------------------
Protective Life Insurance Co., 3.31%, 7/29/05
14 2,000,000 2,000,000
- ---------------
4,000,000
- -------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--5.6%
Undivided interest of 0.19% in joint repurchase agreement (Principal
Amount/Value $4,000,000,000, with a maturity value of $4,000,386,667) with
Nomura Securities, 3.48%, dated 6/30/05, to be repurchased at $7,464,929 on
7/1/05, collateralized by U.S. Agency Mortgages, 0.00%--5.959%, 1/15/18--4/1/42,
with a value of $4,160,000,001 14 7,464,207 7,464,207
- -------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.63% in joint repurchase agreement (Principal
Amount/Value $4,000,000,000, with a maturity value of $4,000,385,278) with
Nomura Securities, 3.4675%, dated 6/30/05, to be repurchased at $25,002,408 on
7/1/05, collateralized by U.S. Agency Mortgages, 0.00%--5.959%, 1/15/18--4/1/42,
with a value of $4,160,000,001 14 25,000,000 25,000,000
- -------------------------------------------------------------------------------------------------------------------------
Undivided interest of 2% in joint repurchase agreement (Principal
Amount/Value $500,000,000, with a maturity value of $500,048,611)
with WAMU Capital Corp., 3.50%, dated 6/30/05, to be repurchased at
$10,000,972 on 7/1/05, collateralized by U.S. Agency Mortgages,
2.95%--8%, 3/1/17--4/1/44, with a value of $510,000,000
14 10,000,000 10,000,000
- ---------------
42,464,207
- -------------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTE--0.5%
Bear Stearns, 3.618%, 7/1/05
14
4,000,000 4,000,000
- -------------------------------------------------------------------------------------------------------------------------
MEDIUM TERM FLOATING NOTE--0.2%
American Express Credit Corp., 3.262%, 7/18/05
14 1,901,330 1,901,330
- ---------------
Total Investments Purchased with Cash Collateral from Securities Loaned
(Cost
$57,365,537)
57,365,537
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
VALUE
SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$1,091,078,422) 143.3%
$1,094,923,963
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER
ASSETS (43.3)
(330,803,265)
- ----------------------------------
NET
ASSETS
100.0% $ 764,120,698
==================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of June 30, 2005 was $29,405,936, which represents
3.85% of the Fund's net assets, none of which is considered restricted. See Note
7 of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. Partial or fully-loaned security--See Note 8 of Notes to Financial
Statements.
4. When-issued security or forward commitment to be delivered and settled after
June 30, 2005. See Note 1 of Notes to Financial Statements.
5. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $20,753,847 or 2.72% of the Fund's net assets
as of June 30, 2005.
6. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these 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. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $1,398,267 or 0.18% of the Fund's net assets as of
June 30, 2005.
7. Zero coupon bond reflects effective yield on the date of purchase.
8. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. The aggregate
market value of such securities is $4,593,927. See Note 5 of Notes to Financial
Statements.
9. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $16,093,884 or 2.11% of the Fund's net
assets as of June 30, 2005.
10. Issue is in default. See Note 1 of Notes to Financial Statements.
11. Non-income producing security.
12. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.
13. Received as the result of issuer reorganization.
14. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8 of Notes to Financial
Statements.
OPPENHEIMER INTEGRITY FUNDS
FORM N-14
PART C
OTHER INFORMATION
Item 15. - Indemnification
Reference is made to the provisions of Article Seven of Registrant's Amended and
Restated Declaration of Trust filed as Exhibit 16(1) to this Registration
Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act") 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 1933 Act 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 1933 Act
and will be governed by the final adjudication of such issue.
Item 16. - Exhibits
(1) (i) Amended and Restated Declaration of Trust dated October 14, 2002:
Previously filed with Registrant's Post-Effective Amendment No. 43, 12/23/04,
and incorporated herein by reference.
(ii) Amendment dated December 23, 2004 to the Amended and Restated
Declaration of Trust: Previously filed with Registrant's Post-Effective
Amendment No. 45, 3/11/05, and incorporated herein by reference.
(2) Registrant's By-Laws as amended through October 24, 2000: Previously filed
with Registrants Post-Effective Amendment No. 43, 12/23/04, and incorporated
herein by reference.
(3) Not Applicable.
(4) Not Applicable.
(5) (i) Specimen Class A Share Certificate for Oppenheimer Core Bond Fund:
Previously filed with Registrant's Post-Effective Amendment No. 40, 4/29/02, and
incorporated herein by reference.
(ii) Specimen Class B Share Certificate for Oppenheimer Core Bond Fund:
Previously filed with Registrant's Post-Effective Amendment No. 40, 4/29/02, and
incorporated herein by reference.
(iii) Specimen Class C Share Certificate for Oppenheimer Core Bond
Fund: Previously filed with Registrant's Post-Effective Amendment No. 40,
4/29/02, and incorporated herein by reference.
(iv) Specimen Class N Share Certificate for Oppenheimer Core Bond Fund:
Previously filed with Registrant's Post-Effective Amendment No. 40, 4/29/02, and
incorporated herein by reference.
(6) Amended and Restated Investment Advisory Agreement dated January 1, 2005:
Previously filed with Registrant's Post-Effective Amendment No. 45, 3/11/05, and
incorporated herein by reference.
(7) (i) General Distributor's Agreement dated October 13, 1992: Previously filed
with Registrant's Post-Effective Amendment No. 17, 2/26/93, and incorporated
herein by reference.
(ii) Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.: Previously
filed with Post-Effective Amendment No. 45 to the Registration Statement of
Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and incorporated
herein by reference.
(iii) Form of Broker Agreement of OppenheimerFunds Distributor, Inc.: Previously
filed with Post-Effective Amendment No. 45 to the Registration Statement of
Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and incorporated
herein by reference.
(iv) Form of Agency Agreement of OppenheimerFunds Distributor, Inc.: Previously
filed with Post-Effective Amendment No. 45 to the Registration Statement of
Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and incorporated
herein by reference.
(v) Form of Trust Company Fund/SERV Purchase Agreement of OppenheimerFunds
Distributor, Inc.: Previously filed with Post-Effective Amendment No. 45 to the
Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/26/01, and incorporated herein by reference.
(vi) Form of Trust Company Agency Agreement of OppenheimerFunds Distributor,
Inc.: Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.
(8) Form of Deferred Compensation Plan for Disinterested Trustees/Directors:
Previously filed with Post-Effective Amendment No. 40 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/27/98, and
incorporated herein by reference.
(9) (i) Global Custody Agreement dated August 16, 2002: Previously filed with
Post-Effective Amendment No. 41 to the Registration Statement of Oppenheimer
Variable Account Funds (Reg. No. 2-93177), 4/28/03, and incorporated herein by
reference.
(ii) Amendment dated October 2, 2003 to the Global Custody Agreement
dated August 16, 2002: Previously filed with Pre-Effective Amendment No. 1 to
the Registration Statement of Oppenheimer Principal Protected Trust II (Reg.
333-108093), 11/6/03, and incorporated herein by reference.
(10) (i) Amended and Restated Service Plan and Agreement for Class A shares
dated April 26, 2004: Previously filed with Registrant's Post-Effective
Amendment No. 45, 3/11/05, and incorporated herein by reference.
(ii) Amended and Restated Distribution and Service Plan and Agreement
for Class B shares dated February 24, 1998: Previously filed with Registrant's
Post-Effective Amendment No. 34, 2/25/99, and incorporated herein by reference.
(iii) Amended and Restated Distribution and Service Plan and Agreement
for Class C shares dated February 23, 2004: Previously filed with Registrant's
Post-Effective Amendment No. 45, 3/11/05, and incorporated herein by reference.
(iv) Distribution and Service Plan and Agreement for Class N shares
dated October 24, 2000: Previously filed with Registrant's Post-Effective
Amendment No. 41, 2/25/03, and incorporated herein by reference.
(v) Oppenheimer Funds Multiple Class Plan under Rule 18f-3 updated
through 8/11/05: Previously filed with Post-Effective Amendment No. 5 to the
Registration Statement of Oppenheimer Main Street Opportunity Fund (Reg. No.
333-40186), 9/27/05, and incorporated herein by reference.
(11) Opinion and Consent of Counsel: To be filed by Amendment.
(12) Tax Opinion: To be filed by Amendment.
(13) Not Applicable.
(14) (i) Consent of Deloitte & Touche LLP: Filed herewith.
(ii) Consent of Ernst & Young LLP: Filed herewith.
(15) Not Applicable.
(16) Powers of Attorney dated December 13, 2004 for all Trustees/Directors and
Officers: Previously filed with Post-Effective Amendment No. 44 to the
Registration Statement of Oppenheimer Variable Account Funds, 2/25/05, and
incorporated herein by reference.
(17) Not Applicable.
Item 17. - Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called for by the applicable
registration form for the reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement or the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, this registration
statement has been signed on behalf of the registrant, in the City of New York
and State of New York, on the 2nd day of December, 2005.
Oppenheimer Integrity Funds, on behalf of its series,
Oppenheimer Core Bond Fund
By: /s/ John V. Murphy*
---------------------------------------------
John V. Murphy, President,
Principal Executive Officer & Trustee
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/ William L. Armstrong* Chairman of the December 2, 2005
- --------------------------- Board of Trustees
William L. Armstrong
/s/ John V. Murphy* President, Principal December 2, 2005
- ------------------------ Executive Officer & Trustee
John V. Murphy
/s/ Brian W. Wixted* Treasurer, Principal December 2, 2005
- ------------------------- Financial &
Brian W. Wixted Accounting Officer
/s/ Robert G. Avis* Trustee December 2, 2005
- ---------------------
Robert G. Avis
/s/ George Bowen* Trustee December 2, 2005
- ----------------------
George Bowen
/s/ Edward Cameron* Trustee December 2, 2005
- ------------------------
Edward Cameron
/s/ Jon S. Fossel* Trustee December 2, 2005
- --------------------
Jon S. Fossel
/s/ Sam Freedman* Trustee December 2, 2005
- ---------------------
Sam Freedman
/s/ Beverly L. Hamilton* Trustee December 2, 2005
- -------------------------
Beverly L. Hamilton
/s/ Robert J. Malone* Trustee December 2, 2005
- -----------------------
Robert J. Malone
/s/ F. William Marshall, Jr.* Trustee December 2, 2005
- ----------------------------
F. William Marshall, Jr.
*By: /s/ Mitchell J. Lindauer
-----------------------------------------
Mitchell J. Lindauer, Attorney-in-Fact
OPPENHEIMER INTEGRITY FUNDS
Registration Statement No. ___________
EXHIBIT INDEX
Exhibit No. Description
14(i) Consent of Independent Registered Public Accounting Firm
14(ii) Consent of Independent Registered Public Accounting Firm
