CLASS Y YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.07 $ 3.64 $ 3.71 $ 4.17 $ 4.32
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .21 .26 .32 .36 .46
Net realized and unrealized gain (loss) .14 .42 (.06) (.42) (.19)
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Total from investment operations .35 .68 .26 (.06) .27
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.20) (.25) (.31) (.26) (.42)
Tax return of capital distribution -- -- (.02) (.14) --
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Total dividends and/or distributions
to shareholders (.20) (.25) (.33) (.40) (.42)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.22 $ 4.07 $ 3.64 $ 3.71 $ 4.17
==============================================================================
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 8.80% 19.33% 7.06% (1.58)% 6.55%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 150,699 $ 240,296 $ 152,767 $ 103,858 $ 75,748
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 213,632 $ 194,308 $ 127,992 $ 94,400 $ 57,127
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.80% 6.57% 7.86% 9.09% 11.39%
Total expenses 1.29% 1.41% 1.74% 1.35% 0.83%
Expenses after payments and waivers
and reduction to custodian expenses 0.90% 0.91% 0.90% 0.78% N/A 3
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 4 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
INFORMATION AND SERVICES
For More Information on Oppenheimer Strategic Income 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 send us a request by e-mail or read or
download documents on the OppenheimerFunds
website: 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.: 811-5724
PR0230.001.1104
Printed on recycled paper
Appendix to Prospectus of
Oppenheimer Strategic Income Fund
Graphic material included in the Prospectus of Oppenheimer Strategic
Income 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 Oppenheimer Strategic
Income Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the past ten calendar
years, without deducting sales charges. Set forth below are the relevant data
points that will appear in the bar chart:
Calendar Annual
Year Ended Total Returns
12/31/94 -4.45%
12/31/95 15.38%
12/31/96 12.59%
12/31/97 8.36%
12/31/98 1.67%
12/31/99 4.04%
12/31/00 2.21%
12/31/01 3.52%
12/31/02 6.85%
12/31/03 19.60%
OPPENHEIMER STRATEGIC INCOME FUND
Supplement dated February 18, 2005, to the
Prospectus dated November 29, 2004
This supplement amends the Prospectus dated November 29, 2004. The
Prospectus supplement dated January 6, 2005 is replaced by this supplement.
This Prospectus is revised as follows:
1. Under the table captioned "Annual Fund Operating Expenses" on page 9, the
last three sentences of the first paragraph are deleted and replaced with the
following:
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" and "Total Annual Operating Expenses" were 0.37% and 0.90%
for Class Y shares, and were the same as shown above (in the
Prospectus) for all other classes.
2. The following new section should be added to the end of section of the
Prospectus captioned "Foreign Securities" in the section "ABOUT THE FUND -
ABOUT THE FUND'S INVESTMENTS - THE FUND'S PRINCIPAL POLICIES AND RISKS" on
page 12:
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 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.
3. The section titled "Pending Litigation" at the end of section of the
Prospectus captioned "ABOUT THE FUND - HOW THE FUND IS MANAGED," on page 16,
should be deleted in its entirety and replaced with the following:
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, filed in the U.S. District
Court for the Southern District of New York on January 10, 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.
4. In the section entitled "How Can You Buy Class A Shares?", the following
is added after the chart depicting Class A share sales charges on page 22.
Due to rounding, the actual sales charge for a particular transaction
may be higher or lower than the rates listed above.
5. Effective March 18, 2005, the first two sentences of the first
paragraph of the section entitled "Right of Accumulation" in the section
entitled "Can You Reduce Class A Sales Charges?" on page 22 are replaced with
the following:
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
did not pay a sales charge will not be counted for this purpose.
6. Effective March 18, 2005, the first paragraph of the section entitled
"Letters of Intent" in the section entitled "Can You Reduce Class A Sales
Charges?" on page23 is replaced with the following:
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 did not pay 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 can also apply the Right of Accumulation to these purchases.
7. The section titled "How to Exchange Shares" in the section of the
Prospectus captioned "ABOUT YOUR ACCOUNT," on page 34, should be deleted in
its entirety and replaced with the following:
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 prospectuses of the selected fund must offer the exchange
privilege.
o You must hold the shares you buy when you establish an account 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. There are a number
of other special conditions and limitations that apply to certain types of
exchanges. 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 that holding period. 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 the 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 policy 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.
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 to you.
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 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.
Therefore the Transfer Agent might 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. 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.
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 all or some 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 another 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.
o 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).
February 18, 2005
PS0230.032
Oppenheimer Strategic Income Fund
6803 South Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)
Statement of Additional Information dated November 29, 2004, revised February
2, 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 November 29, 2004, as supplemented from
time to time. 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..............................................33
How the Fund is Managed..................................................35
Organization and History.................................................35
Trustees and Officers................................................37
The Manager..........................................................46
Brokerage Policies of the Fund...........................................49
Distribution and Service Plans...........................................51
Performance of the Fund..................................................55
About Your Account
How To Buy Shares........................................................63
How To Sell Shares.......................................................73
How To Exchange Shares...................................................79
Dividends, Capital Gains and Taxes.......................................83
Additional Information About the Fund....................................87
Financial Information About the Fund
Independent Auditors' Report.............................................89
Financial Statements.....................................................90
Appendix A: Ratings Definitions.........................................A-1
Appendix B: Industry Classifications....................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers...............C-1
A B O U T T H E F U N D
Additional Information About the Fund's Investment Policies and Risks
The investment 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 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 goal. It
may use some of the investment techniques and strategies at some times or not
at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation
of the issuer's historical operations, prospects for the industry of which
the issuer is part, the issuer's financial condition, its pending product
developments and business (and those of its competitors), the effect of
general market and economic conditions on the issuer's business, and
legislative proposals that might affect the issuer.
Additionally, in analyzing a particular issuer, the Manager may
consider the trading activity in the issuer's securities, present and
anticipated cash flow, estimated current value of its assets in relation to
their historical cost, the issuer's experience and managerial expertise,
responsiveness to changes in interest rates and business conditions, debt
maturity schedules, current and future borrowing requirements, and any change
in the financial condition of an issuer and the issuer's continuing ability
to meet its future obligations. The Manager also may consider anticipated
changes in business conditions, levels of interest rates of bonds as
contrasted with levels of cash dividends, industry and regional prospects,
the availability of new investment opportunities and the general economic,
legislative and monetary outlook for specific industries, the nation and the
world.
|X| Foreign Securities. The Fund expects to have substantial investments in
foreign securities. For the most part, these will be debt securities issued
or guaranteed by foreign companies or governments, including "supra-national"
entities. "Foreign securities" include equity and debt securities of
companies organized under the laws of countries other than the United States
and debt securities issued or guaranteed by governments other than the U.S.
government or by foreign supra-national entities. They also include
securities of companies (including those that are located in the U.S. or
organized under U.S. law) that derive a significant portion of their revenue
or profits from foreign businesses, investments or sales, or that have a
significant portion of their assets abroad. They may be traded on foreign
securities exchanges or in the foreign over-the-counter markets.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary over time depending on a number of factors. Those
factors may include the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of a country's financial
markets, the interest rate climate of particular foreign countries and the
relationship of particular foreign currencies to the U.S. dollar. The
Manager analyzes fundamental economic criteria (for example, relative
inflation levels and trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and political data.
Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be
received in foreign currencies, the Fund will be required to compute its
income in U.S. dollars for distribution to shareholders, and therefore the
Fund will absorb the cost of currency fluctuations. After the Fund has
distributed income, subsequent foreign currency losses may result in the
Fund's having distributed more income in a particular fiscal period than was
available from investment income, which could result in a return of capital
to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer high 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 foreign governments
and entities may or may not be supported by the full faith and credit of the
foreign government. The Fund may buy securities issued by certain
supra-national entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. Examples are the
International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these 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.
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 control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o foreign exchange contracts;
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 on interest and dividends;
o possibilities in some countries of expropriation, nationalization,
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.
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 IRCss.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.
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, because the selection of those securities must be consistent with
the Fund's investment objective.
|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 above. In general, debt securities are
also subject to two additional types of risk: credit risk and interest rate
risk.
o Credit Risks. Credit risk relates to the ability of the issuer to meet
interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater
extent that lower-yield, higher-quality bonds.
The Fund's debt investments can include high-yield,
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., at least "BBB" by Standard & Poor's Ratings Group or Duff &
Phelps, Inc., or that have comparable ratings by another
nationally-recognized rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research
to evaluate a security's credit-worthiness. If securities the Fund buys are
unrated, they are assigned a rating by the Manager of comparable quality to
bonds having similar yield and risk characteristics within a rating category
of a rating organization.
The Fund does not have investment policies establishing specific
maturity ranges for the Fund's investments, and they may be within any
maturity range (short, medium or long) depending on the Manager's evaluation
of investment opportunities available within the debt securities markets. The
Fund may shift its investment focus to securities of longer maturity as
interest rates decline and to securities of shorter maturity as interest
rates rise.
o Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of fixed-income securities resulting from the inverse relationship
between price and yield. For example, an increase in general interest rates
will tend to reduce the market value of already-issued fixed-income
investments, and a decline in general interest rates will tend to increase
their value. In addition, debt securities with longer maturities, which tend
to have higher yields, are subject to potentially greater fluctuations in
value from changes in interest rates than obligations with shorter
maturities.
While the changes in value of the Fund's portfolio securities after
they are purchased will be reflected in the net asset value of the Fund's
shares, those changes normally do not affect the interest income paid by
those securities (unless the security's interest is paid at a variable rate
pegged to particular 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 Securities. The Fund can invest without
limit in lower-grade debt securities, if the Manager believes it is
consistent with the Fund's objective. Because lower-rated securities tend to
offer higher yields than investment grade securities, the Fund may invest in
lower-grade securities to try 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 Duff & Phelps, or similar ratings by other
rating organizations. If they are unrated, and are determined by the Manager
to be of comparable quality to debt securities rated below investment grade,
they are considered part of the Fund's portfolio of lower-grade securities.
The Fund can invest in securities rated as low as "C" or "D" or which may be
in default at the time the Fund buys them.
Some of the special credit risks of lower-grade securities are
discussed below. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of
investment grade securities. The issuer's low creditworthiness may increase
the potential for its insolvency. An overall decline in values in the
high-yield bond market is also more likely during a period of a general
economic downturn. An economic downturn or an increase in interest rates
could severely disrupt the market for high-yield bonds, adversely affecting
the values of outstanding bonds as well as the ability of issuers to pay
interest or repay principal. In the case of foreign high-yield bonds, these
risks are in addition to the special risk of foreign investing discussed in
the Prospectus and in this Statement of Additional Information.
To the extent they can be converted into stock, convertible securities
may be less subject to some of these risks than non-convertible high-yield
bonds, since stock may be more liquid and less affected by some of these risk
factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's
or Duff & Phelps are investment grade and are not regarded as junk bonds,
those securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of the
principal rating organizations are included in Appendix A to this Statement
of Additional Information.
|X| Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or instrumentalities 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. Mortgage-related securities issued by
private issuers have greater credit risk.
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, and 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. As a result, these securities
may be less effective as a means of "locking in" attractive long-term
interest rates, and they may have less potential for appreciation during
periods of declining interest rates, than conventional bonds with comparable
stated maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all
or part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes
or prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment
than were anticipated, the Fund may fail to recoup its initial investment on
the security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on
the Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related
securities may be affected by changes in the market's perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and
tax policies.
o Collateralized Mortgage Obligations. CMOs are multi-class bonds that
are backed by pools of mortgage loans or mortgage pass-through certificates.
They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of
Veterans' Affairs,
(3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or
(5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal
and interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in different ways. One or more tranches may have
coupon rates that reset periodically at a specified increase over an index.
These are floating rate CMOs, and typically have a cap on the coupon rate.
Inverse floating rate CMOs have a coupon rate that moves in the opposite
direction of 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.
o 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| U.S. Government Securities. These are securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-charted corporate entities referred to as "instrumentalities." The
obligations of U.S. government agencies or instrumentalities in which the
Fund may invest may or may not be guaranteed or supported by the "full faith
and credit" of the United States. "Full faith and credit" means generally
that the taxing power of the U.S. government is pledged to the payment of
interest and repayment of principal on a security. If a security is not
backed by the full faith and credit of the United States, the owner of the
security must look principally to the agency issuing the obligation for
repayment. The owner might not be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its
commitment. The Fund will invest in securities of U.S. government agencies
and instrumentalities only if the Manager is satisfied that the credit risk
with respect to the agency or instrumentality is minimal.
o U.S. Treasury Obligations. These include Treasury bills (maturities of
one year or less when issued), Treasury notes (maturities of one to ten
years), and Treasury bonds (maturities of more than ten years). Treasury
securities are backed by the full faith and credit of the United States as to
timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and
Treasury Inflation-Protection Securities ("TIPS").
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 ("GNMA") pass-through mortgage
certificates (called "Ginnie Maes"). Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|X| U.S. Government Mortgage-Related Securities. The Fund can invest in a
variety of mortgage-related securities that are issued by U.S. government
agencies or instrumentalities, some of which are described below.
o GNMA Certificates. The Government National Mortgage Association is a
wholly-owned corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs
involve its guarantees of privately-issued securities backed by pools of
mortgages. Ginnie Maes are debt securities representing an interest in one
mortgage or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration
The Ginnie Maes in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the Ginnie
Maes will receive timely monthly payments of the pro-rata share of the
scheduled principal payments on the underlying mortgages, whether or not
those amounts are collected by the issuers. Amounts paid include, on a pro
rata basis, any prepayment of principal of such mortgages and interest (net
of servicing and other charges) on the aggregate unpaid principal balance of
the Ginnie Maes, whether or not the interest on the underlying mortgages has
been collected by the issuers.
The Ginnie Maes purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. In giving that guaranty, GNMA
expects that payments received by the issuers of Ginnie Maes on account of
the mortgages backing the Ginnie Maes will be sufficient to make the required
payments of principal of and interest on those Ginnie Maes. However, if those
payments are insufficient, the guaranty agreements between the issuers of the
Ginnie Maes and GNMA require the issuers to make advances sufficient for the
payments. If the issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under
any guaranty issued by GNMA as to such mortgage pools. An opinion of an
Assistant Attorney General of the United States, dated December 9, 1969,
states that such guaranties "constitute general obligations of the United
States backed by its full faith and credit." GNMA is empowered to borrow
from the United States Treasury to the extent necessary to make any payments
of principal and interest required under those guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to
the extent of payments received by the issuers on account of such mortgages,
Ginnie Maes do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against
GNMA. Holders of Ginnie Maes (such as the Fund) have no security interest in
or lien on the underlying mortgages.
Monthly payments of principal will be made, and additional prepayments
of principal may be made, to the Fund with respect to the mortgages
underlying the Ginnie Maes owned by the Fund. All of the mortgages in the
pools relating to the Ginnie Maes in the Fund are subject to prepayment
without any significant premium or penalty, at the option of the mortgagors.
While the mortgages on 1-to-4-family dwellings underlying certain Ginnie Maes
have a stated maturity of up to 30 years, it has been the experience of the
mortgage industry that the average life of comparable mortgages, as a result
of prepayments, refinancing and payments from foreclosures, is considerably
less.
o Federal Home Loan Mortgage Corporation ("FHLMC") Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each
registered holder of a FHLMC Certificate timely payment of the amounts
representing a holder's proportionate share in:
(i) interest payments less servicing and guarantee fees,
(ii) principal prepayments, and
(iii) the ultimate collection of amounts representing the holder's
proportionate interest in principal payments on the
mortgage loans in the pool represented by the FHLMC
Certificate, in each case whether or not such amounts
are actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
o Federal National Mortgage Association (Fannie Mae) Certificates.
Fannie Mae, a federally-chartered and privately-owned corporation, issues
Fannie Mae Certificates which are backed by a pool of mortgage loans. Fannie
Mae guarantees to each registered holder of a Fannie Mae Certificate that the
holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments,
on the mortgage loans in the pool represented by such Certificate, less
servicing and guarantee fees, and the holder's proportionate interest in the
full principal amount of any foreclosed or other liquidated mortgage loan. In
each case the guarantee applies whether or not those amounts are actually
received. The obligations of Fannie Mae under its guarantees are obligations
solely of Fannie Mae and are not backed by the full faith and credit of the
United States or any of its agencies or instrumentalities other than Fannie
Mae.
|X| Zero-Coupon U.S. Government Securities. The Fund may buy zero-coupon
U.S. government securities. These will typically be U.S. Treasury Notes and
Bonds that have been stripped of their unmatured interest coupons, the
coupons themselves, or certificates representing interests in those stripped
debt obligations and coupons.
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. The discount typically decreases as the maturity date approaches.
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 that pay
interest. 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| Portfolio Turnover. "Portfolio turnover" describes the rate at
which the Fund traded its portfolio securities during its last fiscal year.
For example, if a fund sold all of its securities during the year, its
portfolio turnover rate would have been 100%. The Fund's portfolio turnover
rate will fluctuate from year to year, and the Fund may continue to have a
portfolio turnover rate of more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally,
the realization of capital gains from selling portfolio securities may result
in distributions of taxable long-term capital gains to shareholders, since
the Fund will normally distribute all of its capital gains realized each
year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its 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.
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 of 1940 (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| Other Zero-Coupon Securities. The Fund may buy zero-coupon and
delayed-interest securities, and "stripped" securities of corporations and of
foreign government issuers. These are similar in structure to zero-coupon
and "stripped" U.S. government securities, but in the case of foreign
government securities, they may or may not be backed by the "full faith and
credit" of the issuing foreign government. Zero-coupon securities issued by
foreign governments and by corporations will be subject to greater credit
risks than U.S. government zero-coupon securities.
|X| "Stripped" Mortgage-Related Securities. The Fund may invest in
stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security's principal or interest payments. These are a form of derivative
investment.
Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one
type of security, known as an "interest-only" security, or "I/O," and all of
the principal is distributed to holders of another type of security, known as
a "principal-only" security or "P/O." Strips can be created for pass-through
certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
|X| Preferred Stocks. Unlike common stock, preferred stock typically
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.
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 call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common
stock on the distribution of a corporation's assets in the event of
liquidation of the corporation. Preferred stock may be "participating" stock,
which means that it may be entitled to a dividend exceeding the stated
dividend in certain cases. 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.
|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 can
have a demand feature that allows the Fund to tender the obligation to the
issuer or a third party prior to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is adjusted
automatically according to a stated prevailing market rate, such as a bank's
prime rate, the 91-day U.S. Treasury Bill rate, or some other standard. The
instrument's rate is adjusted automatically each time the base rate is
adjusted. The interest rate on a variable rate note is also based on a stated
prevailing market rate but is adjusted automatically at specified intervals
of not less than one year. Generally, the changes in the interest rate on
such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate demand obligation meets the Fund's quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets those
quality standards.
Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified
intervals not exceeding one year and upon no more than 30 days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally, the issuer must provide a
specified number of days' notice to the holder.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell
securities on a "delayed-delivery" basis. "When-issued" or "delayed-delivery"
refers to securities whose terms and indenture are available and for which a
market exists, but which are not available for immediate delivery.
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, the Fund makes no payment 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 for its portfolio or for delivery
pursuant to options contracts it has entered into, and not for the purposes
of investment leverage. Although the Fund will enter into when-issued or
delayed-delivery purchase transactions to acquire securities, the Fund 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 deliver or receive against a forward commitment, it
may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or delayed-delivery basis, it records the
transaction on its books and reflects the value of the security purchased in
determining the Fund's net asset value. In a sale transaction, it records
the proceeds to be received. The Fund will identify on its books liquid
assets at least equal in value to the value of the Fund's purchase
commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest
rates and prices. For instance, in periods of rising interest rates and
falling prices, the Fund might sell securities in its portfolio on a forward
commitment basis to attempt to limit its exposure to anticipated falling
prices. In periods of falling interest rates and rising prices, the Fund
might sell portfolio securities and purchase the same or similar securities
on a when-issued or delayed-delivery basis to obtain the benefit of currently
higher cash yields.
|X| Participation Interests. The Fund may invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan
made by the issuing financial institution in the proportion that the buyers
participation interest bears to the total principal amount of the loan. No
more than 5% of the Fund's net assets can be invested in participation
interests of the same borrower. The issuing financial institution may have
no obligation to the Fund other than to pay the Fund the proportionate amount
of the principal and interest payments it receives.
Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan. There is a risk that a
borrower may have difficulty making payments. If a borrower fails to pay
scheduled interest or principal payments, the Fund could experience a
reduction in its income. The value of that participation interest might also
decline, which could affect the net asset value of the Fund's shares. If the
issuing financial institution fails to perform its obligations under the
participation agreement, the Fund might incur costs and delays in realizing
payment and suffer a loss of principal and/or interest.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet
anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio
securities transactions, or for temporary defensive purposes, as described
below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an
agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. Approved vendors include
U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that
have been designated as primary dealers in government securities. They must
meet credit requirements set by the 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 maturity beyond seven days are subject
to the Fund's limits on holding illiquid investments. The Fund will not enter
into a repurchase agreement that causes more than 10% of its net assets to be
subject to repurchase agreements having a maturity beyond seven days. There
is no limit on the amount of the Fund's net assets that may be subject to
repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price
to fully collateralize the repayment obligation. However, if the vendor fails
to pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any delay
in its ability to do so. The Manager will monitor the vendor's
creditworthiness to confirm that the vendor is financially sound and will
monitor the collateral's value on an on-going basis.
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.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments. To enable the
Fund to sell its holdings of a restricted security not registered under the
Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be
negotiated by the Fund with the issuer at the time the Fund buys the
securities. When the Fund must arrange registration because the Fund wishes
to sell the security, a considerable period may elapse between the time the
decision is made to sell the security and the time the security is registered
so that the Fund could sell it. The Fund would bear the risks of any downward
price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers under Rule 144A of the Securities Act of
1933, if those securities have been determined to be liquid by the Manager
under Board-approved guidelines. Those guidelines take into account the
trading activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in
a particular Rule 144A security, the Fund's holdings of that security may be
considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable
within seven days.
|X| Investments in Equity Securities. The Fund can invest limited amounts
of its assets in securities other than debt securities, including certain
types of equity securities of both foreign and U.S. companies. However, it
does not anticipate investing significant amounts of its assets in these
securities as part of its normal investment strategy. Those equity securities
include preferred stocks (described above), rights and warrants, and
securities convertible into common stock. 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 many cases their conversion feature (allowing conversion
into equity securities) causes them to be regarded by the Manager more as
"equity equivalents." As a result, the rating assigned to the security has
less impact on the Manager's investment decision with respect to convertible
securities than in the case of non-convertible debt fixed-income securities.
Convertible securities are subject to the credit risks and interest rate
risks described above.
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.
o Rights and Warrants. The Fund can invest up to 5% of its total assets
in warrants or rights. That limit does not apply to warrants and rights the
Fund has acquired as part of units of securities or that are attached to
other securities that the Fund buys. The Fund does not expect that it will
have significant investments in warrants and rights.
Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants
have no voting rights, receive no dividends and have no rights with respect
to the assets of the issuer.
Loans of Portfolio Securities. The Fund may lend its portfolio
securities pursuant to the Securities Lending Agreement (the "Securities
Lending Agreement") with JP Morgan Chase, subject to the restrictions stated
in the Prospectus. The Fund will 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 in 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.
There are some risks in connection with securities lending. The Fund
might experience a delay in receiving additional collateral to secure a
loan, or a delay in recovery of the loaned securities if the borrower
defaults. The Fund must receive collateral for a loan. Under current
applicable regulatory requirements (which are subject to change), on each
business day the loan collateral must be at least equal to the value of the
loaned securities. It must consist of cash, bank letters of credit,
securities of the U.S. government or its agencies or instrumentalities, or
other cash equivalents in which the Fund is permitted to invest. To be
acceptable as collateral, letters of credit must obligate a bank to pay
amounts demanded by the Fund if the demand meets the terms of the letter.
The terms of the letter of credit and the issuing bank both must be
satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the
dividends or interest on loaned securities. It also receives one or more of
(a) negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on any short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finders', custodian and administrative fees in
connection with these loans. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and must permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
|X| Borrowing for Leverage. The Fund has the ability to borrow from
banks on an unsecured basis to invest the borrowed funds in portfolio
securities. This speculative technique is known as "leverage." The Fund
cannot borrow money in excess of 331/3% of the value of its total assets
(including the amount borrowed). The Fund may borrow only from banks and/or
affiliated investment companies. With respect to this policy, the Fund can
borrow only if it maintains a 300% ratio of assets to borrowings at all times
in the manner set forth in the Investment Company Act of 1940. If the value
of the Fund's assets fails to meet this 300% asset coverage requirement, the
Fund will reduce its bank debt within three days to meet the requirement. To
do so, the Fund might have to sell a portion of its investments at a
disadvantageous time.
The Fund will pay interest on these loans, and that interest expense
will raise the overall expenses of the Fund and reduce its returns. If it
does borrow, its expenses will be greater than comparable funds that do not
borrow for leverage. Additionally, the Fund's net asset value per share might
fluctuate more than that of funds that do not borrow. Currently, the Fund
does not contemplate using this technique in the next year but if it does so,
it will not likely be to a substantial degree.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer
loans. They are issued by trusts or special-purpose corporations. They are
similar to mortgage-backed securities, described above, and are backed by a
pool of assets that consist of obligations of individual borrowers. The
income from the pool is passed through to the holders of participation
interest in the pools. The pools may offer a credit enhancement, such as a
bank letter of credit, to try to reduce the risks that the underlying debtors
will not pay their obligations when due. However, the enhancement, if any,
might not be for the full par value of the security. If the enhancement is
exhausted and any required payments of 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. Unlike mortgage-backed
securities, asset-backed securities typically do not have the benefit of a
security interest in the underlying collateral.
|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 structured
notes called "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| 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. It is not
obligated to use them in seeking its objective although it can write covered
calls to seek high current income if the Manager believes that it is
appropriate to do so. To attempt to protect against declines in the market
value of the Fund's portfolio, to permit the Fund to retain unrealized gains
in the value of portfolio securities that have appreciated, or to facilitate
selling securities for investment reasons, the Fund could:
o sell futures contracts,
o buy puts on such futures or on securities, or
o write covered calls on securities or futures. Covered calls may also
be used to increase the Fund's income.
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 such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are
developed, if those investment methods are consistent with the Fund's
investment objective and are permissible under applicable regulations
governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to
(1) broadly-based securities indices (these are referred to as "financial
futures"), (2) commodities (these are referred to as "commodity index
futures"), (3) debt securities (these are referred to as "interest rate
futures"), (4) foreign currencies (these are referred to as "forward
contracts") and (5) an individual stock ("single stock futures").
A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the securities included in the index and its value fluctuates in
response to the changes in value of the underlying securities. A stock index
cannot be purchased or sold directly. Bond index futures are similar
contracts based on the future value of the basket of securities that comprise
the index. These contracts obligate the seller to deliver, and the purchaser
to take, cash to settle the futures transaction. There is no delivery made of
the underlying securities to settle the futures obligation. Either party may
also settle the transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting
contract to close out the position. 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.
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 may 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 may write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That
means the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
liquid assets identified on the Fund's books to enable the Fund to satisfy
its obligations if the call is exercised. There is no limit on the amount of
the Fund's total assets that may be subject to covered 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 the specified multiple that determines the
total value of the call for each point of difference. If the value of the
underlying investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would
keep the cash premium.
The Fund's custodian, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions.
OCC will release the securities on the expiration of the option or when the
Fund enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which
will establish a formula price at which the Fund will have the absolute right
to repurchase that OTC option. The formula price will generally be based on
a multiple of the premium received for the option, plus the amount by which
the option is exercisable below the market price of the underlying security
(that is, the option is "in the money"). When the Fund writes an OTC option,
it will treat as illiquid (for purposes of its restriction on holding
illiquid securities) the mark-to-market value of any OTC option it holds,
unless the option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund
will then realize a profit or loss, depending upon whether the net of the
amount of the option transaction costs and the premium received on the call
the Fund wrote is more or less than the price of the call the Fund purchases
to close out the transaction. The Fund may realize a profit if the call
expires unexercised, because the Fund will retain the underlying security and
the premium it received when it wrote the call. Any such profits are
considered short-term capital gains for federal income tax purposes, as are
the premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income. If the Fund cannot effect a closing purchase transaction
due to the lack of a market, it will have to hold the callable securities
until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at
the time the call is written, the Fund must cover the call by identifying an
equivalent dollar amount of liquid assets on its books. The Fund will
identify additional liquid assets if the value of the identified assets drops
below 100% of the current value of the future. Because of this identified
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 may 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 an investment the Fund does not own (such as an index
or future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of
the underlying investment is above the exercise price and, as a result, the
put is not exercised, the put will become worthless on its expiration date.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling the
underlying investment at the exercise price to a seller of a corresponding
put. If the market price of the underlying investment is equal to or above
the exercise price and, as a result, the put is not exercised or resold, the
put will become worthless at its expiration date. In that case the Fund will
have paid the premium but lost the right to sell the underlying investment.
However, the Fund may sell the put prior to its expiration. That sale may or
may not be at a profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally)
rather than on price movements in individual securities or futures contracts.
The Fund may also purchase calls and puts on spread options. Spread
options pay the difference between two interest rates, two exchange rates or
two referenced assets. Spread options are used to hedge the decline in the
value of an interest rate, currency or asset compared
to a reference or base interest rate, currency or asset. The risks
associated with spread options are similar to those of interest rate options,
foreign exchange options and debt or equity options.
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 from liquid
assets identified on the Fund's books upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns
or has the right to acquire and which is denominated in the currency
underlying the option. That decline might be one that occurs due to an
expected adverse change in the exchange rate. In those circumstances, the
Fund covers the option by identifying liquid assets on its books having a
value equal to the aggregate amount of the Fund's commitment under such
option position.
o Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques
that are different than what is required for normal portfolio management. If
the Manager uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause the
sale of underlying investments, increasing portfolio turnover. Although the
decision whether to exercise a put it holds is within the Fund's control,
holding a put might cause the Fund to sell the related investments for
reasons that would not exist in the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be
higher on a relative basis than the commissions for direct purchases or sales
of the underlying investments. Premiums paid for options are small in
relation to the market value of the underlying investments. Consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment
at the call price. It will not be able to realize any profit if the
investment has increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund might experience losses if it could not close out a position because of
an illiquid market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against
declines in the value of the Fund's portfolio securities. The risk is that
the prices of the futures or the applicable index will correlate imperfectly
with the behavior of the cash prices of the Fund's securities. For example,
it is possible that while the Fund has used hedging instruments in a short
hedge, the market might advance and the value of the securities held in the
Fund's portfolio might decline. If that occurred, the Fund would lose money
on the hedging instruments and also experience a decline in the value of its
portfolio securities. However, while this could occur for a very brief period
or to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the indices upon which
the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the
hedging instruments, the Fund might use hedging instruments in a greater
dollar amount than the dollar amount of portfolio securities being hedged. It
might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
market may cause temporary price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund
does so the market might decline. If the Fund then concludes not to invest
in securities because of concerns that the market might decline further or
for other reasons, the Fund will realize a loss on the hedging instruments
that is not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery
at a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold,
or to protect against possible losses from changes in the relative values of
the U.S. dollar and a foreign currency. The Fund limits its exposure in
foreign currency exchange contracts in a particular foreign currency to the
amount of its assets denominated in that currency or a closely-correlated
currency. The Fund may also use "cross-hedging" where the Fund hedges
against changes in currencies other than the currency in which a security it
holds is denominated.
Under a forward contract, one party agrees to purchase, and another
party agrees to sell, a specific currency at a future date. That date may be
any fixed number of days from the date of the contract agreed upon by the
parties. The transaction price is set at the time the contract is entered
into. These contracts are traded in the inter-bank market conducted directly
among currency traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate the risk of fluctuations in the prices of the underlying securities
the Fund owns or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts may reduce the risk of loss from a
decline in the value of the hedged currency, at the same time they limit any
potential gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in"
the U.S. dollar price of the security or the U.S. dollar equivalent of the
dividend payments. To do so, the Fund could enter into a forward contract
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction, in a fixed amount of U.S. dollars per unit of the
foreign currency. This is called a "transaction hedge." The transaction
hedge will protect the Fund against a loss from an adverse change in the
currency exchange rates during the period between the date on which the
security is purchased or sold or on which the payment is declared, and the
date on which the payments are made or received.
The Fund could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the
Fund believes that foreign currency might suffer a substantial decline
against the U.S. dollar, it could enter into a forward contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in that foreign currency. When the
Fund believes that the U.S. dollar might suffer a substantial decline against
a foreign currency, it could enter into a forward contract to buy that
foreign currency for a fixed dollar amount. Alternatively, the Fund could
enter into a forward contract to sell a different foreign currency for a
fixed U.S. dollar amount if the Fund believes that the U.S. dollar value of
the foreign currency to be sold pursuant to its forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in which
portfolio securities of the Fund are denominated. That is referred to as a
"cross hedge."
The Fund will cover its short positions in these cases by identifying
liquid assets on its books 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 contract 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 or as a hedge against a basket of securities held by
the Fund that the Manager deems to be closely correlated with the swap
transaction. 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 can terminate all of the swaps
with that party. Under these agreements, if a default results in a loss to
one party, the measure of that party's damages is calculated by reference to
the average cost of a replacement swap for each swap. It is measured by the
mark-to-market value at the time of the termination of each swap. The gains
and losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting of
gains and losses on termination is generally referred to as "aggregation."
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 adviser as the Fund (or
an adviser that is an affiliate of the Fund's adviser). The exchanges also
impose position limits on futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future,
less the margin deposit applicable to it.
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| Temporary Defensive and Interim Investments. When market conditions
are unstable, or the Manager believes it is otherwise appropriate to reduce
holdings in stocks, the Fund can invest in a variety of debt securities for
defensive purposes. The Fund can also purchase these securities for liquidity
purposes to meet cash needs due to the redemption of Fund shares, or to hold
while waiting to reinvest cash received from the sale of other portfolio
securities. The Fund's temporary defensive investments can include the
following short-term (maturing in one year or less) dollar-denominated debt
obligations:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured promissory notes) of domestic
or foreign companies,
o debt obligations of domestic or foreign corporate issuers,
o certificates of deposit and bankers' acceptances of domestic and
foreign banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly,
are not generally subject to significant fluctuations in principal value and
their value will be less subject to interest rate risk than longer-term debt
securities.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be
changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined
as the vote of the holders of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment 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 it would then own more than 10% of that issuer's voting
securities. This limit 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 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. Each foreign
government is treated as an "industry" and utilities are divided according to
the services they provide.
o The Fund cannot borrow money in excess of 331/3% of the value of its
total assets (including the amount borrowed). 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 of 1940.
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, provided that no such loan may be made if, as a result, the aggregate
of such loans would exceed 33 1/3% of the value of its total assets (taken at
market value at the time of such loans), and (d) through repurchase
agreements.
o The Fund cannot invest in real estate, physical commodities or
commodity contracts. However, the Fund may: (1) invest in debt securities
secured by real estate or interests in real estate, or issued by companies,
including real estate investment trusts, that invest in real estate or
interests in real estate; (2) invest in hedging instruments permitted by any
of its other investment policies; and (3) buy and sell options, futures,
securities or other instruments backed by, or the investment return from
which is linked to changes in the price of, physical commodities or
currencies.
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.
|X| Does the Fund Have Additional Restrictions That Are Not "Fundamental"
Policies?
The Fund has additional operating policies, which are stated below, that
are 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.
For purposes of the Fund's policy not to concentrate its investments,
the Fund has adopted the industry classifications set forth in Appendix B to
this Statement of Additional Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of
beneficial interest. The Fund was organized as a Massachusetts business trust
in 1989.
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.
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.
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.
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 six meetings during the fiscal year ended September
30, 2004. 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 auditors
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
auditors and its Independent Trustees; and (v) exercising all other functions
outlined in the Audit Committee Charter, including but not limited to
reviewing the independence of the Fund's independent auditors and the
pre-approval of the performance by the Fund's independent auditors of any
audit and 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. The Review Committee held
six meetings during the fiscal year ended September 30, 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 did not hold any meetings during the
Fund's fiscal year ended September 30, 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 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 sole 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 of Trustees of Oppenheimer Strategic Income Fund,
or to an individual Trustee c/o the Secretary of the Fund at 6803 South
Tucson Way, Centennial, CO 80112 and may submit their correspondence
electronically at www.opppenheimerfunds.com under the caption "contact us".
-------------------------
If your correspondence is intended for a particular Trustee, please indicate
the name of the Trustee for whom it is intended. The sender should indicate
in the address whether it is intended for the entire Board, the Independent
Trustees as a group, or to an individual Trustee. 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 Principal Protected
Oppenheimer Cash Reserves Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund
Oppenheimer Senior Floating Rate
Oppenheimer Capital Income Fund 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 Centennial America Fund, L. P.
Centennial California Tax Exempt
Oppenheimer Main Street Funds, Inc. Trust
Oppenheimer Main Street Opportunity Fund Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Centennial New York Tax Exempt
Oppenheimer Municipal Fund 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, Miao, Murphy, Petersen, Vottiero, Wixted, Zack and
Steinmetz 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 October 29, 2004, 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 their 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 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held Shares Oppenheimer
with Fund, Length by Trustee; BeneficiallFunds
of Service, Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,
2003
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
William L. Chairman of the following private None Over
Armstrong, mortgage banking companies: Cherry $100,000
Chairman of the Creek Mortgage Company (since 1991),
Board since 2004 Centennial State Mortgage Company
and Trustee since (since 1994), The El Paso Mortgage
1999 Company (since 1993), Transland
Age: 67 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 39 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert G. Avis, Formerly, Director and President of None Over
Trustee since 1993 A.G. Edwards Capital, Inc. (General $100,000
Age: 73 Partner of private equity funds) (until
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 39 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
George C. Bowen, Formerly Assistant Secretary and a $10,001-$50Over
Trustee since 1997 director (December 1991-April 1999) of $100,000
Age: 68 Centennial Asset Management
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 39 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Edward L. Cameron, A member of The Life Guard of Mount None $50,001-$100,000
Trustee since 1999 Vernon, George Washington's home (since
Age: 66 June 2000). Formerly Director (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 39 portfolios
in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Jon S. Fossel, Director (since February 1998) of Rocky None Over
Trustee since 1990 Mountain Elk Foundation (a $100,000
Age: 62 not-for-profit foundation); a director
(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 39 portfolios
in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Sam Freedman, Director of Colorado Uplift (a $10,001-$50Over
Trustee since 1996 non-profit charity) (since September $100,000
Age: 64 1984). Formerly (until October 1994)
Mr. Freedman held several positions in
subsidiary or affiliated companies of
the Manager. Oversees 39 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Beverly L. Hamilton, Trustee of Monterey International None $50,001-$100,000
Trustee since 2002 Studies (an educational organization)
Age: 58 (since February 2000); a director of
The 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 38
portfolios in the OppenheimerFunds
complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert J. Malone, Chairman, Chief Executive Officer and None Over
Trustee since 2002 Director of Steele Street State Bank (a $100,000
Age: 60 commercial banking entity) (since
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 38 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
F. William Trustee of MassMutual Institutional None Over
Marshall, Jr., Funds (since 1996) and MML Series $100,000
Trustee since 2000 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 39
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 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held Shares Oppenheimer
with Fund, by Trustee; BeneficiallFunds
Length of Service, Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,
2003
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and $10,001-$50Over
President and director (since June 2001) and $100,000
Trustee since 2001 President (since September 2000) of the
Age: 55 Manager; President and a director or
trustee of other 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 63 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. Steinmetz, 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.
- -------------------------------------------------------------------------------------
Officers of the Fund
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Years
Position(s) Held with Fund
Length of Service,
Age
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Arthur P. Steinmetz, Senior Vice President of the Manager (since March 1993)
Vice President and and of HarbourView Asset Management Corporation (since
Portfolio Manager since March 2000); an officer of 4 portfolios in the
1989 OppenheimerFunds complex.
Age: 46
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer
Vice President and Chief (since March 2004) of the Manager; Vice President (since
Compliance Officer since June 1983) of OppenheimerFunds Distributor, Inc.,
2004 Centennial Asset Management Corporation and Shareholder
Age: 54 Services, Inc. Formerly (until February 2004) Vice
President and Director of Internal Audit of
OppenheimerFunds, Inc. An officer of 84 portfolios in
the Oppenheimer funds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer (since March 1999)
Treasurer since 1999 of the Manager; Treasurer of HarbourView Asset
Age: 45 Management Corporation, Shareholder Financial Services,
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 84 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager since August
Assistant Treasurer since 2002; formerly Manager/Financial Product Accounting
2004 (November 1998-July 2002) of the Manager. An officer of
Age: 34 84 portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Philip Vottiero, Vice President/Fund Accounting of the Manager since
Assistant Treasurer since March 2002. Formerly Vice President/Corporate Accounting
2002 of the Manager (July 1999-March 2002) prior to which he
Age: 41 was Chief Financial Officer at Sovlink Corporation
(April 1996-June 1999). An officer of 84 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and
Vice President & Secretary General Counsel (since February 2002) of the Manager;
since 2001 General Counsel and a director (since November 2001) of
Age: 56 the Distributor; General Counsel (since November 2001)
of Centennial Asset Management 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 84
portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and
Assistant Secretary since Assistant Secretary (since October 2003) of the Manager;
2001 Vice President (since 1999) and Assistant Secretary
Age: 39 (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 84
portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager
Assistant Secretary since since May 2004; formerly First Vice President and
2004 Associate General Counsel of UBS Financial Services Inc.
Age: 36 (formerly, PaineWebber Incorporated) (May 1999 - April
2004) prior to which she was an Associate at Skaden,
Arps, Slate, Meagher & Flom, LLP (September 1996 - April
1999). An officer of 84 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the
Assistant Secretary since Manager since September 2004. Formerly Mr. Gillespie
2004 held the following positions at Merrill Lynch Investment
Age: 40 Management: First Vice President (2001-September 2004);
Director (from 2000) and Vice President (1998-2000). An
officer of 74 portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Wayne Miao, Assistant Vice President and Assistant Counsel of the
Assistant Secretary since Manager since June 2004. Formerly an Associate with
2004 Sidley Austin Brown & Wood LLP (September 1999 - May
Age: 31 2004). An officer of 74 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
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 September 30, 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, 2003.
- -------------------------------------------------------------------------------
Trustee Name and Other Fund Aggregate Total Compensation
From Fund and Fund
Compensation from Complex Paid to
Position(s) (as applicable) Fund1 Trustees*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
William L. Armstrong $24,058 $118,649
Chairman of the Board of
Trustees and Governance
Committee member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Robert G. Avis $15,781 $101,499
Review Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
George C. Bowen $15,781 $101,499
Audit Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Edward L. Cameron $18,162 $115,503
Audit Committee Chairman
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Jon S. Fossel $18,162 $115,503
Review Committee Chairman
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Sam Freedman $15,781 $101,499
Review Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Beverly Hamilton $15,781 2 $150,542 3,4
Review Committee Member and
Governance Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Robert J. Malone
Governance Committee Chairman $15,781 5 $100,1793
and Audit Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F. William Marshall, Jr. $15,781 $149,4996
Audit Committee Member and
Governance Committee Member
- -------------------------------------------------------------------------------
Effective December 15, 2003, James C. Swain retired as Director from the
Board II Funds. For the fiscal year ended September 30, 2004, Mr. Swain
received $6,556 aggregate compensation from the Fund. For the calendar year
ended December 31, 2003, Mr. Swain received $178,000 total compensation from
all of the Oppenheimer funds for which he served as Trustee/Director.
1. "Aggregate Compensation from Fund" includes fees and deferred
compensation, if any, for a Trustee.
2. Includes $15,781 deferred under Deferred Compensation plan described
below.
3. Compensation for Mrs. Hamilton and Mr. Malone was paid by all 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).
4. Includes $50,363 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 (Mass Mutual 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 $15, 781 deferred under Deferred Compensation Plan described
below.
6. Includes $48,000 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 disinterested Trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they
are entitled to receive from the Fund. Under the plan, the compensation
deferred by a Trustee is periodically adjusted as though an equivalent amount
had been invested in shares of one or more Oppenheimer funds selected by the
Trustee. The amount paid to the Trustee under the plan will be determined
based upon the performance of the selected funds.
Deferral of Trustee's fees under the plan will not materially affect
the Fund's assets, liabilities and net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued
by the 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 October 29, 2004 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:
Citigroup Global Markets Inc, 333 West 34th Street, New York, NY
10001-2483, which owned 15,406,699.714 Class B shares (5.79% of the
Class B shares then outstanding) and 10,585,882.124 Class C shares
(6.28% of the Class C shares then outstanding).
Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, MA 01111-0001, which owned 33,505,004.369 Class Y shares
(92.11% 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 OFI where an OFI
directly-controlled affiliate 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 9/30: Management Fees Paid to OppenheimerFunds,
Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2002 $31,984,221
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2003 $32,424,727
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2004 $33,967,119
- -------------------------------------------------------------------------------
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.
|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 is
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.
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 commission 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.
Subject to those considerations, as a factor in selecting brokers for
the Fund's portfolio transactions, the investment advisory agreement also
permits the Manager to consider sales of shares of the Fund and other
investment companies for which the Manager or an affiliate serves as
investment adviser. Notwithstanding that authority, and with the concurrence
of the Fund's Board, the Manager has determined not to consider sales of
shares of the Fund and other investment companies for which the Manager or an
affiliate serves as investment adviser as a factor in selecting brokers for
the Fund's portfolio transactions. However, the Manager may continue to
effect portfolio transactions through brokers who sell shares of the Fund
subject to SEC rules.
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 broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either
held in the Fund's portfolio or are being considered for purchase. The
Manager provides information to the Board about the commissions paid to
brokers furnishing such services, together with the Manager's representation
that the amount of such commissions was reasonably related to the value or
benefit of such services.
---------------------------------------------------------------------
Fiscal Year Ended 9/30: Total Brokerage Commissions Paid by the
Fund1
---------------------------------------------------------------------
---------------------------------------------------------------------
2002 $1,046,022
---------------------------------------------------------------------
---------------------------------------------------------------------
2003 $1,061,756
---------------------------------------------------------------------
---------------------------------------------------------------------
2004 $1,150,1432
---------------------------------------------------------------------
1. Amounts do not include spreads or commissions on principal transactions
on a net trade basis.
2. In the fiscal year ended 9/30/04, the amount of transactions directed
to brokers for research services was $47,357,293 and amount of the
commissions paid to broker-dealers for those services was 45,958.
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.
- ----------------------------------------------
Aggregate Class A
Front-End
Sales Charges Front-End Sales
Fiscal Year on Class A Charges Retained
Ended 9/30: Shares by Distributor1
- ----------------------------------------------
- ----------------------------------------------
2002 $4,841,002 $1,420,119
- ----------------------------------------------
- ----------------------------------------------
2003 $5,134,030 $1,418,393
- ----------------------------------------------
- ----------------------------------------------
2004 $6,035,218 $1,886,271
- ----------------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.
- -----------------------------------------------------------------------------
Fiscal Concessions on Concessions on Concessions on Concessions on
Year Class A Shares Class B Shares Class C Shares Class N Shares
Ended Advanced by Advanced by Advanced by Advanced by
9/30: Distributor1 Distributor1 Distributor1 Distributor1
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2002 $330,235 $201,918 $1,150,891 $116,766
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2003 $594,870 $6,186,560 $1,150,531 $122,428
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2004 $424,340 $3,391,476 $1,122,696 $199,149
- -----------------------------------------------------------------------------
1. The Distributor advances concession payments to financial
intermediaries for certain sales of Class A shares and for sales of
Class B and Class C shares from its own resources at the time of sale.
- ------------------------------------------------------------------------------
Class A
Class B Class C Class N
Contingent Contingent Contingent Contingent
Deferred Deferred Sales Deferred Sales Deferred Sales
Fiscal Year Sales Charges Charges Charges Charges
Ended 9/30: Retained by Retained by Retained by Retained by
Distributor Distributor Distributor Distributor
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2002 $43,020 $6,502,972 $102,631 $3,629
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2003 $115,085 $6,274,772 $97,016 $41,724
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2004 $73,000 $3,803,185 $117,463 $22,540
- ------------------------------------------------------------------------------
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 Trustees1, 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.
You should ask your dealer or financial intermediary for more details about
such payments it receives.
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 the 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 September 30, 2004 payments under the Class A
plan totaled $9,891,924, of which $157,494 was retained by the Distributor
under the arrangement described above, regarding grandfathered retirement
accounts, and included $546,948 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 for the service fee 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 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
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 Fees Paid to the Distributor for the Fiscal Year Ended 9/30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class: Total Amount Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Payments Retained by Expenses Under of Net Assets
Under Plan Distributor Plan of Class
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Plan $14,260,769 $10,957,4451 $96,344,899 8.28%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Plan $7,163,671 $1,221,2662 $20,621,328 2.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N Plan $199,666 $133,8793 $820,116 1.55%
- --------------------------------------------------------------------------------
1. Includes $109,863 paid to an affiliate of the Distributor's parent
company.
2. Includes $180,039 paid to an affiliate of the Distributor's parent
company.
3. Includes $7,104 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 9/30/04
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class of Standardized Yield Dividend Yield
Shares
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Without After Without After
Sales Sales Sales Sales
Charge Charge Charge Charge
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class A 4.36% 4.15% 4.54% 4.33%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class B 3.63% N/A 3.81% N/A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class C 3.62% N/A 3.81% N/A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class N 3.91% N/A 4.13% N/A
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Class Y 4.19% N/A 4.53% 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:
- 1 = Average Annual Total Return (After Taxes on
ATVD l/n 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 - 1 = Average Annual Total Return (After Taxes on Distributions
- ---
l/n 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. 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 9/30/04
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
Returns (10
years or
Shares life-of-class)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or life of (or life of
class if less) class if 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 A1 95.23% 104.97% 3.57% 8.73% 6.61% 7.65% 6.92% 7.44%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class B2 96.35% 96.35% 2.66% 7.66% 6.53% 6.84% 6.98% 6.98%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class C3 81.60% 81.60% 6.95% 7.95% 6.87% 6.87% 6.59%3 6.59%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class N4 30.94% 30.94% 7.28% 8.28% 7.82%4 7.82%4 N/A N/A
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class Y5 49.27% 49.27% 8.80% 8.80% 7.83% 7.83% 6.18%5 6.18%
- ---------------------------------------------------------------------------------
1. Inception of Class A: 10/16/1989
2. Inception of Class B: 11/30/1992
3. Inception of Class C: 5/26/1995
4. Inception of Class N: 3/1/2001
5. Inception of Class Y: 1/26/1998
- -----------------------------------------------------------------------------
Average Annual Total Returns for Class A1 Shares (After Sales Charge)
For the Periods Ended 9/30/04
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or life of (or life of
class if less) class if less)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
After Taxes on Distributions 1.87% 3.75% 3.69%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
After Taxes on 2.29% 3.80% 3.82%
Distributions and
Redemption of Fund Shares
- -----------------------------------------------------------------------------
1. Inception of Class A: 10/16/1989
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 multi-sector
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(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 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 Preservation Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Principal Protected Main
Oppenheimer Capital Income Fund Street Fund
Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund II
Oppenheimer Principal Protected Main
Oppenheimer Convertible Securities Fund Street Fund III
Oppenheimer Developing Markets Fund Oppenheimer Quest Balanced Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Disciplined Allocation Fund Inc.
Oppenheimer Quest International Value
Oppenheimer Discovery Fund 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 Cap Value Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Small Company
Fund Oppenheimer Value Fund
Oppenheimer International Value Fund Limited-Term New York Municipal Fund
Oppenheimer Limited Term California
Municipal Fund Rochester Fund Municipals
Oppenheimer Limited-Term Government Fund
And the following money market funds:
Oppenheimer Cash Reserves Centennial Government Trust
Oppenheimer Money Market Fund, Inc. Centennial Money Market Trust
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt 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"), if you purchase Class
A shares or Class A and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your
intended purchases of both Class A and Class B shares will determine the
reduced sales charge rate for the Class A shares purchased during that
period. You can include purchases made up to 90 days before the date of the
Letter. Letters do not consider Class C or Class N shares you purchase or may
have purchased.
A Letter is an investor's statement in writing to the Distributor of
the intention to purchase Class A shares or Class A and Class B shares of the
Fund (and other Oppenheimer funds) during a 13-month period (the "Letter
period"). At the investor's request, this may include purchases made up to 90
days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when
added to the investor's holdings of shares of those funds, will equal or
exceed the amount specified in the Letter. Purchases made by reinvestment of
dividends or distributions of capital gains and purchases made at net asset
value without sales charge do not count toward satisfying the amount of the
Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on
purchases of Class A shares of the Fund (and other Oppenheimer funds) that
applies under the Right of Accumulation to current purchases of Class A
shares. Each purchase of Class A shares under the Letter will be made at the
offering price (including the sales charge) that applies to a single lump-sum
purchase of shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter
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:
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
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 As explained in the Prospectus, 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. Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures.
The closing prices at the close of the Exchange 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 $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 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 America Fund, L.P. Centennial Money Market Trust
Centennial California Tax Exempt Trust Centennial New York Tax Exempt
Trust
Centennial Government Trust Centennial Tax Exempt Trust
The following funds do not offer Class N shares:
Limited Term New York Municipal Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer AMT-Free Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free New York Oppenheimer Principal Protected Main
Municipals Street Fund II
Oppenheimer California Municipal Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer International Value Fund Oppenheimer Rochester National
Municipals
Oppenheimer Limited Term California Oppenheimer Senior Floating Rate Fund
Municipal Fund
Oppenheimer Limited Term Municipal Fund Rochester Fund Municipals
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 Oppenheimer New Jersey Municipal Fund
Municipals
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 Oppenheimer Small Cap Value Fund
Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Growth 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. The Fund may accept requests for
exchanges of up to 50 accounts per day from representatives of authorized
dealers that qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone,
a shareholder must have an existing account in the fund to which the exchange
is to be made. Otherwise, the investors must obtain a prospectus of that fund
before the exchange request may be submitted. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be
delayed by either fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds.
The Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it. For example, if the receipt of multiple
exchange requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the Fund,
the Fund may refuse the request.
When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans
cannot be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a
share certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that
the fund selected is appropriate for his or her investment and should be
aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of one
fund and a purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of redemption proceeds
in such cases. The Fund, the Distributor, and the Transfer Agent are unable
to provide investment, tax or legal advice to a shareholder in connection
with an exchange request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend 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.
|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.
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 (in
this situation) 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.
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Strategic Income Fund, including the summary statement of
investments, as of September 30, 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 examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2004, by correspondence
with the custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Strategic Income Fund as of September 30, 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
November 16, 2004
SUMMARY STATEMENT OF INVESTMENTS September 30, 2004
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.7% (COST $262,422,911) $ 226,655,207 3.7%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--18.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%-12%, 10/1/16-10/1/34 1 $ 38,503,339 40,258,155 0.7
5%, 10/1/34 1 55,454,000 54,916,762 0.9
7%, 10/1/34 1 25,427,000 26,968,512 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate
Mtg. Investment Conduit Multiclass Pass-Through
Certificates, 2.109%-6.50%, 10/15/09-1/15/33 2 51,253,333 52,022,776 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security, (32.857)%-25.197%,
7/1/26-6/15/34 3 79,914,957 10,196,179 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only
Stripped Mtg.-Backed Security, Series 2819, Cl. PO,
11.429%, 6/15/34 4 5,270,303 4,629,255 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Structured
Pass-Through Security, Collateralized Mtg. Obligations,
Series T-42, Cl. A2, 5.50%, 2/25/42 3,072 3,071 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 10/1/19 1 28,007,000 27,910,712 0.5
5%, 10/1/19 1 62,675,000 63,673,914 1.0
5%, 10/1/34 1 31,538,000 31,212,780 0.5
5.50%, 10/1/19 1 73,509,000 75,966,994 1.2
5.50%, 10/1/34 1 47,621,000 48,260,931 0.8
6%, 11/1/34 1 28,550,000 29,424,344 0.5
6.50%, 10/1/34 1 87,034,000 91,304,062 1.5
7%, 10/1/34 1 212,711,000 225,540,026 3.6
5.50%-15%, 4/15/13-9/1/34 84,171,060 87,817,108 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust,
Commercial Mtg. Obligations, Interest-Only Stripped
Mtg.-Backed Security, Trust 2001-T10, Cl. IO, (14.798)%,
12/25/31 3,5 383,776,968 2,833,579 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg.
Obligations, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, 2.211%-6.50%,
8/25/09-12/18/32 2 24,606,430 24,850,086 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security,
(13.048)%-29.05%, 2/25/29-7/25/41 3,5 127,358,316 5,094,587 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, (26.373)%-25.237%, 5/1/23-6/1/32 3 57,437,971 9,661,049 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 237,320,126 3.8
---------------
Total Mortgage-Backed Obligations (Cost $1,161,605,133) 1,149,865,008
19 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--10.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Nts., 3.75%,
7/15/09 [EUR] 11,290,000 $ 14,092,755 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
2.75%, 8/15/06 101,820,000 101,811,040 1.6
2.875%, 12/15/06 52,450,000 52,424,195 0.9
4.50%-4.875%, 3/15/07-1/15/13 16,485,000 17,122,634 0.3
5.75%, 1/15/12 45,000,000 49,176,585 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.25%, 7/15/07 34,300,000 35,330,303 0.6
6%, 5/15/08 40,000,000 43,540,600 0.7
6.625%, 9/15/09 83,000,000 93,608,479 1.5
1.80%-7.25%, 5/27/05-5/15/30 40,900,000 44,064,842 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.93%-9.25%, 2/15/16-2/15/31 6,7 66,060,000 56,378,122 0.9
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.75%, 7/31/06 8,9 63,804,000 64,063,236 1.0
2.75%-4.25%, 8/15/07-8/15/14 17,594,000 17,669,928 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
United States (Government of) Gtd. Israel Aid Bonds,
5.50%, 12/4/23 11,400,000 11,816,522 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 31,180,130 0.5
---------------
Total U.S. Government Obligations (Cost $624,919,259) 632,279,371
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--32.4%
- ----------------------------------------------------------------------------------------------------------------------------------
ARGENTINA--0.9%
Argentina (Republic of) Bonds, 1.98%, 8/3/12 2 49,730,000 36,235,068 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 16,208,692 0.3
---------------
52,443,760
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA--1.1%
Queensland Treasury Corp. Unsec. Nts., Series 09G,
6%, 7/14/09 [AUD] 94,160,000 69,978,459 1.1
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRIA--1.1%
Austria (Republic of) Bonds, 6.25%, 7/15/27 [EUR] 36,250,000 55,452,354 0.9
- ----------------------------------------------------------------------------------------------------------------------------------
Austria (Republic of) Nts., Series 98-1, 5%, 1/15/08 [EUR] 11,325,000 14,970,025 0.2
---------------
70,422,379
- ----------------------------------------------------------------------------------------------------------------------------------
BELGIUM--1.6%
Belgium (Kingdom of) Bonds, 3.75%-6.50%,
3/31/05-9/28/11 [EUR] 72,685,000 96,134,027 1.6
- ----------------------------------------------------------------------------------------------------------------------------------
BRAZIL--1.8%
Brazil (Federal Republic of) Bonds, Series 15 yr., 2.125%,
4/15/09 2 138,241 135,822 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Capitalization Bonds,
Series 20 yr., 8%, 4/15/14 42,665,373 42,212,053 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts., 12%, 4/15/10 10,760,000 12,874,340 0.2
20 | OPPENHEIMER STRATEGIC INCOME FUND
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
BRAZIL Continued
Brazil (Federal Republic of) Unsec. Unsub. Bonds:
8.875%-10%, 8/7/11-4/15/24 $ 20,800,000 $ 21,033,488 0.3%
11%, 2/4/10 [EUR] 3,450,000 4,874,112 0.1
11%, 8/17/40 25,105,200 28,174,311 0.5
---------------
109,304,126
- ----------------------------------------------------------------------------------------------------------------------------------
BULGARIA--0.3% 17,485,876 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.1% 4,868,550 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
DENMARK--0.4% 22,224,659 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR--0.1% 4,913,100 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
FINLAND--0.1% 3,733,695 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
FRANCE--2.3%
France (Government of) Obligations Assimilables
du Tresor Bonds:
5.50%, 10/25/07-10/25/10 [EUR] 16,365,000 22,071,267 0.4
5.75%, 10/25/32 [EUR] 25,445,000 37,072,990 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
France (Government of) Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR] 20,895,000 26,086,235 0.4
5 yr., 4.75%, 7/12/07 [EUR] 795,000 1,039,654 0.0
5 yr., 5%, 7/12/05 [EUR] 42,600,000 54,093,897 0.9
---------------
140,364,043
- ----------------------------------------------------------------------------------------------------------------------------------
GERMANY--5.9%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR] 42,040,000 52,201,991 0.8
4.50%-5%, 8/17/07-7/4/11 [EUR] 13,210,000 17,598,339 0.3
5.375%, 1/4/10 [EUR] 19,385,000 26,398,422 0.4
Series 02, 5%, 7/4/12 [EUR] 26,650,000 35,801,352 0.6
Series 143, 3.50%, 10/10/08 [EUR] 186,290,000 234,830,328 3.8
---------------
366,830,432
- ----------------------------------------------------------------------------------------------------------------------------------
GREECE--1.2%
Greece (Republic of) Bonds:
3.50%-4.60%, 4/18/08-5/20/13 [EUR] 14,455,000 18,301,695 0.3
5.35%, 5/18/11 [EUR] 19,780,000 26,874,464 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Greece (Republic of) Sr. Unsub. Bonds, 4.65%,
4/19/07 [EUR] 23,245,000 30,213,137 0.5
---------------
75,389,296
- ----------------------------------------------------------------------------------------------------------------------------------
GUATEMALA--0.1% 4,750,200 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
HUNGARY--0.1% 7,532,296 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
IRELAND--0.2% 12,555,769 0.2
21 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
ITALY--1.8%
Italy (Republic of) Treasury Bonds, Buoni del
Tesoro Poliennali:
4%-4.50%, 3/1/05-3/1/07 [EUR] 17,735,000 $ 22,690,367 0.4%
5%, 2/1/12 [EUR] 26,035,000 34,855,367 0.6
5%, 10/15/07 [EUR] 21,650,000 28,580,903 0.4
5.25%, 12/15/05 [EUR] 21,165,000 27,190,465 0.4
---------------
113,317,102
- ----------------------------------------------------------------------------------------------------------------------------------
IVORY COAST--0.1% 3,110,122 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
JAPAN--2.0%
Japan (Government of) Bonds, 5 yr., Series 14,
0.40%, 6/20/06 [JPY] 13,686,000,000 125,030,439 2.0
- ----------------------------------------------------------------------------------------------------------------------------------
KOREA, REPUBLIC OF SOUTH--0.3% 19,455,538 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
MEXICO--0.8% 48,135,569 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--0.1% 7,559,840 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
NIGERIA--0.1% 6,575,247 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
PERU--0.5%
Peru (Republic of) Sr. Nts., 4.53%, 2/28/16 6 56,124,120 31,589,238 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.2% 14,162,128 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
POLAND--1.0%
Poland (Republic of) Bonds, Series 0K0805, 5.23%,
8/12/05 6 [PLZ] 189,340,000 50,804,320 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Bonds, 5.75%-6%,
5/24/09-9/23/22 [PLZ] 49,035,000 13,325,312 0.2
---------------
64,129,632
- ----------------------------------------------------------------------------------------------------------------------------------
PORTUGAL--0.8%
Portugal (Republic of) Obrig Do Tes Medio Prazo
Nts., 4.875%, 8/17/07 [EUR] 23,400,000 30,686,554 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Portugal (Republic of) Obrig Do Tes Medio Prazo
Unsec. Unsub. Nts., 5.85%, 5/20/10 [EUR] 14,360,000 19,989,989 0.3
---------------
50,676,543
- ----------------------------------------------------------------------------------------------------------------------------------
RUSSIA--1.4%
Ministry Finance of Russia Debs.:
Series VI, 3%, 5/14/06 17,870,000 17,500,985 0.2
Series V, 3%, 5/14/08 48,955,000 44,423,138 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Russian Federation Unsub. Nts., 5%, 3/31/30 2 26,555,250 25,609,219 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 8,077,556 0.1
---------------
95,610,898
- ----------------------------------------------------------------------------------------------------------------------------------
SPAIN--2.0%
Spain (Kingdom of) Bonds, Bonos y Obligacion del Estado:
5.35%, 10/31/11 [EUR] 35,425,000 48,529,102 0.8
5.75%, 7/30/32 [EUR] 20,670,000 30,056,247 0.5
22 | OPPENHEIMER STRATEGIC INCOME FUND
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
SPAIN Continued
Spain (Kingdom of) Treasury Bills, 2.03%,
10/22/04 6 [EUR] 35,545,000 $ 44,161,143 0.7%
---------------
122,746,492
- ----------------------------------------------------------------------------------------------------------------------------------
SWEDEN--0.3% 15,404,280 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
THE NETHERLANDS--0.6%
Netherlands (Kingdom of the) Bonds:
5%, 7/15/11 [EUR] 5,250,000 7,044,311 0.1
5.50%, 1/15/28 [EUR] 22,970,000 32,166,027 0.5
---------------
39,210,338
- ----------------------------------------------------------------------------------------------------------------------------------
TURKEY--0.1% 7,420,050 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--2.4%
United Kingdom Treasury Nts., 4%, 3/7/09 [GBP] 84,035,000 147,679,882 2.4
- ----------------------------------------------------------------------------------------------------------------------------------
VENEZUELA--0.6% 39,955,105 0.6
---------------
Total Foreign Government Obligations (Cost $1,928,875,689) 2,010,699,110
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesia (Republic of) Rupiah
Loan Participation Nts.:
2.636%, 1/25/06 2 23,680,000 23,154,304 0.4
2.636%, 3/21/05 2 20,675,000 20,577,828 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, OAO Gazprom Loan
Participation Nts., 6.50%, 8/4/05 5 25,000,000 25,620,000 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 29,924,628 0.5
---------------
Total Loan Participations (Cost $104,542,018) 99,276,760
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--27.7%
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--7.8%
Auto Components 48,024,274 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 131,050,925 2.1
- ----------------------------------------------------------------------------------------------------------------------------------
Household Durables 51,609,813 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 2,053,250 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Media 200,510,147 3.3
- ----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail 7,602,350 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 27,507,250 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods 13,981,875 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.1%
Beverages 3,615,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 7,709,923 0.1
23 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES Continued
Food Products $ 47,641,013 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Household Products 10,003,375 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
ENERGY--3.6%
Energy Equipment & Services 38,446,375 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas
Gazprom International SA, 7.201% Sr. Unsec. Bonds,
2/1/20 $ 34,905,000 35,436,603 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 150,293,108 2.4
---------------
185,729,711
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIALS--1.1%
Capital Markets 4,833,250 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks 19,828,338 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 13,036,225 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance 6,864,625 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate 18,509,934 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 5,407,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.2%
Health Care Equipment & Supplies 15,769,860 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 60,313,059 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--3.2%
Aerospace & Defense 24,743,686 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Airlines 25,652,066 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Building Products 5,713,170 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 72,785,582 1.2
- ----------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering 5,138,055 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 4,166,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 609,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Machinery 39,639,750 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Marine 15,063,390 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Road & Rail 4,465,688 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation Infrastructure 1,961,875 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.9%
Communications Equipment 5,867,750 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals 2,354,000 0.0
24 | OPPENHEIMER STRATEGIC INCOME FUND
VALUE PERCENT OF
SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY Continued
Electronic Equipment & Instruments $ 5,493,750 0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services 909,904 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
IT Services 10,351,750 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment 27,591,860 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
MATERIALS--4.3%
Chemicals 85,159,431 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
Construction Materials 3,696,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging 78,345,818 1.3
- ----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining 60,055,589 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 38,603,520 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.4%
Diversified Telecommunication Services 58,426,193 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services 86,253,653 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--2.1%
Electric Utilities 81,484,138 1.3
- ----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities 8,360,000 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power 39,696,256 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Water Utilities 2,166,000 0.0
---------------
Total Corporate Bond and Notes (Cost $1,712,641,527) 1,714,802,946
- ----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--0.8% (COST $77,458,299) 49,327,854 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--4.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Freddie Mac 18,900 1,233,036 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Prandium, Inc. 10,11 1,019,757 30,593 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 249,218,924 4.0
---------------
Total Common Stocks (Cost $231,331,906) 250,482,553
- ----------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0% (COST $1,728,328) 2,430,748 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--7.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Korea (Republic of) Credit Bonds,
1.56%, 6/20/09 $ 35,750,000 36,103,925 0.6
Moscow (City of) Linked Nts.,
10%-15%, 5/27/05-9/2/05 [RUR] 463,537,000 16,963,868 0.3
25 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG: Continued
OAO Gazprom I Credit Nts., 5.588%, 10/20/07 $ 7,145,000 $ 7,463,726 0.1%
OAO Gazprom II Credit Nts., 5.338%, 4/20/07 7,145,000 7,440,008 0.1
Ukraine (Republic of) Credit Linked Nts.,
6.541%, 8/15/11 35,010,000 36,025,290 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Dow Jones CDX High Yield Index Pass-Through
Certificates:
Series 3-1, 7.75%, 12/29/09 12,13 100,000,000 101,375,000 1.7
Series 3-3, 8%, 12/29/09 12,13 113,000,000 113,353,125 1.8
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 168,432,267 2.7
---------------
Total Structured Notes (Cost $477,097,559) 487,157,209
- ----------------------------------------------------------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0% (COST $1,434,463) 307,720 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--4.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.51% in joint repurchase agreement (Principal Amount/
Value $195,664,000, with a maturity value of $195,673,403) with DB Alex Brown
LLC, 1.73%, dated 9/30/04, to be repurchased at $1,000,048 on 10/1/04,
collateralized by U.S. Treasury Bonds, 6.25%--9.25%, 2/15/16--5/15/30,
with a value of $182,065,645 and U.S. Treasury Nts.,
3.375%, 1/15/07, with a value of $17,636,762 1,000,000 1,000,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 1.35% in joint repurchase agreement (Principal Amount/
Value $1,446,038,000, with a maturity value of $1,446,110,302) with UBS Warburg
LLC, 1.80%, dated 9/30/04, to be repurchased at $19,500,975 on 10/1/04,
collateralized by Federal National Mortgage
Assn., 5%, 3/1/34, with a value of $1,477,979,332 19,500,000 19,500,000 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 71.44% in joint repurchase agreement (Principal Amount/
Value $361,238,000, with a maturity value of $361,255,058) with Cantor
Fitzgerald & Co./Cantor Fitzgerald Securities, 1.70%, dated 9/30/04, to
be repurchased at $258,069,186 on 10/1/04, collateralized by U.S.
Treasury Bonds, 1.625%--9.875%, 3/31/05--8/15/28, with a value
of $298,717,670 and U.S. Treasury Bills, 1/20/05,
with a value of $70,023,125 258,057,000 258,057,000 4.2
---------------
Total Joint Repurchase Agreements (Cost $278,557,000) 278,557,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $6,862,614,092) 6,901,841,486 111.4
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (706,867,069) (11.4)
------------------------------
NET ASSETS $ 6,194,974,417 100.0%
==============================
FOOTNOTES TO SUMMARY STATEMENT OF INVESTMENTS
"Other securities" are unaffiliated holdings that are not individually one of
the top 50 holdings of the Fund, do not individually represent more than 1% of
the Fund's net assets and are issued by an entity in which the Fund's aggregate
holdings of securities issued by that entity do not represent more than 1% of
net assets.
The following footnotes to the statement of investments apply to either the
individual securities noted or one or more of the securities aggregated and
listed as a single line item.
26 | OPPENHEIMER STRATEGIC INCOME FUND
Principal amount, contracts and exercise price are reported in U.S. Dollars,
except for those denoted in the following currencies:
AUD Australian Dollar
EUR Euro
GBP British Pound Sterling
JPY Japanese Yen
NZD New Zealand Dollar
PLZ Polish Zloty
RUR Russian Ruble
1. When-issued security or forward commitment to be delivered and settled after
September 30, 2004. See Note 1 of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). 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 $30,067,013 or 0.49% of the Fund's net assets
as of September 30, 2004.
4. 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 $4,629,255 or 0.07% of the Fund's net assets as of
September 30, 2004.
5. Illiquid or restricted security. See Note 11 of Notes to Financial
Statements.
6. Zero coupon bond reflects the effective yield on the date of purchase.
7. Holdings are held in collateralized accounts to cover initial margin
requirements on open futures sales contracts with an aggregate market value of
$27,764,000. See Note 6 of Notes to Financial Statements.
8. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
9. A sufficient amount of liquid assets has been designated to cover outstanding
written call options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO CALL DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------
Japanese Yen (JPY) 21,980,000,000JPY 10/8/04 104.400JPY $ 1,576,917 $ --
New Zealand (Government of)
Bonds, 7%, 7/15/09 10,785NZD 12/9/04 6.205NZD 31,999 41,107
--------------------------
$ 1,608,916 $ 41,107
==========================
10. Non-income producing security.
11. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended September 30,
2004. The aggregate fair value of securities of affiliated companies held by the
Fund as of September 30, 2004 amounts to $30,593. Transactions during the period
in which the issuer was an affiliate are as follows:
SHARES SHARES
SEPT. 30, GROSS GROSS SEPT. 30, UNREALIZED
2003 ADDITIONS REDUCTIONS 2004 DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
Prandium, Inc. 1,019,757 -- -- 1,019,757 $11,955,407
12. 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 $416,465,073 or 6.72% of the Fund's net
assets as of September 30, 2004.
13. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2004
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------
Investments, at value (including securities loaned of approximately
$382,192,000)--see accompanying statement:
Unaffiliated companies (cost $6,850,628,092) $ 6,901,810,893
Affiliated companies (cost $11,986,000) 30,593
----------------
6,901,841,486
- ---------------------------------------------------------------------------------------
Cash 4,219,855
- ---------------------------------------------------------------------------------------
Cash--foreign currencies (cost $659,393) 652,268
- ---------------------------------------------------------------------------------------
Collateral for securities loaned 390,346,302
- ---------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 4,705,942
- ---------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 2,452,702
- ---------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $106,030,886 sold on a when-issued basis
or forward commitment) 134,063,188
Interest, dividends and principal paydowns 86,701,845
Shares of beneficial interest sold 4,660,678
Other 78,929
----------------
Total assets 7,529,723,195
- ---------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------
Options written, at value (premiums received $1,608,916)--see
accompanying summary statement of investments 41,107
- ---------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $1,181,001) 1,564,955
- ---------------------------------------------------------------------------------------
Return of collateral for securities loaned 390,346,302
- ---------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 23,102,068
- ---------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $835,449,053 purchased on a
when-issued basis or forward commitment) 889,180,496
Shares of beneficial interest redeemed 11,417,728
Closed foreign currency contracts 9,620,609
Distribution and service plan fees 3,730,238
Dividends 2,922,945
Futures margins 996,895
Transfer and shareholder servicing agent fees 795,139
Shareholder communications 559,495
Trustees' compensation 110,017
Other 360,784
----------------
Total liabilities 1,334,748,778
- ---------------------------------------------------------------------------------------
NET ASSETS $ 6,194,974,417
================
28 | OPPENHEIMER STRATEGIC INCOME FUND
- ----------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 1,464,099
- ----------------------------------------------------------------------------------------
Additional paid-in capital 7,128,865,393
- ----------------------------------------------------------------------------------------
Accumulated net investment income 119,924,802
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (1,087,197,545)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 31,917,668
-----------------
NET ASSETS $ 6,194,974,417
=================
- ----------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ----------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net
assets of $4,117,666,340 and 973,545,971 shares of beneficial
interest outstanding) $ 4.23
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $ 4.44
- ----------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $1,163,555,335 and 274,111,241 shares of beneficial
interest outstanding) $ 4.24
- ----------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $710,084,684 and 168,216,761 shares of beneficial
interest outstanding) $ 4.22
- ----------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $52,969,470 and 12,516,022 shares of beneficial interest
outstanding) $ 4.23
- ----------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $150,698,588 and 35,708,894 shares of
beneficial interest outstanding) $ 4.22
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------
Interest $ 344,307,567
- ----------------------------------------------------------------------------------------
Fee income 15,925,307
- ----------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $216,419) 5,150,052
- ----------------------------------------------------------------------------------------
Portfolio lending fees 560,653
-----------------
Total investment income 365,943,579
- ----------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------
Management fees 33,967,119
- ----------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 9,891,924
Class B 14,260,769
Class C 7,163,671
Class N 199,666
- ----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 5,760,790
Class B 1,748,998
Class C 896,600
Class N 125,777
Class Y 1,601,641
- ----------------------------------------------------------------------------------------
Shareholder communications:
Class A 645,678
Class B 248,729
Class C 91,228
Class N 6,069
- ----------------------------------------------------------------------------------------
Custodian fees and expenses 802,111
- ----------------------------------------------------------------------------------------
Trustees' compensation 159,292
- ----------------------------------------------------------------------------------------
Other 543,960
-----------------
Total expenses 78,114,022
Less reduction to custodian expenses (94,722)
Less payments and waivers of expenses (1,011,245)
-----------------
Net expenses 77,008,055
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 288,935,524
30 | OPPENHEIMER STRATEGIC INCOME FUND
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised) $ (273,420)
Closing of futures contracts (18,657,324)
Closing and expiration of option contracts written 3,525,972
Closing and expiration of swaption contracts (969,972)
Foreign currency transactions 150,909,396
Swap contracts (9,065,648)
-----------------
Net realized gain 125,469,004
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 161,658,067
Translation of assets and liabilities denominated in foreign (44,388,863)
currencies
Futures contracts (12,712,112)
Option contracts (787,163)
Swaption contracts (569,007)
Swap contracts 3,748,280
-----------------
Net change in unrealized appreciation (depreciation) 106,949,202
- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 521,353,730
=================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004 2003
- ---------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $ 288,935,524 $ 387,022,687
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) 125,469,004 (178,426,068)
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 106,949,202 863,388,406
--------------------------------------
Net increase in net assets resulting from operations 521,353,730 1,071,985,025
- ---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (192,285,670) (228,607,620)
Class B (57,497,267) (101,542,711)
Class C (28,954,074) (35,917,109)
Class N (1,737,495) (1,359,641)
Class Y (10,331,686) (12,603,902)
- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 102,366,894 271,084,579
Class B (576,954,365) (358,847,116)
Class C (13,106,700) 59,394,216
Class N 21,566,186 12,050,473
Class Y (97,360,343) 65,509,777
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Total increase (decrease) (332,940,790) 741,145,971
- ---------------------------------------------------------------------------------------------
Beginning of period 6,527,915,207 5,786,769,236
--------------------------------------
End of period (including accumulated net investment
income (loss) of $119,924,802 and $(26,416,177),
respectively) $ 6,194,974,417 $ 6,527,915,207
======================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.08 $ 3.64 $ 3.72 $ 4.18 $ 4.33
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20 .26 .32 .36 .43
Net realized and unrealized gain (loss) .15 .43 (.08) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .35 .69 .24 (.07) .26
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.20) (.25) (.30) (.26) (.41)
Tax return of capital distribution -- -- (.02) (.13) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.20) (.25) (.32) (.39) (.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.23 $ 4.08 $ 3.64 $ 3.72 $ 4.18
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 8.73% 19.59% 6.63% (1.79)% 6.18%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $4,117,666 $3,873,018 $3,202,825 $3,186,441 $3,431,763
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $4,025,554 $3,521,307 $3,263,490 $3,349,859 $3,517,517
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.69% 6.60% 7.91% 8.90% 9.98%
Total expenses 0.95% 3,4 0.95% 3 1.01% 3 0.93% 3 0.95% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.66 $ 3.73 $ 4.19 $ 4.34
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16 .22 .28 .33 .39
Net realized and unrealized gain (loss) .15 .44 (.05) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .31 .66 .23 (.10) .22
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.17) (.22) (.28) (.24) (.37)
Tax return of capital distribution -- -- (.02) (.12) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.17) (.22) (.30) (.36) (.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.24 $ 4.10 $ 3.66 $ 3.73 $ 4.19
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 7.66% 18.62% 6.11% (2.53)% 5.37%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,163,555 $1,686,295 $1,847,182 $2,186,638 $2,581,391
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,424,322 $1,757,152 $2,056,449 $2,394,886 $2,907,627
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.16% 5.92% 7.22% 8.14% 9.01%
Total expenses 1.69% 3,4 1.68% 3 1.75% 3 1.68% 3 1.71% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 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 that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS C YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.07 $ 3.64 $ 3.71 $ 4.17 $ 4.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .23 .29 .33 .39
Net realized and unrealized gain (loss) .15 .42 (.06) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .32 .65 .23 (.10) .22
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.17) (.22) (.28) (.24) (.37)
Tax return of capital distribution -- -- (.02) (.12) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.17) (.22) (.30) (.36) (.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.22 $ 4.07 $ 3.64 $ 3.71 $ 4.17
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 7.95% 18.45% 6.15% (2.54)% 5.39%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 710,085 $ 698,196 $ 568,487 $ 553,399 $ 548,332
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 716,206 $ 623,598 $ 571,292 $ 554,279 $ 568,742
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.06% 5.85% 7.15% 8.15% 9.21%
Total expenses 1.69% 3,4 1.69% 3 1.75% 3 1.68% 3 1.71% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.08 $ 3.65 $ 3.72 $ 4.13
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .25 .30 .22
Net realized and unrealized gain (loss) .16 .42 (.05) (.41)
---------------------------------------------------------------
Total from investment operations .33 .67 .25 (.19)
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.18) (.24) (.30) (.15)
Tax return of capital distribution -- -- (.02) (.07)
---------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.18) (.24) (.32) (.22)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.23 $ 4.08 $ 3.65 $ 3.72
===============================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 8.28% 18.82% 6.70% (4.61)%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 52,969 $ 30,110 $ 15,508 $ 3,215
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 40,043 $ 22,627 $ 8,954 $ 1,348
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 4.19% 6.08% 7.07% 9.74%
Total expenses 1.38% 4,5 1.34% 4 1.22% 4 0.98% 4
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 6 104% 117% 209%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
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 of 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
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS Y YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.07 $ 3.64 $ 3.71 $ 4.17 $ 4.32
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .21 .26 .32 .36 .46
Net realized and unrealized gain (loss) .14 .42 (.06) (.42) (.19)
------------------------------------------------------------------------------
Total from investment operations .35 .68 .26 (.06) .27
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.20) (.25) (.31) (.26) (.42)
Tax return of capital distribution -- -- (.02) (.14) --
------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.20) (.25) (.33) (.40) (.42)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.22 $ 4.07 $ 3.64 $ 3.71 $ 4.17
==============================================================================
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 8.80% 19.33% 7.06% (1.58)% 6.55%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 150,699 $ 240,296 $ 152,767 $ 103,858 $ 75,748
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 213,632 $ 194,308 $ 127,992 $ 94,400 $ 57,127
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.80% 6.57% 7.86% 9.09% 11.39%
Total expenses 1.29% 1.41% 1.74% 1.35% 0.83%
Expenses after payments and waivers
and reduction to custodian expenses 0.90% 0.91% 0.90% 0.78% N/A 3
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 4 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Strategic Income 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 high current income by investing
mainly in debt securities. The Fund's investment advisor is OppenheimerFunds,
Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class N and Class Y shares.
Class A shares are sold at their offering price, which is normally net asset
value plus a front-end sales charge. 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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
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. No such plan has been adopted for
Class Y shares. 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 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. 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 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
38 | OPPENHEIMER STRATEGIC INCOME FUND
with remaining maturities of sixty days or less are valued at amortized cost
(which approximates market value).
- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of September 30, 2004, the market value
of these securities comprised 7.9% of the Fund's net assets and resulted in
unrealized gains of $10,059,650.
- --------------------------------------------------------------------------------
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 September 30, 2004, the Fund had purchased
$835,449,053 of securities on a when-issued basis or forward commitment and sold
$106,030,886 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.
39 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of September 30, 2004, securities with an
aggregate market value of $60,275,197, representing 0.97% of the Fund's net
assets, were in default.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars 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.
Amounts related to the purchase and sale of foreign securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions. Foreign exchange rates may be valued primarily using
dealer supplied valuations or a portfolio pricing service authorized by the
Board of Trustees.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
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 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
40 | OPPENHEIMER STRATEGIC INCOME FUND
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 1,2,3,4,5,6 TAX PURPOSES
------------------------------------------------------------------------------
$140,321,504 $-- $1,059,119,870 $14,094,601
1. As of September 30, 2004, the Fund had $1,030,395,294 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of September 30, 2004,
details of the capital loss carryforwards were as follows:
EXPIRING
------------------------------
2007 $ 16,381,920
2008 358,683,799
2009 52,578,252
2010 185,647,798
2011 294,188,800
2012 122,914,725
--------------
Total $1,030,395,294
==============
2. As of September 30, 2004, the Fund had $25,835,930 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.
3. The Fund had $2,888,646 of straddle losses which were deferred.
4. During the fiscal year ended September 30, 2004, the Fund did not utilize any
capital loss carryforward.
5. During the fiscal year ended September 30, 2003, the Fund did not utilize any
capital loss carryforward.
6. During the fiscal year ended September 30, 2004, $114,650,580 of unused
capital loss carryforward expired.
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.
41 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Accordingly, the following amounts have been reclassified for September 30,
2004. Net assets of the Fund were unaffected by the reclassifications.
INCREASE TO
REDUCTION TO ACCUMULATED NET
REDUCTION TO ACCUMULATED NET REALIZED LOSS
PAID-IN CAPITAL INVESTMENT LOSS ON INVESTMENTS
-----------------------------------------------------------
$114,650,580 $148,211,647 $33,561,067
The tax character of distributions paid during the years ended September 30,
2004 and September 30, 2003 was as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
-----------------------------------------------------------
Distributions
paid from:
Ordinary income $290,806,192 $380,030,983
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 September 30, 2004 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 $ 6,885,152,828
Federal tax cost of other investments (643,139,762)
----------------
Total federal tax cost $ 6,242,013,066
================
Gross unrealized appreciation $ 343,729,578
Gross unrealized depreciation (357,824,179)
----------------
Net unrealized depreciation $ (14,094,601)
================
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded
42 | OPPENHEIMER STRATEGIC INCOME FUND
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.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
CLASS A
Sold 239,096,359 $ 999,651,057 239,075,415 $ 920,837,843
Dividends and/or
distributions reinvested 32,121,259 134,314,145 39,925,641 153,907,293
Redeemed (246,819,671) (1,031,598,308) (208,815,336) (803,660,557)
---------------------------------------------------------------------
Net increase 24,397,947 $ 102,366,894 70,185,720 $ 271,084,579
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS B
Sold 31,907,359 $ 133,737,139 63,952,473 $ 246,602,223
Dividends and/or
distributions reinvested 8,657,421 36,309,677 15,896,757 61,263,462
Redeemed (178,229,376) (747,001,181) (173,280,500) (666,712,801)
---------------------------------------------------------------------
Net decrease (137,664,596) $ (576,954,365) (93,431,270) $ (358,847,116)
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS C
Sold 34,946,299 $ 145,838,345 44,468,531 $ 171,414,411
Dividends and/or
distributions reinvested 4,955,123 20,669,780 6,320,901 24,316,496
Redeemed (43,114,379) (179,614,825) (35,649,094) (136,336,691)
---------------------------------------------------------------------
Net increase (decrease) (3,212,957) $ (13,106,700) 15,140,338 $ 59,394,216
=====================================================================
43 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST Continued
YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
CLASS N
Sold 7,364,068 $ 30,835,235 4,309,056 $ 16,669,277
Dividends and/or
distributions reinvested 393,458 1,645,805 334,213 1,294,796
Redeemed (2,615,117) (10,914,854) (1,522,702) (5,913,600)
---------------------------------------------------------------------
Net increase 5,142,409 $ 21,566,186 3,120,567 $ 12,050,473
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS Y
Sold 19,171,754 $ 79,967,710 41,339,112 $ 159,458,161
Dividends and/or
distributions reinvested 1,795,794 7,487,037 2,467,304 9,527,352
Redeemed (44,274,233) (184,815,090) (26,811,939) (103,475,736)
---------------------------------------------------------------------
Net increase (decrease) (23,306,685) $ (97,360,343) 16,994,477 $ 65,509,777
=====================================================================
- --------------------------------------------------------------------------------
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
September 30, 2004, were $4,021,933,541 and $4,891,449,509, respectively. There
were purchases of $823,936,177 and sales of $479,537,395 of U.S. government and
government agency obligations for the year ended September 30, 2004.
- --------------------------------------------------------------------------------
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 0.75% of the first $200 million of average annual net assets of
the Fund, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66%
of the next $200 million, 0.60% of the next $200 million, and 0.50% of average
annual net assets in excess of $1 billion.
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.
- --------------------------------------------------------------------------------
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 September 30, 2004, the Fund paid
$9,227,522 to OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $10,000 for
assets of $10 million or more. The Class Y shares are subject to the minimum
fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.
- --------------------------------------------------------------------------------
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.
44 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
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% per year on
Class B and Class C shares and 0.25% per year on Class N shares. The Distributor
also receives a service fee of up to 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 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 September 30,
2004 for Class B, Class C and Class N shares were $96,344,899, $20,621,328 and
$820,116, 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
- ---------------------------------------------------------------------------------------------
September 30, 2004 $1,886,271 $73,000 $3,803,185 $117,463 $22,540
- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. 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 September 30, 2004, OFS waived
$126,162, $31,110, $11,641, $811 and $841,521 for Class A, Class B, Class C,
Class N and Class Y shares, respectively. This undertaking may be amended or
withdrawn at any time.
45 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of September 30, 2004, the Fund had outstanding foreign currency contracts as
follows:
CONTRACT VALUATION
EXPIRATION AMOUNT AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000s) SEPT. 30, 2004 APPRECIATION DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
Argentine Peso (ARP) 2/2/05 34,420ARP $ 11,233,629 $ 2,147 $ --
Australian Dollar (AUD) 10/18/04 29,100AUD 21,138,930 762,819 --
Brazilian Real (BRR) 12/14/04-1/26/05 281,137BRR 95,297,528 2,625,712 --
British Pound
Sterling (GBP) 10/18/04-12/14/04 17,380GBP 31,403,911 178,297 63,428
Japanese Yen (JPY) 3/15/05-4/1/05 32,889,960JPY 302,132,803 445,307 8,082,651
New Zealand Dollar (NZD) 10/18/04 33,670NZD 22,760,690 563,574 --
Polish Zloty (PLZ) 12/27/04 25,347PLZ 7,128,187 31,566 --
South African Rand (ZAR) 10/25/04 68,965ZAR 10,637,036 -- 11,627
----------------------------
4,609,422 8,157,706
----------------------------
CONTRACTS TO SELL
British Pound
Sterling (GBP) 10/4/04-11/18/04 61,475GBP 111,286,539 -- 1,744,908
Canadian Dollar (CAD) 2/24/05 20,695CAD 16,369,460 -- 520,089
Euro (EUR) 11/16/04-12/27/04 462,511EUR 575,034,373 -- 11,670,565
Japanese Yen (JPY) 10/18/04-12/22/04 7,809,000JPY 71,189,637 96,520 666,450
Mexican Nuevo
Peso (MXN) 10/26/04 146,451MXN 12,808,570 -- 98,016
Swiss Franc (CHF) 10/18/04 28,620CHF 23,000,520 -- 244,334
----------------------------
96,520 14,944,362
----------------------------
Total unrealized appreciation and depreciation $ 4,705,942 $ 23,102,068
============================
46 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
6. 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.
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 Summary 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 and depreciation is
reported on 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 September 30, 2004, the Fund had outstanding futures contracts as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
Euro-Bundesobligation 12/8/04 132 $ 18,985,306 $ 251,674
Japan (Government of) Bonds, 10 yr. 12/9/04 13 16,303,322 231,604
NASDAQ 100 Index 12/16/04 132 18,711,000 429,165
Nikkei 225 Index 12/9/04 27 1,465,425 (31,376)
United Kingdom Long Gilt 12/29/04 25 4,877,684 19,558
U.S. Long Bonds 12/20/04 1,663 186,619,781 4,169,058
U.S. Treasury Nts., 10 yr. 12/20/04 2,360 265,795,000 2,296,835
---------------
7,366,518
---------------
47 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
CAC-40 10 Index 12/17/04 176 $ 7,989,205 $ 5,472
DAX Index 12/17/04 52 6,321,471 98,621
FTSE 100 Index 12/17/04 157 13,098,269 (52,632)
Japan (Government of) Bonds, 10 yr. 12/9/04 71 89,041,222 (1,264,921)
Nikkei 225 Index 12/9/04 155 15,342,908 584,726
Standard & Poor's 500 Index 12/16/04 269 74,977,025 299,263
U.S. Treasury Nts., 2 yr. 12/30/04 1,998 422,046,281 929,727
U.S. Treasury Nts., 5 yr. 12/20/04 2,274 251,845,500 (948,630)
---------------
(348,374)
---------------
$ 7,018,144
===============
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Summary Statement of Investments where applicable. Contracts subject to call,
expiration date, exercise price, premium received and market value are detailed
in a note to the Summary Statement of Investments. Options written are reported
as a liability in the Statement of Assets and Liabilities. Realized gains and
losses are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
48 | OPPENHEIMER STRATEGIC INCOME FUND
Written option activity for the year ended September 30, 2004 was as follows:
CALL OPTIONS PUT OPTIONS
-------------------------------- ---------------------------------
PRINCIPAL/ PRINCIPAL/
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ----------------------------------------------------------------------------------------------------
Options outstanding as of
September 30, 2003 31,328,426,104 $ 5,007,567 9,711,600,000 $ 1,846,057
Options written 21,980,010,785 1,608,916 7,130,000,000 995,631
Options closed or expired (112,146,104) (1,680,923) (16,841,600,000) (2,841,688)
Options exercised (31,216,280,000) (3,326,644) -- --
---------------------------------------------------------------------
Options outstanding as of
September 30, 2004 21,980,010,785 $ 1,608,916 -- $ --
=====================================================================
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS
The Fund may enter into an interest rate swap transaction to maintain a total
return or yield spread on a particular investment, or portion of its portfolio,
or for other non-speculative purposes. Interest rate swaps involve the exchange
of commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The coupon payments are based on an agreed
upon principal amount and a specified index. Because the principal amount is not
exchanged, it represents neither an asset nor a liability to either
counterparty, and is referred to as notional. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement.
Interest rate swaps are subject to credit risk (if the counterparty fails
to meet its obligations) and interest rate risk. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a result of
interest rate changes.
As of September 30, 2004, the Fund had entered into the following interest rate
swap agreements:
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY
THE FUND AT THE FUND AT UNREALIZED
SWAP NOTIONAL SEPT. 30, SEPT. 30, FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT 2004 2004 RATE INDEX DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
Citigroup Three-Month
Global Markets LIBOR BBA
Holdings $ 125,000,000 1.18% 4.96% Rate 5/6/14 $ 6,637,096
Deutsche Bank Three-Month
AG 43,910,000 3.1025 1.81 LIBOR flat 3/4/08 397,062
Deutsche Bank 90-day
AG 461,160,000TWD 1.02 2.509 CPTW Rate 8/19/09 (3,536)
Deutsche Bank
AG 609,375,000INR 4.88 4.50 IRS 1/15/09 604,806
49 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS Continued
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY
THE FUND AT THE FUND AT UNREALIZED
SWAP NOTIONAL SEPT. 30, SEPT. 30, FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT 2004 2004 RATE INDEX DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
Three-Month
Deutsche Bank LIBOR BBA
AG $ 90,000,000 1.68 5.32 Rate 5/12/14 $ 7,680,819
JPMorgan Six-Month
Chase Bank EUR 11,025,000EUR 3.14 2.08 LIBOR flat 7/14/08 (1,135)
JPMorgan Six-Month
Chase Bank HUF 3,075,000,000HUF 9.13 7.00 LIBOR flat 7/14/08 (1,472,712)
JPMorgan Three-Month
Chase Bank 22,120,000 3.052 1.41 LIBOR flat 3/10/08 247,169
Three-Month
JPMorgan LIBOR BBA
Chase Bank 180,000,000 1.66 3.893 Rate 4/26/09 4,019,017
Three-Month
JPMorgan LIBOR BBA
Chase Bank 134,000,000 1.17 4.8425 Rate 4/26/14 6,339,746
JPMorgan Three-Month
Chase Bank 209,000,000 4.24 1.65 LIBOR flat 7/23/09 (5,614,938)
Three-Month
JPMorgan BBA LIBOR
Chase Bank 16,745,000 1.68 4.94 Rate 4/30/14 924,842
Morgan Stanley
Capital Services, Three-Month
Inc. 80,800,000 3.82 1.18 LIBOR flat 11/10/08 (1,454,295)
Morgan Stanley
Capital Services, Three-Month
Inc. 253,000,000 2.32 1.18 LIBOR flat 11/10/05 (352,852)
---------------
$ 17,951,089
===============
Notional amounts are reported in U.S. Dollars, except for those denoted in the
following currencies. Index abbreviations and currencies are as follows:
CPTW Bloomberg Taiwan Secondary Commercial Papers
EUR Euro
HUF Hungary Forints
INR Indian Rupee
IRS India Swap Composites
LIBOR London-Interbank Offered Rate
LIBOR BBA London-Interbank Offered Rate British Bankers Association
TWD New Taiwan Dollar
- --------------------------------------------------------------------------------
9. CREDIT SWAP CONTRACTS
The Fund may enter into a credit swap transaction to maintain a total return on
a particular investment or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a
50 | OPPENHEIMER STRATEGIC INCOME FUND
liability to either counterparty, and is referred to as a notional principal
amount. The Fund records an increase or decrease to unrealized gain (loss), in
the amount due to or owed by the Fund at termination or settlement. Credit swaps
are subject to credit risks (if the counterparty fails to meet its obligations).
The Fund pays an annual interest fee on the notional amount in exchange for the
counterparty paying in a potential credit event. During the year ended September
30, 2004, the Fund entered into transactions to hedge credit risk. Information
regarding the credit swaps is as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Export-Import Bank of Korea
Credit Bonds 6/20/09 $ 7,160,000 $ (59,428) $ (59,428)
Korea Development Bank
Credit Bonds 6/20/09 7,160,000 (56,564) (56,564)
Korea Deposit Insurance Corp.
Credit Bonds 6/20/09 7,160,000 (60,144) (60,144)
Korea Electric Power Corp.
Credit Bonds 6/20/09 7,160,000 (62,292) (62,292)
Philippines (Republic of)
10 yr. Credit Bonds 7/25/13 15,770,000 158,917 158,917
Samsung Electronic Co. Ltd.
Credit Bonds 6/20/09 7,160,000 (53,700) (53,700)
Turkey (Republic of)
2 yr. Credit Nts. 5/7/06 15,180,000 (725,287) (725,287)
Turkey (Republic of)
5 yr. Credit Nts. 5/7/09 7,150,000 1,612,382 1,612,382
United Mexican States
Credit Bonds 9/20/13 14,505,000 (620,683) (620,683)
Venezuela (Republic of)
Credit Bonds 10/20/09 27,240,000 (187,432) (187,432)
Venezuela (Republic of)
Credit Bonds 10/20/09 15,350,000 (4,658) (4,658)
- -------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Export-Import Bank of Korea
Credit Bonds 6/20/09 3,580,000 (60,908) (60,908)
Jordan (Kingdom of) Credit Nts. 6/6/06 4,350,000 (31,676) (31,676)
Korea Deposit Insurance Corp.
Credit Bonds 6/20/09 3,580,000 (60,944) (60,944)
Korea Development Bank
Credit Bonds 6/20/09 3,580,000 (59,318) (59,318)
Korea Electric Power Co.
Credit Bonds 6/20/09 3,580,000 (66,583) (66,583)
Russian Federation Credit Bonds 10/9/13 8,060,000 114,140 114,140
Samsung Electronics Co. Ltd.
Credit Bonds 6/20/09 3,580,000 (61,083) (61,083)
51 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. CREDIT SWAP CONTRACTS Continued
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of)
Credit Bonds 8/20/09 $ 29,440,000 $ (2,625,525) $ (2,625,525)
Brazil (Federal Republic of)
Credit Bonds 10/20/09 3,450,000 6,932 6,932
Venezuela (Republic of)
Credit Bonds 3/5/08 3,450,000 (53,200) (53,200)
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of)
Credit Bonds 8/20/09 12,010,000 (980,609) (980,609)
Brazil (Federal Republic of)
Credit Bonds 8/20/09 12,010,000 (1,006,154) (1,006,154)
Hungary (Republic of)
Credit Bonds 12/2/13 21,410,000 (508,872) (508,872)
Peru (Republic of)
Credit Bonds 6/20/09 15,000,000 (1,367,922) (1,367,922)
Philippines (Republic of)
5 yr. Credit Bonds 9/20/09 8,335,000 (162,745) (162,745)
Philippines (Republic of)
Credit Bonds 6/20/09 4,190,000 (105,046) (105,046)
Philippines (Republic of)
Credit Bonds 6/20/09 2,100,000 (56,869) (56,869)
Philippines (Republic of)
Credit Bonds 6/20/09 4,190,000 (130,308) (130,308)
Turkey (Republic of) 2 yr
Credit Nts. 5/8/06 15,205,000 (795,234) (795,234)
Turkey (Republic of) 5 yr
Credit Nts. 5/8/09 7,160,000 820,809 820,809
Venezuela (Republic of)
Credit Bonds 8/20/06 20,830,000 779,370 779,370
Venezuela (Republic of)
Credit Bonds 8/20/09 10,415,000 (732,008) (732,008)
Venezuela (Republic of)
Credit Bonds 2/20/14 12,850,000 (2,694,289) (2,694,289)
- -------------------------------------------------------------------------------------------------------------
UBS AG:
Venezuela (Republic of)
Credit Bonds 6/20/14 28,345,000 (5,559,567) (5,559,567)
Venezuela (Republic of)
Credit Bonds 8/20/06 13,890,000 (502,571) (502,571)
Venezuela (Republic of)
Credit Bonds 8/20/09 6,945,000 460,682 460,682
---------------
$ (15,498,387)
===============
52 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS
The Fund may enter into a swaption transaction, whereby 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 receives premiums and bears the risk of unfavorable changes
in the preset rate on the underlying interest rate swap. Swaption contracts
written by the Fund do not give rise to counterparty credit risk as they
obligate the Fund, not its counterparty, to perform. Swaptions written are
reported as a liability in the Statement of Assets and Liabilities.
Written swaption activity for the year ended September 30, 2004 was as follows:
NOTIONAL AMOUNT OF
AMOUNT PREMIUMS
----------------------------------------------------------------
Swaptions outstanding as of
September 30, 2003 44,445,000 $ 395,561
Swaptions written 252,075,000 2,159,030
Swaptions closed or expired (127,415,000) (1,373,590)
------------------------------
Swaptions outstanding as of
September 30, 2004 169,105,000 $ 1,181,001
==============================
As of September 30, 2004, the Fund had entered into the following swaption
contracts:
NOTIONAL EXPIRATION EXERCISE PREMIUM VALUE
SWAPTIONS AMOUNT DATES PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
Deutsche Bank AG 94,160,000GBP 11/4/04 5.997% $ 439,416 $ 818,017
Lehman Brothers International 74,945,000AUD 12/30/04 5.150 741,585 746,938
--------------------------
$ 1,181,001 $ 1,564,955
==========================
Notional amounts are denoted in the following currencies:
AUD Australian Dollar
GBP British Pound Sterling
- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY
As of September 30, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 10% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
The aggregate value of illiquid or restricted securities subject to this
limitation as of September 30, 2004 was $327,109,136, which represents 5.28% of
the Fund's net assets, of which $813,863 is considered restricted. Information
concerning restricted securities and currency is as follows:
53 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY Continued
ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATES COST SEPTEMBER 30, 2004 DEPRECIATION
- ------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
Geotek Communications, Inc.,
Series B, Escrow Shares 1/4/01 $ 2,500 $ -- $ 2,500
CURRENCY
Argentine Peso (ARP) 3/17/04 820,382 813,863 6,519
- --------------------------------------------------------------------------------
12. SECURITIES LENDING
The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of September 30, 2004,
the Fund had on loan securities valued at approximately $382,192,000. Cash of
$390,346,302 was received as collateral for the loans, and has been invested in
approved instruments
- --------------------------------------------------------------------------------
13. LITIGATION
Six complaints have been filed as putative derivative and class actions against
the Manager, OFS and the Distributor (collectively, "OppenheimerFunds"), as well
as 51 of the Oppenheimer funds (collectively, the "Funds") including this Fund,
and nine Directors/ Trustees of certain of the Funds other than this Fund
(collectively, the "Directors/Trustees"). The complaints allege 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
of 1940 and the Investment Advisers Act of 1940. The complaints further allege
that by permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law. By order dated October 27, 2004, these
six actions, and future related actions, were consolidated by the U.S. District
Court for the Southern District of New York into a single consolidated
proceeding in contemplation of the filing of a superceding consolidated and
amended complaint.
54 | OPPENHEIMER STRATEGIC INCOME FUND
OppenheimerFunds believes that it is premature to render any opinion as to
the likelihood of an outcome unfavorable to them, the Funds or the
Directors/Trustees and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss. However,
OppenheimerFunds, the Funds and the Directors/Trustees believe that the
allegations contained in the complaints are without merit and intend to defend
these lawsuits vigorously.
..
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.
B-1
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
C-12
Appendix C
----------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
--------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of Class
A shares2 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 qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
2) non-qualified deferred compensation plans,
3) employee benefit plans4
4) Group Retirement Plans5
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 $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.
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 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.
|_| Distributions9 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 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.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales Charge Concession as
Number of Eligible Charge as a % of as a % of Net Amount % of Offering
Employees or Members Offering Price Invested Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
the sales charge rate in the table based on the number of members of an
Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase
shares for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
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.
- --------
1 In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not
have any direct or indirect financial interest in the operation of the
distribution plan or any agreement under the plan.
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.
Oppenheimer Strategic Income 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 Auditors
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
(OppenheimerFunds logo)
PX230.001.0205
OPPENHEIMER STRATEGIC INCOME FUND
Supplement dated February 18, 2005 to the
Statement of Additional Information dated November 29, 2004, revised February
2, 2005
This supplement amends the Statement of Additional Information dated November
29, 2004, revised February 2, 2005.
The Statement of Additional Information is revised as follows:
1. Effective March 18, 2005, the first three paragraphs of the section
entitled "Letters of Intent" on page 64 are replaced with the following:
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 made up to 90 days before the
date of the Letter. Class A shares of Oppenheimer Money Market Fund, Inc.
and Oppenheimer Cash Reserves fund on which you did not pay 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, when added to the investor's holdings of shares of those
funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or 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.
2. The following is added to the end of the section entitled "Waivers of
Initial and Contingent Deferred Sales Charges in Certain Transactions" on
page C-5 of Appendix C:
|_| Shares purchased in amounts of less than $5.
February 18, 2005 PX0230.016
As Filed with the Securities and Exchange
Commission on February 25, 2005
Registration No. 811-5473
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 20 /X/
OPPENHEIMER MULTI-SECTOR INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
Two World Financial Center
225 Liberty Street-11th Floor
New York, New York 10281-1008
(Address of Principal Executive Offices)
212-323-0250
- -
(Registrant's Telephone Number)
ROBERT G. ZACK, ESQ.
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street-11th Floor
New York, New York 10281-1008
(Name and Address of Agent for Service)
FORM N-2
OPPENHEIMER MULTI-SECTOR INCOME TRUST
Cross Reference Sheet
Part A of
Form N-2
Item No. Prospectus Heading
1 *
2 *
3 *
4 *
5 *
6 *
7 *
8 General Description of the Registrant
9 Management
10 Capital Stock, Long-Term Debt, and Other Securities
11 *
12 *
13 See Item 15 of the Statement of Additional Information
Part B of
Form N-2
Item No. Heading In Statement of Additional Information
14 Cover Page
15 Table of Contents
16 *
17 See Item 8 of the Prospectus
18 Management
19 Control Persons and Principal Holders of Securities
20 See Item 9 of the Prospectus
21 Brokerage Allocation and Other Practices
22 See Item 10 of the Prospectus
23 Financial Statements
* Not applicable or negative answer.
OPPENHEIMER MULTI-SECTOR INCOME TRUST
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover.
Inapplicable.
Item 2. Inside Front and Outside Back Cover Pages.
Inapplicable.
Item 3. Fee Table and Synopsis
Inapplicable.
Item 4. Financial Highlights.
Inapplicable.
Item 5. Plan of Distribution.
Inapplicable.
Item 6. Selling Shareholders.
Inapplicable.
Item 7. Use of Proceeds.
Inapplicable.
Item 8. General Description of the Registrant.
1. Oppenheimer Multi-Sector Income Trust (the "Fund" or "Registrant")
is a closed-end diversified management investment company organized as a
Massachusetts business trust on February 22, 1988.
At a meeting on February 16, 2005, the Board of Trustees of the Fund
approved a proposal to reorganize the fund with and into Oppenheimer
Strategic Income Fund, an open-end fund. The Board of the Fund also approved
a resolution to hold a meeting of shareholders of the Fund to vote on the
reorganization and recommended that shareholders approve it.
OppenheimerFunds, Inc. is the investment adviser to both funds. Both funds
have similar investment strategies and policies and have a common portfolio
manager.
If the proposed reorganization is also approved by the Board of
Trustees of Strategic Income Fund at its meeting scheduled for March 1, 2005,
a proxy statement, containing more details about the proposal and the Board's
action, will be sent to shareholders of the Fund asking them to vote on the
proposed reorganization.
2., 3., and 4. The Fund's primary investment objective is high current
income consistent with preservation of capital. Its secondary objective is
capital appreciation. In seeking those objectives, under normal market
conditions, the Fund will allocate its assets among seven sectors of the
fixed-income securities market to take advantage of opportunities anticipated
by OppenheimerFunds, Inc., the Fund's investment advisor (the "Manager"),
which arise in particular sectors in various economic environments. The
Manager's opinion as to such
opportunities will be based on various factors which may affect the levels of
income which can be obtained from the different sectors, such as (i) the
effect of interest rate changes, on a relative and absolute basis, on yields
of securities in the particular sectors, (ii) the effect of changes in tax
laws and other legislation affecting securities in the various sectors, (iii)
changes in the relative values of foreign currencies and (iv) perceived
strengths of the abilities of issuers in the various sectors to repay their
obligations.
The sectors in which the Fund invests are not divided by industry but
instead differ by type of security and issuer and includes U.S. Government,
Corporate, International, Asset-Backed (including Mortgage-Backed),
Municipal, Convertible and Money Market sectors. The Manager believes that
investing the Fund's assets in a portfolio comprised of three or more
sectors, as opposed to limiting investments to only one such sector, will
enhance the Fund's ability to achieve high current income consistent with
preservation of capital or seek capital appreciation. The range of yields of
the securities in each sector will differ from securities in the others both
on an absolute and a relative basis. It is not the intention of the Fund to
always allocate its assets to the sector with the highest range of yields as
this may not be consistent with preservation of capital. The Manager will,
however, monitor changes in relative yields of securities in the various
sectors to help formulate its decisions on which sectors present attractive
investment opportunities at a particular time.
Historically, the markets for the sectors identified below have tended
to behave somewhat independently and have at times moved in opposite
directions. For example, U.S. government securities (defined below) have
generally been affected negatively by concerns about inflation that might
result from increased economic activity. Corporate debt securities and
convertible securities, on the other hand, have generally benefited from
increased economic activity due to the resulting improvement in the credit
quality of corporate issuers which, in turn, has tended to cause a rise in
the prices of common stock underlying convertible securities. The converse
has generally been true during periods of economic decline. Similarly, U.S.
government securities can be negatively affected by a decline in the value of
the dollar against foreign currencies, while the non-dollar denominated
securities of foreign issuers held by U.S. investors have generally benefited
from such decline. Investments in short-term money market securities tend to
decline less in value than long-term debt securities in periods of rising
interest rates but do not rise as much in periods of declining rates. At
times the difference between yields on municipal securities and taxable
securities does not fully reflect the tax advantage of municipal securities.
At such times investments in municipal securities tend to fare better in
value than taxable investments because the yield differential generally can
be expected to increase again to reflect the tax advantage.
The Manager believes that when financial markets exhibit this lack of
correlation, an active allocation of investments among these seven sectors
can permit greater preservation of capital over the long term than would be
obtained by investing permanently in any one sector. To the extent that
active allocation of investments among market sectors by the Manager is
successful in preserving or increasing capital, the Fund's capacity to meet
its primary objective of high current income should be enhanced over the
longer term. The Manager also will utilize certain other investment
techniques, including options and futures, intended to enhance income and
reduce market risk.
The Fund can invest in securities in the Corporate, International,
Asset-Backed and Convertible Sectors which are in the lowest rating category
of each of Standard & Poor's Rating Service ("Standard & Poor's") or Moody's
Investors Service, Inc. ("Moody's"), or Fitch, Inc. ("Fitch") or another
nationally recognized rating organization, or which are unrated. The
description and characteristics of the lowest rating category are discussed
in the description of the Corporate Sector. In all other sectors, the Fund
will not invest in securities rated lower than those considered investment
grade, i.e. "Baa" by Moody's or "BBB" by Standard & Poor's, or Fitch. See
"Investment Sectors in Which the Fund Invests" and Appendix A (Securities
Ratings) to the Statement of Additional Information. Unrated securities will
be of comparable quality to those that are rated, in the opinion of the
Manager. The seven sectors of the fixed-income securities market in which
the Fund can invest are:
- - The U.S. Government Sector, consisting of debt obligations of the U.S.
government and its agencies and instrumentalities ("U.S. government
securities");
- - The Corporate Sector, consisting of non-convertible debt obligations or
preferred stock of U.S. corporate issuers and participation interests
in senior, fully-secured loans made primarily to U.S. companies;
- - The International Sector, consisting of debt obligations (which may be
denominated in foreign currencies) of foreign governments and their
agencies and instrumentalities, certain supranational entities and
foreign and U.S. companies;
- - The Asset-Backed Sector, consisting of undivided fractional interests
in pools of consumer loans and participation interests in pools of
residential mortgage loans;
- - The Municipal Sector, consisting of debt obligations of states,
territories or possessions of the United States and the District of
Columbia or their political subdivisions, agencies, instrumentalities
or authorities;
- - The Convertible Sector, consisting of debt obligations and preferred
stock of U.S. corporations which are convertible into common stock; and
- - The Money Market Sector, consisting of U.S. dollar-denominated debt
obligations having a maturity of 397 days or less and issued by the
U.S. government or its agencies, certain domestic banks or
corporations; or certain foreign governments, agencies or banks; and
repurchase agreements.
Current income, preservation of capital and, secondarily, possible
capital appreciation will be considerations in the allocation of assets among
the seven investment sectors described above. The Manager anticipates that at
all times Fund assets will be spread among three or more sectors. Securities
in the first six sectors above have maturities in excess of 397 days. All
securities denominated in foreign currencies will be considered as part of
the International Sector, regardless of maturity. The Fund can also invest
in options and futures related to securities in each of the sectors.
INVESTMENT SECTORS IN WHICH THE FUND INVESTS
The Fund's assets allocated to each of the sectors will be managed in
accordance with the investment policies described above. The Fund's
portfolio might not always include all of the different types of investments
described below. The allocation among the different types of investments the
Fund is permitted to invest in will vary over time based on the Manager's
evaluation of economic and market conditions.
The U.S. Government Sector
Assets in this sector will be invested in U.S. government securities,
which are obligations issued by or guaranteed by the United States government
or its agencies or instrumentalities. Certain of these obligations,
including U.S. Treasury notes and bonds, and Federal Housing Administration
debentures, are supported by the full faith and credit of the United States.
Certain other U.S. government securities, issued or guaranteed by federal
agencies or government-sponsored enterprises, are not supported by the full
faith and credit of the United States. These latter securities include
obligations supported by the right of the issuer to borrow from the U.S.
Treasury, such as obligations of Federal Home Loan Banks, and obligations
supported by the credit of the instrumentality, such as Federal National
Mortgage Association bonds. The Manager will adjust the average maturity of
the investments held in this sector from time to time, depending on its
assessment of relative yields of securities of different maturities and its
expectations of future changes in interest rates. U.S. government securities
are considered among the most creditworthy of fixed-income investments.
Because of this, the yields available from U.S. government securities are
generally lower than the yields available from corporate debt securities.
Nevertheless, the values of U.S. government securities (like those of
fixed-income securities generally) will change as interest rates fluctuate.
Zero Coupon Treasury Securities. The Fund can invest in "zero coupon"
Treasury securities which are (a) U.S. Treasury notes and bonds which
have been stripped of their unmatured interest coupons and receipts or
(b) certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to
its holder during its life. Accordingly, such securities usually trade
at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make current
distribution of interest. Current federal tax law requires that a
holder of a zero coupon security accrue a portion of the discount at
which the security was purchased as income each year even though the
holder receives no interest payment in cash on the security during the
year. The Fund will not invest more than 10% of its total assets at
the time of purchase in zero coupon Treasury securities.
The Corporate Sector
Assets allocated to this sector will be invested in secured or
unsecured non-convertible preferred stock and corporate debt obligations,
such as bonds, debentures and notes. The Fund can also acquire participation
interests, as described below.
Ratings. Certain corporate fixed-income securities in which the Fund
can invest may be unrated or in the lower rating categories of recognized
rating agencies, i.e., ratings below "Baa" by Moody's or below "BBB" by
Standard & Poor's. Lower-rated securities, commonly called junk bonds, will
involve greater volatility of price and risk of principal and income
(including a greater possibility of default or bankruptcy of the issuer of
such securities) than securities in the higher rating categories. The Fund's
investments in lower-rated securities can not exceed 75% of the Fund's total
assets, with no more than 50% of the Fund's total assets in lower-rated
foreign securities (see "The International Sector," below).
The Fund's ability to increase its investments in high-yield securities
will enable it to seek higher investment return. However, high-yield
securities, whether rated or unrated, could be subject to greater market
fluctuations and risks of loss of income and principal and could have less
liquidity than lower yielding, higher-rated fixed-income securities.
Principal risks of high-yield securities include (i) limited liquidity and
secondary market support, (ii) substantial market price volatility resulting
from changes in prevailing interest rates, (iii) subordination of the
holder's claims to the prior claims of banks and other senior lenders in
bankruptcy proceedings, (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates,
whereby the holder might receive redemption proceeds at times when only
lower-yielding portfolio securities are available for investment, (v) the
possibility that earnings of the issuer can be insufficient to meet its debt
service, and (vi) the issuer's low creditworthiness and potential for
insolvency during periods of rising interest rates and economic downturn.
The International Sector
The assets allocated to this sector will be invested in debt
obligations (which may either be denominated in U.S. dollars or in non-U.S.
currencies), issued or guaranteed by foreign corporations, certain
supranational entities (described below), and foreign governments or their
agencies or instrumentalities, and in debt obligations issued by U.S.
corporations denominated in non-U.S. currencies. All such securities are
referred to as "foreign securities." The Fund's investments in foreign
lower-rated securities can not exceed 50% of the Fund's total assets. The
Fund can invest in any country where the Manager believes there is a
potential to achieve the Fund's investment objectives. The Fund may not
invest more than 15% of its total assets in foreign securities of any one
country.
The percentage of the Fund's assets that will be allocated to this
sector will vary on the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currencies to the U.S. dollar. These factors are judged on
the basis of fundamental economic criteria (e.g., relative inflation levels
and trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data. The Fund's portfolio of
foreign securities can include those of a number of foreign countries or,
depending upon market conditions, those of a single country.
The obligations of foreign governmental entities, including
supranational entities, have various kinds of government support, and may or
may not be supported by the full faith and credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and
related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development
Bank. The governmental members, or "stockholders," usually make initial
capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational
entity is unable to repay its borrowings. Each supranational entity's
lending activities are limited to a percentage of its total capital
(including "callable capital" contributed by members at the entity's call),
reserves and net income. There can be no assurance that foreign governments
will be willing or able to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S. The
values of foreign securities investments will be affected by changes in
currency rates or exchange control regulations or currency blockage,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the U.S. or
abroad) or changed circumstances in dealings between nations. Costs will be
incurred in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S. and
foreign securities markets can be less liquid, more volatile and less subject
to governmental supervision than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization, confiscatory
taxation, lack of uniform accounting, auditing, and financial reporting
standards comparable to those applicable to U.S. issuers, and potential
difficulties in enforcing contractual obligations, and could be subject to
extended settlement periods. There could be less information publicly
available about foreign issuers than about U.S. issuers.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's assets
and the Fund's income available for distribution. Because a portion of the
Fund's investment income can be received or realized in foreign currencies,
the Fund will be required to compute and distribute its income in U.S.
dollars, and absorb the cost of currency fluctuations. The Fund can engage
in foreign currency exchange transactions for hedging purposes to protect
against changes in future exchange rates.
The values of foreign investments and the investment income derived
from them can also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not have
government-imposed restrictions on conversion into U.S. dollars, there can be
no assurance against subsequent imposition of currency controls. In
addition, the values of foreign fixed-income investments will fluctuate in
response to changes in U.S. and foreign interest rates.
Special Risks of Emerging Market Countries. Investments in emerging
market countries can involve further risks in addition to those identified
above for investments in foreign securities. Securities issued by emerging
market countries and by companies located in those countries can be subject
to extended settlement periods, whereby the Fund might not receive principal
and/or income on a timely basis and its net asset value could be affected.
There can be a lack of liquidity for emerging market securities; interest
rates and foreign currency exchange
rates could be more volatile; sovereign limitations on foreign investments
may be more likely to be imposed; there can be significant balance of payment
deficits; and their economies and markets can respond in a more volatile
manner to economic changes than those of developed countries.
The Asset-Backed Sector
Asset-Backed Securities. The Fund can invest in securities that
represent undivided fractional interests in pools of consumer loans, similar
in structure to the mortgage-backed securities in which the Fund can invest
described below. Payments of principal and interest are passed through to
holders of asset-backed securities and are typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guarantee by another entity or having a priority to certain of the borrower's
other obligations. The degree of credit enhancement varies and generally
applies, until exhausted, to only a fraction of the asset-backed security's
par value. If the credit enhancement of any asset-backed security held by
the Fund has been exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the Fund can then
experience losses or delays in receiving payment and a decrease in the value
of the asset-backed security.
The value of asset-backed securities is affected by changes in the
market's perception of the asset backing the security, the creditworthiness
of the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected
if any credit enhancement is exhausted. The risks of investing in
asset-backed securities are ultimately dependent upon payment of the
underlying consumer loans by the individuals, and the Fund would generally
have no recourse to the entity that originated the loans in the event of
default by a borrower. The underlying loans are subject to prepayments that
shorten the weighted average life of asset-backed securities and can lower
their return in the same manner as described below for prepayments of a pool
of mortgage loans underlying mortgage-backed securities.
Private and U.S. Government Issued Mortgage-Backed Securities and CMOs.
The Fund can invest in securities that represent participation
interests in pools of residential mortgage loans, including
collateralized mortgage obligations (CMOs). Some CMOs can be issued or
guaranteed by agencies or instrumentalities of the U.S. government (for
example, Ginnie Maes, Freddie Macs and Fannie Maes). Other CMOs are
issued by private issuers, such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers. CMOs issued by such private
issuers are not issued or guaranteed by the U.S. government or its
agencies and are, therefore, also subject to credit risks. Credit risk
relates to the ability of the issuer or a debt security to make
interest or principal payments on the security as they become due.
Securities issued or guaranteed by the U.S. government are subject to
little, if any, credit risk because they are backed by the "full faith
and credit of the U.S. government," which in general terms means that
the U.S. Treasury stands behind the obligation to pay interest and
principal.
The Fund's investments can include securities which represent
participation interests in pools of residential mortgage loans which
may be issued or guaranteed by private issuers or by agencies or
instrumentalities of the U.S. government. Such securities differ from
conventional debt securities which provide for periodic payment of
interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or
specified call dates. Mortgage-backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans, which is
computed on the basis of the maturities of the underlying instruments.
The actual life of any particular pool will be shortened by unscheduled
or early payments of principal and interest. The occurrence of
prepayments is affected by a wide range of economic, demographic and
social factors and, accordingly, it is not possible to predict
accurately the average life of a particular pool. The yield on such
pools is usually computed by using the historical record of prepayments
for that pool, or in the case of newly-issued mortgages, the prepayment
history of similar pools. The actual prepayment experience of a pool
of mortgage loans can cause the yield realized by the Fund to differ
from the yield calculated on the basis of the expected average life of
the pool.
The price and yields to maturity of CMOs are, in part, determined
by assumptions about cash-flows from the rate of payments of underlying
mortgages. However, changes in prevailing interest rates can cause the
rate of prepayments of underlying mortgages to change. In general,
prepayments on fixed rate mortgage loans increase during periods of
falling interest rates and decrease during periods of rising interest
rates. Faster than expected prepayments of underlying mortgages will
reduce the market value and yield to maturity of issued CMOs. If
prepayments of mortgages underlying a short-term or intermediate-term
CMO occur more slowly than anticipated because of rising interest
rates, the CMO effectively can become a longer-term security. The
prices of long-term debt securities generally fluctuate more widely
than those of shorter-term securities in response to changes in
interest rates which, in turn, can result in greater fluctuations in
the Fund's share prices.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will
most likely decline. When prevailing interest rates rise, the value of
a pass-through security can decrease as do other debt securities, but,
when prevailing interest rates decline, the value of pass-through
securities is not likely to rise on a comparable basis with other debt
securities because of the pre-payment feature of pass-through
securities. The Fund's reinvestment of scheduled principal payments
and unscheduled prepayments it receives can occur at higher or lower
rates than the original investment, thus affecting the yield of the
Fund. Monthly interest payments received by the Fund have a
compounding effect which can increase the yield to shareholders more
than debt obligations that pay interest semi-annually.
Because of those factors, mortgage-backed securities can be less
effective than Treasury bonds of similar maturity at maintaining yields
during periods of declining interest rates. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a
premium (i.e., a price in excess of principal amount) and can involve
additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount.
The Fund can purchase mortgage-backed securities at a premium or at a
discount.
Some mortgage-backed securities issued or guaranteed by U.S. government
agencies or instrumentalities are backed by the full faith and credit of the
U.S. Treasury (e.g., direct pass-through certificates of the Government
National Mortgage Association); some are supported by the right of the issuer
to borrow from the U.S. government (e.g., obligations of Federal Home Loan
Banks); and some are backed by only the credit of the issuer itself (e.g.,
obligations of the Federal National Mortgage Association). Such guarantees
do not extend to the value or yield of the mortgage-backed securities
themselves or to the value of the Fund's shares.
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 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.
Interest Rate Risks. Although U.S. government securities involve
little credit risk, their market values will fluctuate until they mature,
depending on prevailing interest rates. When prevailing interest rates go
up, the market value of already issued debt securities tends to go down.
When interest rates go down, the market value of already issued debt
securities tends to go up. The magnitude of those fluctuations generally will
be greater when the average maturity of the Fund's portfolio securities is
longer. Certain of the Fund's investments, such as I/Os, P/Os and
mortgage-backed securities such as CMOs, can be very sensitive to interest
rate changes and their values can be quite volatile.
The Fund can invest in "stripped" mortgage-backed securities or CMOs.
Stripped mortgage-backed securities usually have two classes. The classes
receive different proportions of the interest and principal distributions on
the pool of mortgage assets that act as collateral for the security. In
certain cases, one class will receive all of the interest payments (and is
known as an "I/O"), while the other class will receive all of the principal
value on maturity (and is known as a "P/O").
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the underlying
mortgages. Principal prepayments increase that sensitivity. Stripped
securities that pay "interest only" are therefore subject to greater price
volatility when interest rates change, and they have the additional risk that
if the underlying mortgages are prepaid, the Fund will lose the anticipated
cash flow from the interest on the prepaid mortgages. That risk is increased
when general interest rates fall, and in times of rapidly falling interest
rates, the Fund might receive back less than its investment.
The value of "principal only" securities generally increases as
interest rates decline and prepayment rates rise. The price of these
securities is typically more volatile than that of coupon-bearing bonds of
the same maturity.
Stripped securities are generally purchased and sold by institutional
investors through investment banking firms. At present, established trading
markets have not yet developed for these securities. Therefore, some
stripped securities could be deemed "illiquid." If the Fund holds illiquid
stripped securities, the amount it can hold will be subject to the Fund's
investment limitations set forth under "Direct Placements and Other Illiquid
Securities."
The Fund can also enter into "forward roll" transactions with banks or
other buyers that provide for future delivery of the mortgage-backed
securities in which the Fund can invest. The Fund would be required to
deposit liquid assets of any type, including equity and debt securities of
any grade to its custodian bank in an amount equal to its purchase payment
obligation under the roll.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. The GNMA
Certificates that the Fund can purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full
faith and credit of the U.S. government. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee, except to the
extent that the Fund has purchased the certificates at a premium in the
secondary market.
FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created to promote development of a nationwide secondary market for
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"): mortgage participation
certificates ("PCS") and guaranteed mortgage certificates ("GMCs"). PCS
resemble GNMA Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool. FHLMC
guarantees timely monthly payment of interest on PCS and the ultimate payment
of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately 10 years. The FHLMC guarantee is not
backed by the full faith and credit of the United States.
FNMA Securities. The Federal National Mortgage Association ("FNMA")
was established to create a secondary market in mortgages insured by the
FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest and principal on FNMA Certificates. The FNMA guarantee
is not backed by the full faith and credit of the United States.
The Municipal Sector
The assets of this sector will be invested in obligations issued by or
on behalf of states, territories or possessions of the United States and the
District of Columbia or their political subdivisions, agencies,
instrumentalities or authorities (municipal bonds). At the time of purchase,
all securities in this sector will be rated within the four highest grades
assigned by Moody's, Standard & Poor's, Fitch Inc. ("Baa" or better by
Moody's or "BBB" or better by Standard & Poor's), or another nationally
recognized rating organization, or unrated securities which are of comparable
quality in the opinion of the Manager. Any income earned on municipal bonds
which the Fund distributes to shareholders would be treated as taxable income
to such shareholders.
The Fund does not expect to invest in municipal bonds for tax-exempt
income to distribute to shareholders, but to take advantage of yield
differentials with other debt securities, which can be reflected in bond
prices, and thus reflect potential for capital appreciation. Because
municipal bonds are generally exempt from federal taxation they normally
yield much less than taxable fixed-income securities. At times, however, the
yield differential narrows from its normal range. This can occur, for
example, when the demand for U.S. government securities substantially
increases in times of economic stress or when investors seeking safety are
willing to pay more for such securities thereby reducing the yield. It also
can occur when investors perceive a threat to the continuation of the
tax-exempt status of municipal bonds through possible Congressional or State
action. When this happens, investors are not willing to pay as much for
municipal bonds, thereby reducing prices and increasing their yield compared
to taxable obligations. If such situations occur, investments in the
Municipal Sector can be more attractive than other sectors even though such
investments continue to offer lower yields than taxable securities because if
the yield differential returns to normal ranges, the value of municipal bonds
relative to taxable fixed-income securities will have increased, i.e.
depreciated less or appreciated more. Such an investment would help the Fund
achieve its objective of capital preservation. It would also help achieve
its objective of high income because the Fund's net asset value per share
would be higher than it otherwise would have been, thereby permitting it to
earn additional income on those assets.
Municipal bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets, and water and sewer works. Other public
purposes for which municipal bonds can be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to lend to other public institutions and facilities.
The two principal classifications of municipal bonds are (1) "general
obligation" and (2) "revenue" (or "special tax") bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and
unlimited taxing power for the payment of principal and interest. Revenue or
special tax bonds are payable only from the revenues derived from a
particular facility or class of facilities or project or, in a few cases,
from the proceeds of a special excise or other tax but are not supported by
the issuer's power to levy general taxes. There are variations in the
security of municipal bonds, both within a particular classification and
between classifications, depending on numerous factors. The yields of
municipal bonds depend on, among other things, general money market
conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue,
and are generally lower than those of taxable investments.
The Convertible Sector
Assets allocated to this sector will be invested in securities (bonds,
debentures, corporate notes, preferred stocks and units with warrants
attached) which are convertible into common stock. Common stock received
upon conversion can be retained in the Fund's portfolio to permit orderly
disposition or to establish a holding period to avoid possible adverse
federal income tax consequences to the Fund or shareholders.
Convertible securities can provide a potential for current income
through interest and dividend payments and at the same time provide an
opportunity for capital appreciation by virtue of their convertibility into
common stock. The rating requirements to which the Fund is subject when
investing in corporate fixed-income securities and foreign securities (see
above) also apply to the Fund's investments in domestic and foreign
convertible securities, respectively.
Convertible securities rank senior to common stock in a corporation's
capital structure and, therefore, can entail less risk than the corporation's
common stock. The value of a convertible security is a function of its
"investment value" (its value without considering its conversion privilege)
and its "conversion value" (the security's worth if it were to be exchanged
pursuant to its conversion privilege for the underlying security at the
market value of the underlying security).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise as with other fixed-income
securities (the credit standing of the issuer and other factors may also have
an effect on the convertible security's value). If the conversion value
exceeds the investment value, the price of the convertible security will rise
above its investment value and, in addition, will sell at some
premium over its conversion value, which represents the price investors are
willing to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege. At such
times the price of the convertible security will tend to fluctuate directly
with the price of the underlying equity security. Convertible securities can
be purchased by the Fund at varying price levels above their investment
values and/or their conversion values in keeping with the Fund's objectives.
The Money Market Sector
Assets in this sector will be invested in the following U.S.
dollar-denominated debt obligations maturing in 397 days or less:
(1) U.S. government securities: Obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
(2) Bank Obligations: Certificates of deposit, bankers' acceptances,
loan participation agreements, time deposits, and letters of
credit if they are payable in the United States or London,
England, and are issued or guaranteed by a domestic or foreign
bank having total assets in excess of $1 billion.
(3) Commercial Paper: Obligations rated "A-1," "A-2" or "A-3" by
Standard & Poor's or Prime-1, Prime-2 or Prime-3 by Moody's or if
not rated, issued by a corporation having an existing debt
security rated "A" or better by Standard & Poor's or "A" or
better by Moody's.
(4) Corporate Obligations: Corporate debt obligations (including master
demand notes but not including commercial paper) if they are
issued by domestic corporations and are rated "A" or better by
Standard & Poor's or "A" or better by Moody's or unrated
securities which are of comparable quality in the opinion of the
Manager.
(5) Other Obligations: Obligations of the type listed in (1) through
(4) above, but not satisfying the standards set forth therein, if
they are (a) subject to repurchase agreements or (b) guaranteed
as to principal and interest by a domestic or foreign bank having
total assets in excess of $1 billion, by a corporation whose
commercial paper can be purchased by the Fund, or by a foreign
government having an existing debt security rated "AA" or "Aa" or
better.
(6) Board-Approved Instruments: Other short-term investments of a
type which the Board determines presents minimal credit risks and
which are of "high quality" as determined by any major rating
service or, in the case of an instrument that is not rated, of
comparable quality as determined by the Board.
Bank time deposits can be non-negotiable until expiration and can
impose penalties for early withdrawal. Master demand notes are corporate
obligations which permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund,
as lender, and the borrower. They permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under the note at
any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower can prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit. Because these
notes are direct lending arrangements between the lender and borrower, it is
not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and thus immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time.
The Fund has no limitation on the type of issuer from whom these notes
will be purchased; however, in connection with such purchase and on an
ongoing basis, subject to policies established by the Board of Trustees, 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 bank time deposits and master demand notes
are subject to the investment limitation on securities that are not readily
marketable set forth under "Special Investment Techniques -- Direct
Placements and Other Illiquid Securities."
Because the Fund can invest in U.S. dollar-denominated securities of
foreign banks and foreign branches of U.S. banks, the Fund can be subject to
additional investment risks which can include future political and economic
developments of the country in which the bank is located, possible imposition
of withholding taxes on interest income payable on the securities, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange control regulations or the adoption of other governmental
restrictions that might affect the payment of principal and interest on such
securities. Additionally, not all of the U.S. federal and state banking laws
and regulations applicable to domestic banks relating to maintenance of
reserves, loan limits and promotion of financial soundness apply to foreign
branches of domestic banks, and none of them apply to foreign banks.
SPECIAL INVESTMENT TECHNIQUES
In conjunction with the investments in the seven sectors described
above, the Fund can use the following special investment techniques, however,
the Fund's portfolio might not always include all of the different types of
investment described below.
Direct Placements and Other Illiquid Securities
The Fund can invest up to 20% of its assets in securities purchased in
direct placements which are subject to statutory or contractual restrictions
and delays on resale (restricted securities). This policy does not limit the
acquisition of restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 that are determined to be liquid by the
Board of Trustees or the Manager under Board-approved guidelines. Such
guidelines take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. If there
is a lack of trading interest in particular Rule 144A securities, the Fund's
holdings of those securities can be illiquid. Restricted securities may
generally be resold only in privately-negotiated transactions with a limited
number of purchasers or in a public offering registered under the Securities
Act of 1933 and are, therefore, unlike securities which are traded in the
open market and can be expected to be sold immediately if the market demand
is adequate. If restricted securities are substantially comparable to
registered securities of the same
issuer which are readily marketable, the Fund can not purchase them unless
they are offered at a discount from the market price of the registered
securities. Generally, no restricted securities will be purchased unless the
issuer has agreed to register the securities at its expense within a specific
time period. Adverse conditions in the public securities market at certain
times can preclude a public offering of an issuer's unregistered securities.
There can be undesirable delays in selling restricted securities at prices
representing fair value.
The Fund can invest up to an additional 10% of its assets in securities
which, although not restricted, are not readily marketable. Such securities
can include bank time deposits, master demand notes described in the Money
Market Sector and certain puts and calls which are traded in the
over-the-counter markets. The Manager monitors holdings of illiquid
securities on an ongoing basis to determine whether to sell any holdings to
maintain adequate liquidity. Illiquid securities include repurchase
agreements maturing in more than seven days, or certain participation
interests other than those with puts exercisable within seven days.
Repurchase Agreements
Any of the securities permissible for purchase for one of its sectors
can be acquired by the Fund subject to repurchase agreements with commercial
banks with total assets in excess of $1 billion or securities dealers with a
net worth in excess of $50 million. In a repurchase transaction, at the time
the Fund acquires a security, it simultaneously resells it to the vendor and
must deliver that security to the vendor on a specific future date. The
repurchase price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these transactions run
from day to day, and delivery pursuant to the resale typically will occur
within one to five days of the purchase. The Fund will not enter into a
repurchase transaction of more than seven days. Repurchase agreements are
considered "loans" under the Investment Company Act of 1940 (the "Investment
Company Act"), collateralized by the underlying security. The Fund's
repurchase agreements will require that at all times while the repurchase
agreement is in effect, the collateral's value must equal or exceed the
repurchase price to collateralize the loan fully. The Manager will monitor
the collateral daily and, in the event its value declines below the
repurchase price, will immediately demand additional collateral be
deposited. If such demand is not met within one day, the existing collateral
will be sold. Additionally, the Manager will consider the creditworthiness
of the vendor. If the vendor fails to pay the agreed-upon resale price on
the delivery date, the Fund's risks in such event can include any decline in
value of the collateral to an amount which is less than 100% of the
repurchase price, any costs of disposing of such collateral, and loss from
any delay in foreclosing on the collateral. There is no limit on the amount
of the Fund's assets that can be subject to repurchase agreements.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, 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.
When-Issued and Delayed-Delivery Transactions
The Fund can purchase asset-backed securities, municipal bonds and
other debt securities on a "when-issued" basis, and can purchase or sell such
securities on a "delayed-delivery" basis. "When-issued" or "delayed-delivery"
refers to securities whose terms and indenture are available and for which a
market exists, but which are not available for immediate delivery. Although
the Fund will enter into such transactions for the purpose of acquiring
securities for its portfolio for delivery pursuant to option contracts it has
entered into, the Fund can dispose of a commitment prior to settlement. The
Fund does not intend to make such purchases for speculative purposes. When
such transactions are negotiated, the price (which is generally expressed in
yield terms) is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. During the period
between commitment by the Fund and settlement, no payment is made for the
securities purchased, and no interest accrues to the Fund from the
transaction until the Fund receives the security at settlement of the trade.
Such securities are subject to market fluctuations; the value at delivery can
be less than the purchase price. The Fund will identify to its custodian,
liquid assets on its records as segregated of any type, including equity and
debt securities of any grade at least equal to the value of purchase
commitments until payment is made. Such securities can bear interest at a
lower rate than longer term securities. The commitment to purchase a
security for which payment will be made on a future date can be deemed a
separate security and involve a risk of loss if the value of the security
declines prior to the settlement date, which risk is in addition to the risk
of decline of the Fund's other assets.
Hedging
The Fund can purchase and sell futures contracts; enter into forward
contracts; purchase and sell call and put options on securities, futures,
indices and foreign currencies; and enter into interest rate swap
agreements. These are referred to as "Hedging Instruments." 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.
Hedging Instruments can be used to attempt to protect against possible
declines in the market value of the Fund's portfolio from downward trends in
securities markets, to protect the Fund's unrealized gains in the value of
its securities which have appreciated, to facilitate selling securities for
investment reasons, to establish a position in the securities markets as a
temporary substitute for purchasing particular securities, or to reduce the
risk of adverse currency fluctuations.
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.
Covered calls and puts can also be written on securities to attempt to
increase the Fund's income. The Fund will not use futures and options on
futures for speculation. The hedging instruments the Fund can use are
described below. As of the date of this Registration Statement, the Fund
does not intend to enter into futures, forward contracts and options on
futures if after any such purchase, the sum of margin deposits on futures and
premiums paid on futures options would exceed 5% of the value of the Fund's
total assets.
o Futures. The Fund can buy and sell futures contracts that relate to
(1) stock indices (referred to as stock index futures), (2) other securities
indices (together with stock index futures, referred to as financial
futures), (3) an individual stock ("single stock futures"), (4) interest
rates (referred to as interest rate futures), (5) foreign currencies
(referred to as forward contracts), or (6) commodities (referred to as
commodity futures.) An interest rate future obligates the seller to deliver
and the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation can be satisfied by actual
delivery of the debt security or by entering into an offsetting contract. A
bond index assigns relative values to the bonds included in that index and is
used as a basis for trading long-term bond index futures contracts. Bond
index futures reflect the price movements of bonds included in the index.
They differ from interest rate futures in that settlement is made in cash
rather than by delivery; or settlement can be made by entering into an
offsetting contract. 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.
o Put and Call Options. 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 in "futures," above. A call or put can be
purchased only if, after the purchase, the value of all call and put options
held by the Fund will not exceed 5% of the Fund's total assets.
If the Fund sells (that is, writes) 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 other types of written calls, the Fund
must identify liquid assets to enable it to satisfy its obligations if the
call is exercised. Up to 25% of the Fund's total assets can be subject to
calls.
The Fund can buy puts whether or not it holds the underlying investment
in the portfolio. If the Fund writes a put, the put must be covered by
identified liquid assets. The Fund will not write puts if more than 50% of
the Fund's net assets would have to be identified to cover put options.
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.
o Foreign Currency Options. The Fund can purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or quoted by major recognized dealers in such options, for the
purpose of protecting against declines in the dollar value of foreign
securities and against increases in the dollar cost of foreign securities to
be acquired. If a rise is anticipated in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased
cost of such securities can be partially offset by purchasing calls or
writing puts on that foreign currency. If a decline in the dollar value of a
foreign currency is anticipated, the decline in value of portfolio securities
denominated in that currency can be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of currency
rate fluctuations adverse to the Fund's position, it would either lose the
premium it paid and incur transaction costs, or purchase or sell the foreign
currency at a disadvantageous price.
o Forward Contracts. The Fund can enter into foreign currency exchange
contracts ("forward contracts"), which obligate the seller to deliver and the
purchaser to take a specific foreign currency at a specific future date for a
fixed price. The Fund can enter into a forward contract in order to "lock
in" the U.S. dollar price of a security denominated in a foreign currency, or
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency. There is a risk
that use of forward contracts can reduce the gain that would otherwise result
from a change in the relationship between the U.S. dollar and a foreign
currency. Forward contracts include standardized foreign currency futures
contracts which are traded on exchanges and are subject to procedures and
regulations applicable to other futures. The Fund can also enter into a
forward contract to sell a foreign currency denominated in a currency other
than that in which the underlying security is denominated. This is done in
the expectation that there is a greater correlation between the foreign
currency of the forward contract and the foreign currency of the underlying
investment than between the U.S. dollar and the currency of the underlying
investment. This technique is referred to as "cross hedging." The success
of cross hedging is dependent on many factors, including the ability of the
Manager to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, the Fund can experience losses or gains on both the underlying
security and the cross currency hedge.
The Fund will not speculate in foreign currency exchange contracts.
There is no limitation as to the percentage of the Fund's assets that can be
committed to foreign currency exchange contracts. The Fund does not enter
into such forward contracts or maintain a net exposure in such contracts to
the extent that the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's assets denominated in that
currency or enter into a cross hedge unless it is denominated in a currency
or currencies that the Manager believes will have price movements that tend
to correlate closely with the currency in which the investment being hedged
is denominated.
There are certain risks in writing calls. If a call written by the
Fund is exercised, the Fund foregoes any profit from any increase in the
market price above the call price of the underlying investment on which the
call was written. In addition, the Fund could experience capital losses that
might cause previously distributed short-term capital gains to be
re-characterized as non-taxable return of capital to shareholders. In
writing puts, there is the risk that the Fund could be required to buy the
underlying security at a disadvantageous price. The principal risks relating
to the use of futures are: (a) possible imperfect correlation between the
prices of the futures and the market value of the securities in the Fund's
portfolio; (b) possible lack of a liquid secondary market for closing out a
futures position; (c) the need for additional skills and techniques beyond
those required for normal portfolio management; and (d) losses on futures
resulting from interest rate movements not anticipated by the Manager.
o Interest Rate Swaps and Total Return Swaps. In an interest rate swap,
the Fund and another party exchange their right to receive or their
obligation to pay interest on a security. For example, they might swap the
right to receive fixed rate payments for floating rate payments. The Fund
enters into swaps only on securities it owns. The Fund can not enter into
swaps with respect to more than 25% of its total assets. Also, the Fund will
identify on its books liquid assets of any type, including equity and debt
securities of any grade, 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.
In addition, the Fund may invest in total return swaps with appropriate
counterparties. In a total return swap, one party pays a rate of interest in
exchange for the total rate of return on another investment. For example, if
the Fund wished to invest in a particular security, it could instead enter
into a total return swap and receive the total return of that security, less
the "funding cost," which would be a floating interest rate payment to the
counterparty.
Under a swap agreement, the Fund typically will pay a fee determined by
multiplying the face value of the swap agreement by an agreed-upon interest
rate. If the underlying asset value declines over the term of the swap, the
Fund would be required to pay the dollar value of that decline to the
counterparty in addition to its fee payments.
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 receives. 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.
o Derivative Investments. The Fund can invest in a number of different
kinds of "derivative investments." In general, a "derivative investment" is
a specially designed investment whose performance is linked to the
performance of another investment or security, such as an option, future,
index, currency or commodity. The Fund can not purchase or sell physical
commodities or commodity contracts; however this does not prevent the Fund
from buying or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities. In the
broadest sense, derivative investments include exchange-traded options and
futures contracts. The risks of investing in derivative investments include
not only the ability of the company issuing the instrument to pay the amount
due on the maturity of the instrument, but also the risk that the underlying
investment or security might not perform the way the Manager expected it to
perform. The performance of derivative investments can also be influenced by
interest rate changes in the U.S. and abroad. All of this can mean that the
Fund will realize less principal and/or income than expected. Certain
derivative investments held by the Fund can trade in the over-the-counter
market and can be illiquid. Derivative investments used by the Fund are used
in some cases for hedging purposes and in other cases for "non-hedging"
investment purposes to seek income or total return. In the broadest sense,
exchange-traded options and futures contracts (discussed in "Hedging," above)
can be considered "derivative investments."
The Fund can invest in different types of derivatives, generally known
as "Structured Investments." "Index-linked" or "commodity -linked" notes are
debt securities of companies that call for interest payments and/or payment
on the maturity of the note in different terms than the typical note where
the borrower agrees to make fixed interest payments and to pay a fixed sum on
the maturity of the note. Principal and/or interest payments on an
index-linked note depend on the performance of one or more market indices,
such as the S&P 500 Index or a weighted index of commodity futures, such as
crude oil, gasoline and natural gas. Further examples of derivative
investments the Fund can invest in include "debt exchangeable for common
stock" of an issuer or "equity-linked debt securities" of an issuer. At
maturity, the principal amount of the security is exchanged for common stock
of the issuer or is payable in an amount based on the issuer's common stock
price at the time of maturity. In either case there is a risk that the
amount payable at maturity will be less than the principal amount of the
debt.
The Fund can also invest in currency-indexed securities. Typically
these are short-term or intermediate-term debt securities having a value at
maturity, and/or interest rates determined by reference to one or more
specified foreign currencies. Certain currency-indexed securities purchased
by the Fund can have a payout factor tied to a multiple of the movement of
the U.S. dollar (or the foreign currency in which the security is
denominated) against the movement in the U.S. dollar, the foreign currency,
another currency, or an index. Such securities can be subject to increased
principal risk and increased volatility than comparable securities without a
payout factor in excess of one, but the Manager believes the increased yield
justifies the increased risk.
o Participation Interests. The Fund can acquire interests in loans that
are made to U.S. companies, foreign companies and foreign governments (the
"borrower"). They can be interests in, or assignments of, the loan and are
acquired from banks or brokers that have made the loan or have become members
of the lending syndicate. The Fund will not invest, at the time of
investment, more than 5% of its net assets in participation interests of the
same borrower. The Manager has set certain creditworthiness standards for
borrowers, and monitors their creditworthiness. The value of loan
participation interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers can have
difficulty making payments. If a borrower fails to make scheduled interest
or principal payments, the Fund could experience a decline in the net asset
value of its shares. Some borrowers can have senior securities rated as low
as "C" by Moody's or "D" by Standard & Poor's, but can be deemed acceptable
credit risks. Participation interests are subject to the Fund's limitations
on investments in illiquid securities.
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).
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.
The Fund may lend its portfolio securities pursuant to the Securities
Lending Agreement (the "Securities Lending Agreement") with JP Morgan Chase,
subject to the following restrictions as well as applicable laws. The Fund
will 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.
Borrowing
From time to time, the Fund can increase its ownership of securities by
borrowing up to 10% of the value of its net assets from banks and investing
the borrowed funds (on which the Fund will pay interest). After any such
borrowing, the Fund's total assets, less its liabilities other than
borrowings, must remain equal to at least 300% of all borrowings, as set
forth in the Investment Company Act. Interest on borrowed money is an
expense the Fund would not otherwise incur, so that it can have substantially
reduced net investment income during periods of substantial borrowings. The
Fund's ability to borrow money from banks subject to the 300% asset coverage
requirement is a fundamental policy.
The Fund can also borrow to finance repurchases and/or tenders of its
shares and can also borrow for temporary purposes in an amount not exceeding
5% of the value of the Fund's total assets. Any investment gains made with
the proceeds obtained from borrowings in excess of interest paid on the
borrowings will cause the net income per share or the net asset value per
share of the Fund's shares to be greater than would otherwise be the case.
On the other hand, if the investment performance of the securities purchased
fails to cover their cost (including any interest paid on the money borrowed)
to the Fund, then the net income per share or net asset value per share of
the Fund's shares will be less than would otherwise have been the case. This
speculative factor is known as "leverage."
Although such borrowings would therefore involve additional risk to the
Fund, the Fund will only borrow if such additional risk of loss of principal
is considered by the Manager to be appropriate in relation to the Fund's
primary investment objective of high current income consistent with
preservation of capital. The Manager will make this determination by
examining both the market for securities in which the Fund invests and
interest rates in general to ascertain that the climate is sufficiently
stable to warrant borrowing.
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.
Portfolio Turnover
Because the Fund will actively use trading to benefit from short-term
yield disparities among different issues of fixed-income securities or
otherwise to achieve its investment objective and policies, the Fund can be
subject to a greater degree of portfolio turnover than might be expected from
investment companies which invest substantially all of their assets on a
long-term basis. The Fund cannot accurately predict its portfolio turnover
rate, but it is anticipated that its annual turnover rate generally will not
exceed 150% (excluding turnover of securities having a maturity of one year
or less).
The Manager will monitor the Fund's tax status under the Internal
Revenue Code during periods in which the Fund's annual turnover rate exceeds
100%. Higher portfolio turnover results in increased Fund expenses,
including brokerage commissions, dealer mark-ups and other transaction costs
on the sale of securities and on the reinvestment in other securities. To
the extent that increased portfolio turnover results in sales of securities
held less than three months, the Fund's ability to qualify as a "regulated
investment company" under the Internal Revenue Code can be affected.
Defensive Strategies
There can be times when, in the Manager's judgment, conditions in the
securities markets would make pursuing the Fund's primary investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Fund may employ alternative strategies primarily seeking to reduce
fluctuations in the value of the Fund's assets. In implementing these
defensive strategies, the Fund can invest all or any portion of its assets in
nonconvertible high-grade debt securities, or U.S. government and agency
obligations. The Fund can also hold a portion of its assets in cash or cash
equivalents. It is impossible to predict when, or for how long, alternative
strategies will be utilized.
Effects of Interest Rate Changes
During periods of falling interest rates, the values of outstanding
long term fixed-income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
The magnitude of these fluctuations will generally be greater for securities
with longer maturities. If the Manager's expectation of changes in interest
rates or its evaluation of the normal yield relationships in the fixed-income
markets proves to be incorrect, the Fund's income, net asset value and
potential capital gain can be decreased or its potential capital loss can be
increased.
Although changes in the value of the Fund's portfolio securities
subsequent to their acquisition are reflected in the net asset value of the
Fund's shares, such changes will not affect the income received by the Fund
from such securities. The dividends paid by the Fund will increase or
decrease in relation to the income received by the Fund from its investments,
which will in any case be reduced by the Fund's expenses before being
distributed to the Fund's shareholders.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions, which
together with its investment objectives, are fundamental policies changeable
only with the approval of the holders of a "majority" of the Fund's
outstanding voting securities, defined in the Investment Company Act as the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares
of the Fund, or (b) 67% or more of the shares present or represented by proxy
at a meeting if more than 50% of the Fund's outstanding shares are
represented at the meeting in person or by proxy. A policy is not a
fundamental policy unless this Prospectus or the Statement of Additional
Information says that it is. The Fund's Board of Trustees can change
non-fundamental policies, unless otherwise stated, without shareholder
approval. Unless it is specifically stated that a percentage restriction
applies on an ongoing basis, it applies only at the time the Fund makes an
investment, and 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. Under these restrictions, the Fund will not do any of the
following:
o As to 75% of its total assets, the Fund will not invest in securities
of any one issuer (other than the United States government, its
agencies or instrumentalities) if after any such investment either (a)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would then own more than
10% of the voting securities of that issuer;
o The Fund will not concentrate investments to the extent of 25% or more
of its total assets in securities of issuers in the same industry;
provided that this limitation shall not apply with respect to
investments in U.S. government securities;
o The Fund will not make loans except through (a) the purchase of debt
securities in accordance with its investment objectives and policies;
(b) the lending of portfolio securities as described above; or (c) the
acquisition of securities subject to repurchase agreements;
o The Fund will not borrow money, except in conformity with the
restrictions stated above under "Borrowing";
o The Fund will not pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings or for the escrow
arrangements contemplated in connection with the use of Hedging
Instruments;
o The Fund will not participate on a joint or joint and several basis in
any securities trading account;
o The Fund will not invest in companies for the purpose of exercising
control or management thereof;
o The Fund will not make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an
equal amount of such securities or by virtue of ownership of other
securities has the right, without payment of any further
consideration, to obtain an equal amount of the securities sold short
("short sales against the box"). Because changes in federal income
tax laws would not enable the Fund to defer realization of gain or
loss for federal income tax purposes, short sales against the box
therefore would not be used by the Fund;
o The Fund will not invest in (a) real estate, except that it can
purchase and sell securities of companies which deal in real estate or
interests therein; (b) commodities or commodity contracts (except that
the Fund can purchase and sell hedging instruments whether or not they
are considered to be a commodity or commodity contract); or (c)
interests in oil, gas or other mineral exploration or development
programs;
o The Fund will not act as an underwriter of securities, except insofar
as the Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933 in the resale of any securities held for its
own portfolio;
o The Fund will not purchase securities on margin, except that the Fund
can make margin deposits in connection with any of the Hedging
Instruments it can use; or
o The Fund will not 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 agreements and when-issued
arrangements for portfolio securities transactions and contracts to
buy or sell derivatives, hedging instruments or options or futures.
5. The shares of beneficial interest of the Fund, $.01 par value per share
(the "shares"), are listed and traded on The New York Stock Exchange (the
"NYSE"). The following table sets forth for the shares for the periods
indicated: (a) the per share high sales price on the NYSE, the net asset
value per share as of the last day of the week immediately preceding such
day and the premium or discount (expressed as a percentage of net asset
value) represented by the difference between such high sales price and
the corresponding net asset value and (b) the per share low sales price
on the NYSE, the net asset value per share as of the last day of the week
immediately preceding such day and the premium or discount (expressed as
a percentage of net asset value) represented by the difference between
such low sales price and the corresponding net asset value.
Market Price High;(1) Market Price Low;(1)
NAV and Premium/ NAV and Premium/
Ended Discount That Day(2) Discount That Day(2)
- -------- ---------------------------- ----------------------------
1/31/03 Market: $7.92 Market: $7.86
NAV: $8.52 NAV: $8.52
Premium//Discount: -7.04% Premium//Discount: -7.75%
4/30/03 Market: $8.15 Market: $7.85
NAV: $8.94 NAV: $8.62
Premium//Discount: -8.81% Premium//Discount: -8.94%
7/31/03 Market: $8.23 Market: $7.94
NAV: $9.12 NAV: $9.06
Premium//Discount: -9.76% Premium//Discount: -12.35%
10/31/03 Market: $8.44 Market: $8.15
NAV: $9.28 NAV: $9.22
Premium//Discount: -9.05% Premium//Discount: -11.62%
1/31/04 Market: $8.81 Market: $8.62
NAV: $9.55 NAV: $9.53
Premium//Discount: -7.76% Premium//Discount: -9.53%
4/30/04 Market: $8.68 Market: $8.12
NAV: $9.47 NAV: $9.37
Premium//Discount:-8.34% Premium//Discount:-13.34%
7/31/04 Market: $8.18 Market: $7.88
NAV: $9.35 NAV: $9.26
Premium//Discount:-12.51% Premium//Discount:-14.90%
10/31/04 Market: $8.52 Market: $8.28
NAV: $9.60 NAV: $9.50
Premium//Discount:-11.25% Premium//Discount:-12.84%
1/31/05 Market: $8.64 Market: $8.54
NAV: $9.58 NAV: $9.71
Premium//Discount:-9.81% Premium//Discount:-12.05%
- ---------------
1. As reported by the NYSE.
2. The Fund's computation of net asset value (NAV) is as of the close of
trading on the last day of the week immediately preceding the day for which
the high and low market price is reported and the premium or discount
(expressed as a percentage of net asset value) is calculated based on the
difference between the high or low market price and the corresponding net
asset value for that day, divided by the net asset value.
The Board of Trustees of the Fund has determined that it could be in
the interests of Fund shareholders for the Fund to take action to attempt to
reduce or eliminate a market value discount from net asset value. To that
end, the Fund could, from time to time, either repurchase shares in the open
market or, subject to conditions imposed from time to time by the Board, make
a tender offer for a portion of the Fund's shares at their net asset value
per share. Subject to the Fund's fundamental policy with respect to
borrowings, the Fund could incur debt to finance repurchases and/or tenders.
Interest on any such borrowings will reduce the Fund's net income. In
addition, the acquisition of shares by the Fund will decrease the total
assets of the Fund and therefore will have the effect of increasing the
Fund's expense ratio. If the Fund must liquidate portfolio securities to
purchase shares tendered, the Fund could be required to sell portfolio
securities for other than investment purposes and could realize gains and
losses.
In addition to open-market share purchases and tender offers, the Board
could also seek shareholder approval to convert the Fund to an open-end
investment company if the Fund's shares trade at a substantial discount. If
the Fund's shares have traded on the NYSE at an average discount from net
asset value of more than 10%, determined on the basis of the discount as of
the end of the last trading day in each week during the period of 12 calendar
weeks ending October 31 in such year, the Trustees will consider recommending
to shareholders a proposal to convert the Fund to an open-end company. If
during a year in which the Fund's shares trade at the average discount
stated, and for the period described, in the preceding sentence the Fund also
receives written requests from the holders of 10% or more of the Fund's
outstanding shares that a proposal to convert to an open end company be
submitted to the Fund's shareholders, within six months the Trustees will
submit a proposal to the Fund's shareholders, to the extent consistent with
the Investment Company Act, to amend the Fund's Declaration of Trust to
convert the Fund from a closed-end to an open-end investment company. If the
Fund converted to an open-end investment company, it would be able
continuously to issue and offer its shares for sale, and each share of the
Fund could be tendered to the Fund for redemption at the option of the
shareholder, at a redemption price equal to the current net asset value per
share. To meet such redemption request, the Fund could be required to
liquidate portfolio securities. Its shares would no longer be listed on the
NYSE. The Fund cannot predict whether any repurchase of shares made while
the Fund is a closed-end investment company would decrease the discount from
net asset value at which the shares trade. To the extent that any such
repurchase decreased the discount from net asset value to an amount below 10%
during the measurement period described above, the Fund would not be required
to submit to shareholders a proposal to convert the Fund to an open-end
investment company.
At a meeting on February 16, 2005, the Board of Trustees of the Fund approved
a proposal to reorganize the Fund with and into Oppenheimer Strategic Income
Fund, an open-end fund. The Board of the Fund also approved a resolution to
hold a meeting of shareholders of the Fund to vote on the reorganization and
recommended that shareholders approve it. OppenheimerFunds, Inc. is the
investment adviser to both funds. Both funds have similar investment
strategies and policies and have a common portfolio manager.
If the proposed reorganization is also approved by the Board of Trustees of
Strategic Income Fund at its meeting scheduled for March 1, 2005, a proxy
statement, containing more details about the proposal and the Board's action,
will be sent to shareholders of the Fund asking them to vote on the proposed
reorganization.
Item 9. Management
1(a). The Fund is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year to oversee
the Fund's activities, review its performance, and review the actions of the
Manager. The Fund is required to hold annual shareholder meetings for the
election of trustees and the ratification of the Fund's independent
registered public accounting firm. The Fund can also hold shareholder
meetings from time to time for other important matters, and shareholders have
the right to call a meeting to remove a Trustee or to take other action
described in the Fund's Declaration of Trust.
1(b). The Manager, a Colorado corporation with its principal
offices at Two World Financial Center, 225 Liberty Street-11th Floor, New
York, New York 10281-1008, acts as investment advisor for the Fund under an
investment advisory agreement (the "Advisory Agreement") under which it
provides ongoing investment advice and conducts the investment operations of
the Fund, including purchases and sales of its portfolio securities, under
the general supervision and control of the Trustees of the Fund. The Manager
also acts as accounting agent for the Fund.
The Manager has operated as an investment advisor since January 1960.
The Manager and its controlled subsidiaries and affiliates managed more than
$170 billion in assets as of December 31, 2004, including other Oppenheimer
funds with more than seven million shareholder accounts. The Manager is
located at Two World Financial Center, 225 Liberty Street-11th Floor, New
York, New York 10281-1008. 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.
The Manager provides office space and investment advisory
services for the Fund and pays all compensation of those Trustees and
officers of the Fund who are affiliated persons of the Manager. Under the
Advisory Agreement, the Fund pays the Manager an advisory fee computed and
paid weekly at an annual rate of 0.65 of 1% of the net assets of the Fund at
the end of that week. During the fiscal years ended October 31, 2002, 2003
and 2004 the Fund paid management fees to the Manager of $1,583,420,
$1,672,345 and 1,788,296 respectively. The Fund incurred approximately
$13,813 in expenses for the fiscal year ended October 31, 2004 for services
provided by Shareholder Financial Services, Inc., a subsidiary of the Manager
that acts as transfer agent, shareholder servicing agent and dividend paying
agent for the Fund.
Under the Advisory Agreement, the Fund pays certain of its other costs
not paid by the Manager, including:
(a) brokerage and commission expenses,
(b) federal, state, local and foreign taxes, including issue and transfer
taxes, incurred by or levied on the Fund,
(c) interest charges on borrowings,
(d) the organizational and offering expenses of the Fund, whether or not
advanced by the Manager,
(e) fees and expenses of registering the shares of the Fund under the
appropriate federal securities laws and of qualifying shares of the
Fund under applicable state securities laws,
(f) fees and expenses of listing and maintaining the listings of the Fund's
shares on any national securities exchange,
(g) expenses of printing and distributing reports to shareholders,
(h) costs of shareholder meetings and proxy solicitation,
(i) charges and expenses of the Fund's custodian bank and Registrar,
Transfer and Dividend Disbursing Agent,
(j) compensation of the Fund's Trustees who are not interested persons of
the Manager,
(k) legal and auditing expenses,
(l) the cost of certificates representing the Fund's shares,
(m) costs of stationery and supplies, and
(n) insurance premiums.
The Manager has advanced certain of the Fund's organizational and
offering expenses, which were repaid by the Fund. There is no expense
limitation provision.
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 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
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 who
assisted the Board in its deliberations. The Fund's Counsel is independent
of the Manager within the meaning and intent of the SEC Rules regarding the
independence of counsel.
After careful deliberation, the Board of 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.
1(c). The Portfolio managers of the Fund are Arthur Steinmetz
and Caleb Wong. Mr. Steinmetz is a Vice President of the Fund and a Senior
Vice President of the Manager and Mr. Wong is a Vice President of both the
Fund and the Manager. Messrs. Steinmetz and Wong have been the persons
principally responsible for the day-to-day management of the Trust's
portfolio since February 1, 1999. Other members of the Manager's
fixed-income portfolio department, particularly portfolio analysts, traders
and other portfolio managers provide the Fund's portfolio managers with
support in managing the Fund's portfolio.
1(d). Inapplicable.
1(e). The JPMorgan Chase Bank, 4 Chase MetroTech Center,
Brooklyn, New York, 11245 acts as the custodian bank for the Fund's assets
held in the United States. The Manager and its affiliates have banking
relationships with the custodian bank. The Manager has represented to the
Fund that its banking relationships with the custodian bank have been and
will continue to be unrelated to and unaffected by the relationship between
the Fund and the custodian bank. It will be the practice of the Fund to deal
with the custodian bank in a manner uninfluenced by any banking relationship
the custodian bank may have with the Manager and its affiliates. Rules
adopted under the Investment Company Act permit the Fund to maintain its
securities and cash in the custody of certain eligible banks and securities
depositories. Pursuant to those Rules, the Fund's portfolio of securities
and cash, when invested in foreign securities, will be held in foreign banks
and securities depositories approved by the Trustees of the Fund in
accordance with the rules of the Securities and Exchange Commission.
Shareholder Financial Services, Inc. ("SFSI"), a subsidiary of the
Manager, acts as primary transfer agent, shareholder servicing agent and
dividend paying agent for the Fund. SFSI is paid an agreed upon fee for each
account plus out-of-pocket costs and expenses. United Missouri Trust Company
of New York acts as co-transfer agent and co-registrar with SFSI to provide
such services as SFSI may request. KPMG LLP is the independent registered
public accounting firm of the Fund. They audit the Fund's financial
statements and perform other related audit services. They also act as the
independent registered public accounting firm for the Manager for certain
other funds advised by the Manager and its affiliates.
1(f). See 1(b) above.
1(g). Inapplicable.
2. Inapplicable.
3. None as of February 8, 2005.
Item 10. Capital Stock, Long-Term Debt, and Other Securities.
1. The Fund is authorized to issue an unlimited number of shares of
beneficial interest, $.01 par value. The Fund's shares have no preemptive,
conversion, exchange or redemption rights. Each share has equal voting,
dividend, distribution and liquidation rights. All shares outstanding are,
and, when issued, those offered hereby will be, fully paid and
nonassessable. Shareholders are entitled to one vote per share. All voting
rights for the election of Trustees are noncumulative, which means that the
holders of more than 50% of the shares can elect 100% of the Trustees then
nominated for election if they choose to do so and, in such event, the
holders of the remaining shares will not be able to elect any Trustees.
Under the rules of the NYSE applicable to listed companies, the Fund is
required to hold an annual meeting of shareholders in each year.
Under Massachusetts law, under certain circumstances shareholders could
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for actions or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund. The Declaration of Trust provides for indemnification by the Fund for
all losses and expenses of any shareholder held personally liable for
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund would be unable to meet its obligations. The likelihood of such
circumstances is remote.
Pursuant to the Trust's Dividend Reinvestment and Cash Purchase Plan
(the "Plan"), all dividends and capital gains distributions ("Distributions")
declared by the Trust will be automatically reinvested in additional full and
fractional shares of the Trust ("shares") unless (i) a shareholder elects to
receive cash or (ii) shares are held in nominee name, in which event the
nominee should be consulted as to participation in the Plan. Shareholders
that participate in the Plan ("Participants") may, at their option, make
additional cash investments in shares, semi-annually in amounts of at least
$100, through payment to Shareholder Financial Services, Inc., the agent for
the Plan (the "Agent"), and a service fee of $0.75.
Depending upon the circumstances hereinafter described, Plan shares
will be acquired by the Agent for the Participant's account through receipt
of newly issued shares or the purchase of outstanding shares on the open
market. If the market price of shares on the relevant date (normally the
payment date) equals or exceeds their net asset value, the Agent will ask the
Trust for payment of the Distribution in additional shares at the greater of
the Trust's net asset value determined as of the date of purchase or 95% of
the then-current market price. If the market price is lower than net asset
value, the Distribution will be paid in cash, which the Agent will use to buy
shares on The New York Stock Exchange (the "NYSE"), or otherwise on the open
market to the extent available. If the market price exceeds the net asset
value before the Agent has completed its purchases, the average purchase
price per share paid by the Agent may exceed the net asset value, resulting
in fewer shares being acquired than if the Distribution had been paid in
shares issued by the Trust.
Participants may elect to withdraw from the Plan at any time and
thereby receive cash in lieu of shares by sending appropriate written
instructions to the Agent. Elections received by the Agent will be effective
only if received more than ten days prior to the record date for any
Distribution; otherwise, such termination will be effective shortly after the
investment of such
Distribution with respect to any subsequent Distribution. Upon withdrawal
from or termination of the Plan, all shares acquired under the Plan will
remain in the Participant's account unless otherwise requested. For full
shares, the Participant may either: (1) receive without charge a share
certificate for such shares; or (2) request the Agent (after receipt by the
Agent of signature guaranteed instructions by all registered owners) to sell
the shares acquired under the Plan and remit the proceeds less any brokerage
commissions and a $2.50 service fee. Fractional shares may either remain in
the Participant's account or be reduced to cash by the Agent at the current
market price with the proceeds remitted to the Participant. Shareholders who
have previously withdrawn from the Plan may rejoin at any time by sending
written instructions signed by all registered owners to the Agent.
There is no direct charge for participation in the Plan; all fees of
the Agent are paid by the Trust. There are no brokerage charges for shares
issued directly by the Trust. However, each Participant will pay a pro rata
share of brokerage commissions incurred with respect to open market purchases
of shares to be issued under the Plan. Participants will receive tax
information annually for their personal records and to assist in federal
income tax return preparation. The automatic reinvestment of Distributions
does not relieve Participants of any income tax that may be payable on
Distributions.
The Plan may be terminated or amended at any time upon 30 days' prior
written notice to Participants which, with respect to a Plan termination,
must precede the record date of any Distribution by the Trust. Additional
information concerning the Plan may be obtained by shareholders holding
shares registered directly in their names by writing the Agent, Shareholder
Financial Services, Inc., P.O. Box 173673, Denver, CO, 80217-3673 or by
calling 1.800.647.7374. Shareholders holding shares in nominee name should
contact their brokerage firm or other nominee for more information.
The Fund presently has provisions in its Declaration of Trust and
By-Laws (together, the "Charter Documents") which could have the effect of
limiting (i) the ability of other entities or persons to acquire control of
the Fund, (ii) the Fund's freedom to engage in certain transactions or (iii)
the ability of the Fund's Trustees or shareholders to amend the Charter
Documents or effect changes in the Fund's management. Those provisions of
the Charter Documents may be regarded as "anti-takeover" provisions.
Specifically, under the Fund's Declaration of Trust, the affirmative vote of
the holders of not less than two thirds (66-2/3%) of the Fund's shares
outstanding and entitled to vote is required to authorize the consolidation
of the Fund with another entity, a merger of the Fund with or into another
entity (except for certain mergers in which the Fund is the successor), a
sale or transfer of all or substantially all of the Fund's assets, the
dissolution of the Fund, the conversion of the Fund to an open-end company
and any amendment of the Fund's Declaration of Trust that would affect any of
the other provisions requiring a two-thirds vote. However, a "majority"
shareholder vote, as defined in the Charter Documents, shall be sufficient to
approve any of the foregoing transactions that have been recommended by
two-thirds of the Trustees. Notwithstanding the foregoing, if a corporation,
person or entity is directly, or indirectly through its affiliates, the
beneficial owner of more than 5% of the outstanding shares of the Fund, the
affirmative vote of 80% (which is higher than that required under the
Investment Company Act) of the outstanding shares of the Fund is required
generally to authorize any of the following transactions or to amend the
provisions of the Declaration of Trust relating to transactions involving:
(i) a merger or consolidation of the Fund with or into any such corporation
or entity, (ii) the issuance of any securities of the Fund to any such
corporation, person or entity for cash; (iii) the sale, lease or exchange of
all or any substantial part of the assets of the Fund to any such
corporation, entity or person (except assets having an aggregate market value
of less than $1,000,000); or (iv) the sale, lease or exchange to the Fund, in
exchange for securities of the Fund, of any assets of any such corporation,
entity or person (except assets having an aggregate fair market value of less
than $1,000,000). If two-thirds of the Board of Trustees has approved a
memorandum of understanding with such beneficial owner, however, a majority
shareholder vote will be sufficient to approve the foregoing transactions.
Reference is made to the Charter Documents of the Fund, on file with the
Securities and Exchange Commission, for the full text of these provisions.
2. Inapplicable.
3. Inapplicable.
4. The Fund qualified for treatment as, and elected to be, a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code
for its taxable year ended October 31, 2004, and intends to continue to
qualify as a RIC for each subsequent taxable year. However, the Fund
reserves the right not to qualify under Subchapter M as a RIC in any year or
years.
For each taxable year that the Fund qualifies for treatment as a RIC,
the Fund (but not its shareholders) will not be required to pay federal
income tax. Shareholders will normally have to pay federal income taxes, and
any state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions derived from net investment
income or short-term capital gains are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Since the Fund's income is
expected to be derived primarily from interest rather than dividends, only a
small portion, if any, of such dividends and distributions is expected to be
eligible for the federal dividends-received deduction available to
corporations. The Fund does not anticipate that any portion of its dividends
or distributions will qualify for pass-through treatment as "exempt-interest
dividends" since less than 50% of its assets is permitted to be invested in
municipal obligations.
Long-term or short-term capital gains may be generated by the sale of
portfolio securities and by transactions in options and futures contracts.
Distributions of long-term capital gains, if any, are taxable to shareholders
as long-term capital gains regardless of how long a shareholder has held the
Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. For federal income tax purposes, if a capital
gain distribution is received with respect to shares held for six months or
less, any loss on a subsequent sale or exchange of such shares will be
treated as long-term capital loss to the extent of such long-term capital
gain distribution. Capital gains distributions are not eligible for the
dividends-received deduction.
Any dividend or capital gains distribution received by a shareholder
from an investment company will have the effect of reducing the net asset
value of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and dividends are subject to federal income taxes. 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.
The tax treatment of listed put and call options written or purchased
by the Fund on debt securities and of future contracts entered into by the
Fund will be governed by Section 1256 of the Internal Revenue Code. Absent
a tax election to the contrary, each such position held by the Fund will be
marked-to-market (i.e., treated as if it were closed out) on the last
business day of each taxable year of the Fund, and all gain or loss
associated with transactions in such positions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss.
Positions of the Fund which consist of at least one debt security and at
least one option or futures contract which substantially diminishes the
Fund's risk of loss with respect of such debt security could be treated as
"mixed straddles" which are subject to the straddle rules of Section 1092 of
the Code, the operation of which may cause deferral of losses, adjustments in
the holding periods of debt securities and conversion of short-term capital
losses into long-term capital losses. Certain tax elections exist for mixed
straddles which reduce or eliminate the operation of the straddle rules. The
Fund will monitor its transactions in options and futures contracts and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company under
Subchapter M of the Code. Such tax election may result in an increase in
distribution of ordinary income (relative to long-term capital gains) to
shareholders.
The Internal Revenue Code requires that a holder (such as the Fund) of
a zero coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the Fund receives no interest
payment in cash on the security during the year. As an investment company,
the Fund must pay out substantially all of its net investment income each
year. Accordingly, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of
cash interest the Fund actually received. Such distributions will be made
from the cash assets of the Fund or by liquidation of portfolio securities,
if necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund
realizes net capital gains from such transactions, its shareholders may
receive a larger capital gain distribution than they would in the absence of
such transactions.
It is the Fund's present policy, which may be changed by the Board of
Trustees, to pay monthly dividends to shareholders from net investment income
of the Fund. The Fund intends to distribute all of its net investment income
on an annual basis. The Fund will distribute all of its net realized
long-term and short-term capital gains, if any, at least once per year. The
Fund may, but is not required to, make such distributions on a more frequent
basis to the extent permitted by applicable law and regulations. The Fund
will inform shareholders of the amount and nature of income and gains in
notices sent to shareholders.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute a specified minimum percentage (currently 98%) of its taxable
investment income earned from January 1 through December 31 of that year and
98% of its capital gains realized in the period from November 1 of the prior
year through October 31 of that year, or else the Fund must pay an excise tax
on amounts not distributed. While it is presently anticipated that the Fund
will meet
those requirements, the Fund's Board and the Manager might determine in a
particular year it would be in the best interests of the Fund not to make
such distributions at the mandated level and to pay the excise tax which
would reduce the amount available for distributions to shareholders. If the
Fund pays a dividend in January which was declared in the previous December
to shareholders of record on a date in December, then such dividend or
distribution will be treated for tax purposes as being paid in December and
will be taxable to shareholders as if received in December.
Under the Fund's Dividend Reinvestment Plan (the "Plan"), all of the
Fund's dividends and distributions to shareholders will be reinvested in full
and fractional shares. With respect to distributions made in shares issued
by the Fund pursuant to the Plan, the amount of the distribution for tax
purposes is the fair market value of the shares issued on the reinvestment
date. In the case of shares purchased on the open market, a participating
shareholder's tax basis in each share is its cost. In the case of shares
issued by the Fund, the shareholder's tax basis in each share received is its
fair market value on the reinvestment date.
Distributions of investment company taxable income to shareholders who
are nonresident alien individuals or foreign corporations will generally be
subject to a 30% United States withholding tax under provisions of the
Internal Revenue Code applicable to foreign individuals and entities, unless
a reduced rate of withholding or a withholding exemption is provided under an
applicable treaty.
Under Section 988 of the Code, foreign currency gain or loss with
respect to foreign currency-denominated debt instruments and other foreign
currency-denominated positions held or entered into by the Fund will be
ordinary income or loss. In addition, foreign currency gain or loss realized
with respect to certain foreign currency "hedging" transactions will be
treated as ordinary income or loss.
5. The following information is provided as of February 8, 2005:
(1) (2) (3) (4)
Amount
Amount Held Outstanding
by Registrant Exclusive of
Amount or for its Amount Shown
Title of Class Authorized Account Under (3)
- -------------- ---------- ------------- ------------
Shares of Unlimited None 29,229,920
Beneficial
Interest, $.01
par value
Item 11. Defaults and Arrears on Senior Securities.
Inapplicable.
Item 12. Legal Proceedings.
PENDING LITIGATION. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, as well as 51 of
the Oppenheimer funds (collectively the "funds") excluding the Fund, 31
present and former Directors or Trustees and 9 present and former officers of
certain of the Funds. This complaint, filed in the U.S. District Court for
the Southern District of New York on January 10, 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 believes the claims asserted in these law suits to be
without merit, and intend to defend the suits vigorously. The Manager does
not believe that the pending actions are likely to have a material adverse
effect on the Fund or on its ability to perform the investment advisory
agreement with the Fund.
Item 13. Table of Contents of the Statement of Additional Information.
Reference is made to Item 15 of the Statement of Additional Information.
Oppenheimer Multi-Sector Income Trust
6803 South Tucson Way, Centennial, Colorado 80112
1.800.647.7374
Statement of Additional Information dated February 25, 2005
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus. It should be read together with the
Prospectus, and the Registration Statement on Form N-2, of which the
Prospectus and this Statement of Additional Information are a part, can be
inspected and copied at public reference facilities maintained by the
Securities and Exchange Commission (the "SEC") in Washington, D.C. and
certain of its regional offices, and copies of such materials can be obtained
at prescribed rates from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, Washington, D.C., 20549.
TABLE OF CONTENTS
Page
Investment Objectives and Policies......................................*
Management..............................................................
Control Persons and Principal Holders of Securities.....................
Investment Advisory and Other Services..................................
Brokerage Allocation and Other Practices................................
Tax Status .............................................................
Financial Statements....................................................
- -----------------
*See Prospectus
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 14. Cover Page.
Reference is made to the preceding page.
Item 15. Table of Contents.
Reference is made to the preceding page and to Items 16 through
23 of the Statement of Additional Information set forth below.
Item 16. General Information and History.
Inapplicable.
Item 17. Investment Objectives and Policies.
Reference is made to Item 8 of the Prospectus.
Item 18. Management.
1., 2., 5., 6., 7., 8., and 10. The Board of Trustees does not have an
executive or investment 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 Fund holds annual meetings of its shareholders
and may hold shareholder meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove a Trustee or to take
other action described in the Fund's Declaration of Trust.
The Board of Trustees has an Audit Committee, a Regulatory & Oversight
Committee, a Governance Committee and a Proxy Committee. The Audit Committee
is comprised solely of Independent Trustees. The members of the Audit
Committee are Joel Motley (Chairman), Mary F. Miller, Edward V. Regan and
Kenneth Randall. The Audit Committee held 6 meetings during the Fund's fiscal
year ended October 31, 2004. The Audit Committee provides the Board with
recommendations regarding the selection of the Fund's independent auditor.
The Audit Committee also reviews the scope and results of audits and the
audit fees charged, reviews reports from the Fund's independent auditor
concerning the Fund's internal accounting procedures and controls and reviews
reports of the Manager's internal auditor, among other duties as set forth in
the Committee's charter.
The members of the Regulatory & Oversight Committee are Robert Galli
(Chairman), Joel Motley, and Phillip Griffiths. The Regulatory & Oversight
Committee held 6 meetings during the Fund's fiscal year ended October 31,
2004. The Regulatory & Oversight Committee evaluates and reports to the Board
on the Fund's contractual arrangements, including the Investment Advisory and
Distribution Agreements, transfer, shareholder service agreements and
custodian agreements as well as the policies and procedures adopted by the
Fund to comply with the Investment Company Act and other applicable law,
among other duties as set forth in the Committee's charter.
The members of the Governance Committee are Philip Griffiths
(Chairman), Kenneth Randall and Russell S. Reynolds. The Governance
Committee held 6 meetings during the Fund's fiscal year ended October 31,
2004. The Governance Committee reviews the Fund's governance guidelines, the
adequacy of the Fund's Codes of Ethics, and develops qualification criteria
for Board members consistent with the Fund's governance guidelines, among
other duties set forth in the Committee's charter. Should the Board
determine that a vacancy exists or is likely to exist on the Board, the
Governance Committee of the Board shall consider any candidates for Board
membership recommended by the shareholders of the Fund. Any shareholders
wishing to submit a nominee for election to the Board may do so by mailing
their submission to the offices of OppenheimerFunds, Inc., Two World
Financial Center, 225 Liberty Street - 11th Floor, New York, NY 10281-1008,
to the attention of the Chair of the Governance Committee. The Committee
may also consider candidates proposed by any Board member(s), executive
search firm, or other person or entity as may be permitted by the Committee's
charter, the Board I Governance Guidelines, or other Board I policy. The
Committee may consider such persons at such time as it meets to consider
possible nominees. The Committee, however, reserves sole discretion to
determine the candidates for Board membership (both interested and
disinterested) 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 members of the Proxy Committee are Edward Regan (Chairman), Russell
Reynolds and John Murphy. The Proxy Committee held 1 meeting during the
Fund's fiscal year ended October 31, 2004. The Proxy Committee provides the
Board with recommendations for proxy voting and monitors proxy voting by the
Fund.
Except Mr. Murphy, each of the Trustees is an "Independent Trustee," as
defined in 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
The Fund's Trustees and officers, their positions held 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 chart below. The
information for each Trustee also includes the dollar range of shares of
beneficially owned in the Fund and the aggregate dollar range of shares
beneficially owned in all registered investment companies in the Oppenheimer
funds family that are overseen by the Trustee ("Supervised Funds"). All of
the Trustees except Mr. Fink and Mr. Murphy are also Trustees or Directors of
each of the following publicly offered Oppenheimer funds (referred to as
"Board I Funds"): Mr. Murphy is a Trustee/Director of the Funds indicated
with an asterisk and Mr. Fink and Mr. Murphy are both Trustees/Directors of
the Funds indicated with two asterisks.
Oppenheimer Global Opportunities
Oppenheimer AMT-Free Municipals Fund**
Oppenheimer AMT-Free New York Oppenheimer Gold & Special Minerals
Municipals** Fund**
Oppenheimer Balanced Fund Oppenheimer Growth Fund**
Oppenheimer California Municipal Fund** Oppenheimer International Growth Fund
Oppenheimer International Small
Oppenheimer Capital Appreciation Fund** Company Fund
Oppenheimer Developing Markets Fund Oppenheimer Money Market Fund, Inc.**
Oppenheimer Multi-Sector Income
Oppenheimer Discovery Fund** Trust**
Oppenheimer Multi- State Municipal
Oppenheimer Emerging Growth Fund* Trust
Oppenheimer Emerging Technologies Fund* Oppenheimer Series Fund, Inc.**
Oppenheimer Enterprise Fund Oppenheimer U.S. Government Trust*
Oppenheimer Global Fund
In addition to being a trustee or director of the Board I Funds, Mr.
Galli is also a director or trustee of 10 other portfolios in the
OppenheimerFunds complex.
|X| Affiliated Transactions and Material Business Relationships. Mr.
Reynolds has reported he has a controlling interest in The Directorship
Group, Inc. ("The Directorship Search Group"), a director recruiting firm
that provided consulting services to Massachusetts Mutual Life Insurance
Company (which controls the Manager) for fees of $137,500 for the calendar
year ended December 31, 2002. Mr. Reynolds reported that The Directorship
Search Group did not provide consulting services to Massachusetts Mutual Life
Insurance Company during the calendar year ended December 31, 2003 and 2004,
and does not expect to provide any such services in the calendar year ending
December 31, 2005.
The Independent Trustees have unanimously (except for Mr. Reynolds, who
abstained) determined that the consulting arrangements between The
Directorship Search Group and Massachusetts Mutual Life Insurance Company
were not material business or professional relationships that would
compromise Mr. Reynolds' status as an Independent Trustee. Nonetheless, to
assure certainty as to determinations of the Board and the Independent
Trustees as to matters upon which the Investment Company Act or the rules
thereunder require approval by a majority of Independent Trustees, Mr.
Reynolds will not be counted for purposes of determining whether a quorum of
Independent Trustees was present or whether a majority of Independent
Trustees approved the matter.
The address of each Trustee in the chart below is 6803 South Tucson
Way, Centennial, CO 80112-3924. The Trustees are divided into three classes.
The Trustees in each class are elected for a three year term, and each shall
hold office for that term or until his or her resignation, retirement, death
or removal. Ms. Mary Miller was elected to the Board I funds effective
August 13, 2004 and did not hold shares of the Board I fund during the
calendar year ended December 31, 2004. Mr. Matthew Fink was elected to the
Board I funds effective January 1, 2005 and did not hold shares of Board I
funds during the calendar year ended December 31, 2004.
- -------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held by Shares Oppenheimer
with Fund, Trustee; BeneficiallFunds
Length of Service, Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,
2004
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Clayton K. Of Counsel (since June 1993) Hogan & None Over
Yeutter, Chairman Hartson (a law firm); a director (since $100,000
of the Board of 2002) of Danielson Holding Corp.
Trustees since Formerly a director of Weyerhaeuser
2003, Corp. (1999-April 2004), Caterpillar,
Trustee since 1991 Inc. (1993-December 2002), ConAgra Foods
Age: 74 (1993-2001), Texas Instruments
(1993-2001) and FMC Corporation
(1993-2001). Oversees 25 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Matthew P. Fink Director (since October 1991) of ICI None None
Trustee since 2005 Education Foundation. Formerly President
Age: 64 of the Investment Company Institute
(October 1991-October 2004), Director of
ICI Mutual Insurance Company (October
1991-October 2004). Oversees 11
portfolios in the OppenheimerFunds
complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert G. Galli, A trustee or director of other None Over
Trustee since 1993 Oppenheimer funds. Oversees 35 $100,000
Age: 71 portfolios in the OppenheimerFunds
complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Phillip A. A director (since 1991) of the Institute None Over
Griffiths, for Advanced Study, Princeton, N.J., a $100,000
Trustee, since 1999 director (since 2001) of GSI Lumonics, a
Age: 66 trustee (since 1983) of Woodward
Academy, a Senior Advisor (since 2001)
of The Andrew W. Mellon Foundation. A
member of: the National Academy of
Sciences (since 1979), American Academy
of Arts and Sciences (since 1995),
American Philosophical Society (since
1996) and Council on Foreign Relations
(since 2002). Formerly a director of
Bankers Trust New York Corporation
(1994-1999). Oversees 25 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Mary F. Miller, Formerly a Senior Vice President and None None
Trustee since 2004 General Auditor, American Express
Age: 62 Company (July 1998-February 2003).
Member of Trustees of the American
Symphony Orchestra (October 1998 to
present). Oversees 25 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Joel W. Motley, Director (since 2002) Columbia Equity None Over
Trustee since 2002 Financial Corp. (privately-held $100,000
Age: 52 financial adviser); Managing Director
(since 2002) Carmona Motley, Inc.
(privately-held financial adviser);
Formerly he held the following
positions: Managing Director (January
1998-December 2001),. Oversees 25
portfolios in the OppenheimerFunds
complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Kenneth A. A director of Dominion Resources, Inc. None Over
Randall, Trustee (electric utility holding company); $100,000
since 1988 formerly a director of Prime Retail,
Age: 77 Inc. (real estate investment trust) and
Dominion Energy, Inc. (electric power
and oil & gas producer), President and
Chief Executive Officer of The
Conference Board, Inc. (international
economic and business research) and a
director of Lumbermens Mutual Casualty
Company, American Motorists Insurance
Company and American Manufacturers
Mutual Insurance Company. Oversees 25
portfolios in the OppenheimerFunds
complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Edward V. Regan, President, Baruch College, CUNY; a None Over
Trustee since 1993 director of RBAsset (real estate $100,000
Age: 74 manager); a director of OffitBank;
formerly Trustee, Financial Accounting
Foundation (FASB and GASB), Senior
Fellow of Jerome Levy Economics
Institute, Bard College, Chairman of
Municipal Assistance Corporation for the
City of New York, New York State
Comptroller and Trustee of New York
State and Local Retirement Fund.
Oversees 25 investment companies in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Russell S. Chairman (since 1993) of The None Over
Reynolds, Jr., Directorship Search Group, Inc. $100,000
Trustee since 1989 (corporate governance consulting and
Age: 72 executive recruiting); a life trustee of
International House (non-profit
educational organization), and a trustee
(since 1996) of the Greenwich Historical
Society. Oversees 25 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
has been elected as a Class A trustee and serves a three year term or until
his resignation, retirement, death or removal.
- -------------------------------------------------------------------------------------
Interested Trustee and Officer
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held by Shares Oppenheimer
with Fund, Trustee; BeneficiallFunds
Length of Service Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,
2004
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and None Over
President and director (since June 2001) and President $100,000
Trustee, (since September 2000) of the Manager;
Trustee since 2001 President and a director or trustee of
Age: 55 other 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. 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. Gillespie, Miao, Steinmetz, Wong, Zack, and Ms. Bloomberg, Two World
Financial Center, 225 Liberty Street-11th Floor, New York, NY 10281-1008, for
Messrs. Petersen, Vandehey, Vottiero and Wixted and Ms. Ives, 6803 South
Tucson Way, Centennial, CO 80112-3924. Each officer serves for an indefinite
term or until his or her earlier resignation, retirement, death or removal.
Messrs. Petersen, Steinmetz , Vottiero, Wixted, Gillespie, Miao, Vandehey and
Zack, and Mses. Bloomberg and Ives and respectively hold the same offices
with one or more of the other Board I Funds as with the Fund.
- -------------------------------------------------------------------------------------
Officers of the Fund
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Years
Position(s) Held with
Fund, Length of
Service,
Age
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Arthur P. Steinmetz, Senior Vice President of the Manager (since March 1993) and
Vice President and of HarbourView Asset Management Corporation (since March
Portfolio Manager 2000); an officer of 6 portfolios in the OppenheimerFunds
since 1999 complex.
Age: 46
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Caleb Wong, Vice Vice President (since June 1999) of the Manager; worked in
President and fixed-income quantitative research and risk management for
Portfolio Manager the Manager (since July 1996); an officer of 1 portfolio in
since 1999 the OppenheimerFunds complex; formerly Assistant Vice
Age: 39 President of the Adviser (January 1997 - June 1999).
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer (since March 1999) of
Treasurer since 1999 the Manager; Treasurer of HarbourView Asset Management
Age: 45 Corporation, Shareholder Financial Services, 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). An officer of 83 portfolios in the
OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer (since
Vice President and March 2004) of the Manager; Vice President (since June
Chief Compliance 1983) of OppenheimerFunds Distributor, Inc., Centennial
Officer since 2004 Asset Management Corporation and Shareholder Services, Inc.
Age: 54 Formerly (until February 2004) Vice President and Director
of Internal Audit of the Manager. An officer of 83
portfolios in the Oppenheimer funds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Philip Vottiero, Vice President/Fund Accounting of the Manager since March
Assistant Treasurer 2002. Formerly Vice President/Corporate Accounting of the
since 2002 Manager (July 1999-March 2002). An officer of 83 portfolios
Age: 41 in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager since August 2002;
Assistant Treasurer formerly Manager/Financial Product Accounting (November
since 2004 1998-July 2002) of the Manager. An officer of 83 portfolios
Age: 34 in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General
Secretary since 2001 Counsel (since February 2002) of the Manager; General
Age: 56 Counsel and a director (since November 2001) of the
Distributor; General Counsel (since November 2001) of
Centennial Asset Management 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 October 2003) of the Manager;
since 2001 Vice President (since 1999) and Assistant Secretary (since
Age: 39 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). An officer of
83 portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager since
Assistant Secretary May 2004; formerly First Vice President and Associate
since 2004 General Counsel of UBS Financial Services Inc. (formerly,
Age: 36 PaineWebber Incorporated) (May 1999 - April 2004) prior to
which she was an Associate at Skaden, 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
Assistant Secretary Manager since September 2004. Formerly Mr. Gillespie held
since 2004 the following positions at Merrill Lynch Investment
Age: 40 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
Assistant Secretary Manager since June 2004. Formerly an Associate with Sidley
since 2004 Austin Brown & Wood LLP (September 1999 - May 2004). An
Age: 31 officer of 83 portfolios in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------
3., 4., 9., 11., and 12. Inapplicable.
13. See Prospectus, Item 9.1(b).
14. The officers of the Fund and one of the Trustees
of the Fund (Mr. Murphy) who are affiliated with the Manager 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 October 31, 2004. The compensation from all 25 of the Board I Funds
(including the Fund) represents compensation received for serving as a
director, trustee or member of a committee (if applicable) of the boards of
those funds during the calendar year ended December 31, 2004.
- -------------------------------------------------------------------------------------
Trustee Name and Aggregate Retirement Estimated Total
Compensation
From All
Annual Oppenheimer
Benefits Retirement Funds For Which
Other Fund Accrued as Benefits to be Individual
Position(s) Compensation Part of Fund Paid upon Serves As
(as applicable) From Fund1 Expenses 2 Retirement2 Trustee/Director(9)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Clayton K. Yeutter $1,3193 $3,244 $61,306 $173,700
Chairman of the Board
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Robert G. Galli $982 $1,935 $80,9234 $237,3125
Regulatory &
Oversight Committee
Chairman
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Phillip Griffiths $1,0796 $1,037 $23,309 $142,092
Governance Committee
Chairman and
Regulatory &
Oversight Committee
Member
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Matthew Fink8 $0 $0 $0 $0
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Mary F. Miller8 $62 $0 $0 $8,532
Audit Committee Member
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Joel W. Motley
Audit Committee
Chairman and
Regulatory & $1,1457 $430 $14,530 $150,760
Oversight Committee
Member
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Kenneth A. Randall $1,019 $0 $79,622 $134,080
Audit Committee
Member and Governance
Committee Member
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Edward V. Regan $903 $2,290 $59,353 $118,788
Proxy Committee
Chairman and Audit
Committee Member
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Russell S. Reynolds, $812 $2,026 $60,720 $106,792
Jr.
Proxy Committee
Member and
Governance Committee
Member
- -------------------------------------------------------------------------------------
Mr. Spiro retired as a Board I Trustee effective October 31, 2004. Mr. Spiro
received $487 compensation from the Fund and $64,080 of total compensation
for the calendar year 2004 from all of the Oppenheimer funds for which he
served as a trustee.
1. Aggregate compensation from the Fund includes fees and deferred
compensation, if any, for a Trustee.
2. Estimated Annual Retirement Benefits to be Paid Upon Retirement 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) to receive retirement plan benefits as described below under
"Retirement Plan for Trustees."
3. Includes $330 deferred by Mr. Yeutter under the Deferred Compensation
Plan described below.
4. Includes $36,990 estimated to be paid to Mr. Galli for serving as a
trustee or director of 10 other Oppenheimer funds that are not Board I
Funds.
5. Includes $108,000 paid to Mr. Galli for serving as trustee or director
of 10 other Oppenheimer funds that are not Board I Funds.
6. Includes $1,079 deferred by Mr. Griffiths under the Deferred
Compensation Plan described below.
7. Includes $458 deferred by Mr. Motley under the Deferred Compensation
Plan described below.
8. Mary Miller was appointed as a trustee of the fund effective August 13,
2004. Mr. Fink was appointed as of January 1, 2005.
9. Total Compensation paid out to trustees for the calendar year 2004.
The Fund has adopted a retirement plan that provides for payment to a
retired Trustee of up to 80% of the average compensation paid during that
Trustee's five years of service in which the highest compensation was
received. A Trustee must serve in that capacity for any of the Board I Funds
for at least 15 years to be eligible for the maximum payment. Each Trustee's
retirement benefits will depend on the amount of the Trustee's future
compensation and length of service.
Deferred Compensation Plan for Trustees. The Board of Trustees has adopted a
Deferred Compensation Plan for disinterested trustees that enables them to
elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred
by a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee.
The amount paid to the Trustee under the plan will be determined based upon
the performance of the selected funds. Deferral of Trustees' fees under the
plan will not materially affect the Fund's assets, liabilities or net income
per share. The plan will not obligate the Fund to retain the services of any
Trustee or to pay any particular level of compensation to any Trustee.
Pursuant to an Order issued by the Securities and Exchange Commission, the
Fund may invest in the funds selected by the Trustee under the plan without
shareholder approval for the limited purpose of determining the value of the
Trustee's deferred fee account.
15. Code of Ethics.
The Fund and the Manager 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 Securities and Exchange Commission 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.
16. 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
Manager directly-controlled affiliate managers of administers the assets of a
pension plan of the 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 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.
-----------
Item 19. Control Persons and Principal Holders of Securities.
1. Inapplicable.
2. As of February 8, 2005 (unless another date is indicated below), the
only persons who owned of record or were known by the Fund to own
beneficially 5% or more of the outstanding shares of the Fund were:
Charles Schwab & Co., Inc., 101 Montgomery St. San Francisco, CA
94104, which owned 3,833,194.000 shares (13.1% of the then outstanding
shares); and
UBS Financial Services, 1000 Harbor Boulevard, Weehawken, NJ 07087,
which owned 2,002,555.000 shares (6.9% of the then outstanding shares); and
A G Edwards, 1 N Jefferson, Saint Louis, MO, 63131, which owned
1,618,602.000_ shares (5.5% of the then outstanding shares); and
JP Morgan Chase, 270 Park Ave., New York, NY 100171, which owned
1,503,548.000 shares (5.1% of the then outstanding shares); and
First Clearing LLC, Riverfront Plaza, 901 E. Byrd St., Richmond VA
23219-4052, which owned $2,094,763.000 shares (7.1% of the then outstanding
shares); and
NFS LLC, 200 Liberty St., 1 World Financial Center, New York, NY
10281-5503, which owned $1,552,604.000 shares (5.3% of the then outstanding
shares.)
SIT Investment Associates, Inc., 4600 Norwest Center, 90 South
Seventh Street, Minneapolis, MN 55402 which owned 2,871,300 shares as of
February 18, 2005, (9.82% of the then outstanding shares).
Karpus Management, Inc., 14 Tobey Village Office Park, Pittsford, NY
14534 which owned 1,551,530 shares as of February 9, 2005, (5.31% of the then
outstanding shares).
3. As of February 8, 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 of
the Fund held of record by an employee benefit plan for employees of the
Manager, other than the shares beneficially owned under the plan by the
officers of the Fund listed above. In addition, each Independent Trustee, and
his or her family members, do not own securities of either the Manager of the
Board I Funds or any person directly or indirectly controlling, controlled by
or under common control with the Manager.
Item 20. Investment Advisory and Other Services.
Reference is made to Item 9 of the Prospectus.
Item 21. Brokerage Allocation and Other Practices.
1 and 2. During the fiscal years ended October 31, 2002, 2003 and
2004, the Fund paid approximately $87,859, $81,882 and $40,593 respectively,
in brokerage commissions. The Fund will not effect portfolio transactions
through any broker (i) which is an affiliated person of the Fund, (ii) which
is an affiliated person of such affiliated person or (iii) an affiliated
person of which is an affiliated person of the Fund or its Manager. There is
no principal underwriter of shares of the Fund. As most purchases of
portfolio securities made by the Fund are principal transactions at net
prices, the Fund incurs little or no brokerage costs. The Fund deals
directly with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless it is
determined that a better price or execution may be obtained by using the
services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers include a spread between the bid and asked price.
Transactions in foreign securities markets generally involve the payment of
fixed brokerage commissions, which are usually higher than those in the
United States. The Fund seeks to obtain prompt execution of orders at the
most favorable net price.
3. The advisory agreement between the Fund and the Manager (the
"Advisory Agreement") contains provisions relating to the selection of
brokers, dealers and futures commission merchants (collectively referred to
as "brokers") for the Fund's portfolio transactions. The Manager is
authorized by the Advisory Agreement to employ brokers as may, in its best
judgment based on all relevant factors, implement the policy of the Fund to
obtain, at reasonable expense, the "best execution" (prompt and reliable
execution at the most favorable price obtainable) of such transactions. The
Manager need not seek competitive bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies of
the Fund. The Fund will not effect portfolio transactions through affiliates
of the Manager.
Certain other investment companies advised by the Manager and its
affiliates have investment objectives and policies similar to those of the
Fund. If possible, concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates are
combined. The transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each account. If transactions on behalf of more
than one fund during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse
effect on price or quantity. When the Fund engages in an option transaction,
ordinarily the same broker will be used for the purchase or sale of the
option and any transactions in the security to which the option relates.
Under the Advisory Agreement, if brokers are used for portfolio
transactions, the Manager may select brokers for their execution and/or
research services. Information received by the Manager for those other
accounts may or may not be useful to the Fund. The commissions paid to such
dealers may be higher than another qualified dealer would have charged if a
good faith determination is made by the Manager that the commission is
reasonable in relation to the services provided.
Such research, which may be provided by a broker through a third party,
includes information on particular companies and industries as well as
market, economic or institutional activity areas. It serves to broaden the
scope and supplement the research activities of the Manager, to make
available additional views for consideration and comparisons, and to enable
the Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase.
4. During the fiscal year ended October 31, 2004, $7,709 was paid to
brokers as commissions in return for research services. There were no
commissions paid to brokers for research services during the fiscal year
ended October 31, 2002 and October 31, 2003.
5. Inapplicable.
Item 22. Tax Status.
Reference is made to Item 10 of the Prospectus.
Item 23. Financial Statements at fiscal year-end October 31, 2004.
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 (TAXABLE) BOND RATINGS
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, the changes that can be
expected are most unlikely to impair the fundamentally strong position of
such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
that of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of 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 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 rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa." The modifier "1" indicates that the
obligation ranks in the higher end of its 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.
SHORT-TERM RATINGS - TAXABLE DEBT
These ratings apply to the ability of issuers to honor senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term
debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage 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
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated bonds only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to 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: Bonds rated "BBB" exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative
issues. However, 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: Bonds rated "B" are more vulnerable to nonpayment than bonds 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: Bonds 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: Bonds 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: Bonds 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. The "r" symbol is attached to the ratings of instruments with
significant noncredit risks.
SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term bond 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 bond 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 bond 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 bond 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 bond 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 bond 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.
Fitch, Inc.
INTERNATIONAL LONG-TERM CREDIT RATINGS
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met. 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
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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5473
Oppenheimer Multi-Sector Income Trust
(Exact name of registrant as specified in charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
(Address of principal executive offices) (Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
Two World Financial Center, New York, New York 10281-1008
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
Date of fiscal year end: October 31
Date of reporting period: November 1, 2003 - October 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
International Sector 38.8%
Corporate Sector 28.4
Asset-Backed Sector 18.8
Money Market Sector 7.2
U.S. Government Sector 6.8
Portfolio holdings and
allocations are subject to change. Percentages are as of October 31, 2004, and
are based on total investments (excluding investments purchased with cash
collateral from securities loan).
- --------------------------------------------------------------------------------
8 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS October 31, 2004
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECTOR--7.3%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--7.3%
Federal Home Loan Mortgage Corp.
Nts., 3.75%, 7/15/09 [EUR] 470,000 $ 614,210
- --------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
1.80%, 5/27/05 550,000 548,672
4.25%, 7/15/07 1 4,175,000 4,312,625
6%, 5/15/08 2,000,000 2,182,644
7.25%, 5/15/30 385,000 492,288
- --------------------------------------------------------------------------------
Resolution Funding Corp. Federal Book Entry
Principal Strips, 5.85%, 1/15/21 2 715,000 313,405
- --------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
Series A, 6.79%, 5/23/12 5,577,000 6,482,543
Series C, 4.75%, 8/1/13 650,000 667,560
Series C, 6%, 3/15/13 625,000 698,778
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2/15/31 143,000 155,362
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06 3,175,000 3,173,390
2.75%, 7/31/06 387,000 388,920
2.75%, 8/15/07 3 574,000 573,866
-------------
Total U.S. Government Sector (Cost $20,557,130) 20,604,263
SHARES
- --------------------------------------------------------------------------------
CORPORATE SECTOR--30.6%
- --------------------------------------------------------------------------------
COMMON STOCKS--0.4%
AboveNet, Inc. 4 86 2,107
- --------------------------------------------------------------------------------
Broadwing Corp. 4 344 1,957
- --------------------------------------------------------------------------------
Capital Gaming International, Inc. 4,5 18 --
- --------------------------------------------------------------------------------
Cebridge Connections Holding LLC 4,7 793 --
- --------------------------------------------------------------------------------
Covad Communications Group, Inc. 4 6,198 9,297
- --------------------------------------------------------------------------------
Crunch Equity Holdings, Cl. A 4,5 120 156,133
- --------------------------------------------------------------------------------
Dobson Communications Corp., Cl. A 4 34,718 46,175
- --------------------------------------------------------------------------------
Equinix, Inc. 4 3,873 145,973
- --------------------------------------------------------------------------------
Globix Corp. 4 6,880 17,922
- --------------------------------------------------------------------------------
ICO Global Communication Holdings Ltd. 4 24,061 2,406
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 4 1,501 30,245
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 173 6,107
- --------------------------------------------------------------------------------
MCI, Inc. 815 14,059
- --------------------------------------------------------------------------------
NTL, Inc. 4 3,879 257,992
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 4 651 6,738
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 4 5,655 89,688
- --------------------------------------------------------------------------------
Polymer Group, Inc., Cl. A 4 8,013 98,480
- --------------------------------------------------------------------------------
Prandium, Inc. 4 14,499 435
9 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
Star Gas Partners LP 220 $ 1,538
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 4,5 264 6,494
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 4,5 2,500 14,688
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 4 53,053 396,836
- --------------------------------------------------------------------------------
WRC Media Corp. 4,5 676 14
- --------------------------------------------------------------------------------
XO Communications, Inc. 4 1,091 3,273
-------------
1,308,557
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--29.4%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.6%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--1.3%
ArvinMeritor, Inc., 8.75% Sr. Unsec. Unsub
Nts., 3/1/12 $ 300,000 336,000
- --------------------------------------------------------------------------------
Collins & Aikman Floorcoverings, Inc., 9.75%
Sr. Sub. Nts., Series B, 2/15/10 200,000 214,750
- --------------------------------------------------------------------------------
Dana Corp., 9% Unsec. Nts., 8/15/11 600,000 717,000
- --------------------------------------------------------------------------------
Dura Operating Corp.:
8.625% Sr. Nts., Series B, 4/15/12 400,000 414,500
9% Sr. Unsec. Sub. Nts., Series D, 5/1/09 600,000 577,500
- --------------------------------------------------------------------------------
Eagle-Picher, Inc., 9.75% Sr. Nts., 9/1/13 200,000 204,000
- --------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09 700,000 804,581
- --------------------------------------------------------------------------------
Stoneridge, Inc., 11.50% Sr. Nts., 5/1/12 200,000 230,000
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc., 10.25% Sr. Sec. Nts.,
Series B, 7/15/13 100,000 117,000
- --------------------------------------------------------------------------------
United Components, Inc., 9.375%
Sr. Sub. Nts., 6/15/13 100,000 109,000
-------------
3,724,331
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.0%
Apcoa, Inc., 9.25% Sr. Unsec. Sub. Nts., 3/15/08 5 400,000 358,000
- --------------------------------------------------------------------------------
Aztar Corp., 9% Sr. Unsec. Sub. Nts., 8/15/11 250,000 281,250
- --------------------------------------------------------------------------------
Boyd Gaming Corp., 8.75% Sr. Sub. Nts., 4/15/12 200,000 227,000
- --------------------------------------------------------------------------------
Capital Gaming International, Inc., 11.50%
Promissory Nts., 8/1/1995 4,5,6 5,500 --
- --------------------------------------------------------------------------------
Choctaw Resort Development Enterprise (The),
7.25% Sr. Nts., 11/15/19 7,11 100,000 102,625
- --------------------------------------------------------------------------------
Domino's, Inc., 8.25% Sr. Unsec.
Sub. Nts., 7/1/11 145,000 159,500
- --------------------------------------------------------------------------------
Hilton Hotels Corp.:
7.625% Nts., 5/15/08 200,000 224,306
7.625% Nts., 12/1/12 200,000 235,620
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9%
Sr. Sub. Nts., 3/15/12 200,000 225,000
- --------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., 8.875%
Sr. Nts., Series B, 5/15/12 200,000 231,000
- --------------------------------------------------------------------------------
La Quinta Properties, Inc., 7%
Sr. Nts., 8/15/12 7 75,000 80,906
- --------------------------------------------------------------------------------
Mandalay Resort Group, 10.25%
Sr. Unsec. Sub. Nts., Series B, 8/1/07 500,000 572,500
10 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
MGM Mirage, Inc.:
5.875% Sr. Nts., 2/27/14 $ 200,000 $ 198,250
9.75% Sr. Unsec. Sub. Nts., 6/1/07 150,000 169,500
- --------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 6.375%
Sr. Sub. Nts., 7/15/09 150,000 157,875
- --------------------------------------------------------------------------------
Penn National Gaming, Inc., 8.875%
Sr. Sub. Nts., 3/15/10 300,000 332,250
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.25%
Sr. Unsec. Sub. Nts., 3/15/12 250,000 259,375
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10 250,000 240,625
9.625% Sr. Nts., 6/1/14 9,000 8,640
9.75% Sr. Nts., 4/15/13 50,000 48,438
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
7.875% Sr. Nts., 5/1/12 400,000 471,000
- --------------------------------------------------------------------------------
Sun International Hotels Ltd., 8.875%
Sr. Unsec. Sub. Nts., 8/15/11 500,000 553,750
- --------------------------------------------------------------------------------
Universal City Development Partners Ltd.,
11.75% Sr. Nts., 4/1/10 200,000 234,000
- --------------------------------------------------------------------------------
Venetian Casino Resort LLC/Las Vegas
Sands, Inc., 11% Sec. Nts., 6/15/10 200,000 230,750
-------------
5,602,160
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.3%
Beazer Homes USA, Inc., 8.375% Sr. Nts., 4/15/12 500,000 553,750
- --------------------------------------------------------------------------------
Blount, Inc., 8.875% Sr. Sub. Nts., 8/1/12 125,000 136,719
- --------------------------------------------------------------------------------
D.R. Horton, Inc., 9.75%
Sr. Sub. Nts., 9/15/10 1 500,000 605,000
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875%
Sr. Sub. Nts., 4/1/12 300,000 336,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08 500,000 568,750
9.50% Sr. Unsec. Sub. Nts., 2/15/11 500,000 557,500
- --------------------------------------------------------------------------------
Meritage Corp., 9.75% Sr. Unsec. Nts., 6/1/11 150,000 168,000
- --------------------------------------------------------------------------------
Sealy Mattress Co., 8.25% Sr. Sub. Nts., 6/15/14 175,000 185,938
- --------------------------------------------------------------------------------
Standard Pacific Corp., 9.25%
Sr. Sub. Nts., 4/15/12 100,000 116,500
- --------------------------------------------------------------------------------
WCI Communities, Inc., 9.125%
Sr. Sub. Nts., 5/1/12 200,000 223,000
- --------------------------------------------------------------------------------
William Lyon Homes, Inc., 10.75%
Sr. Nts., 4/1/13 5 200,000 228,500
-------------
3,679,657
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.0%
Remington Arms Co., Inc., 10.50%
Sr. Unsec. Nts., 2/1/11 50,000 44,500
- --------------------------------------------------------------------------------
MEDIA--3.4%
Adelphia Communications Corp.:
8.125% Sr. Nts., Series B, 7/15/03 4,6 250,000 212,500
9.875% Sr. Nts., Series B, 3/1/07 4,6 300,000 258,000
10.25% Sr. Unsec. Nts., 11/1/06 4,6 100,000 86,000
10.25% Sr. Unsec. Sub. Nts., 6/15/11 4,6 200,000 179,500
10.875% Sr. Unsec. Nts., 10/1/10 4,6 100,000 87,750
- --------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%
Sr. Unsec. Sub. Nts., 12/15/12 150,000 157,125
11 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
AMC Entertainment, Inc.:
8% Sr. Sub. Nts., 3/1/14 7 $ 100,000 $ 96,500
9.50% Sr. Unsec. Sub. Nts., 2/1/11 360,000 373,500
- --------------------------------------------------------------------------------
Block Communications, Inc., 9.25%
Sr. Sub. Nts., 4/15/09 200,000 215,000
- --------------------------------------------------------------------------------
Charter Communications Holdings
LLC/Charter Communications
Holdings Capital Corp., 8.375%
Sr. Nts., Second Lien, 4/30/14 7 1,000,000 1,013,750
- --------------------------------------------------------------------------------
Cinemark USA, Inc., 9% Sr. Unsec.
Sub. Nts., 2/1/13 100,000 113,500
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75% Sr. Unsec.
Disc. Nts., 3/15/14 8 200,000 142,500
- --------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec.
Unsub. Nts., Series B, 4/1/11 225,000 245,813
- --------------------------------------------------------------------------------
Dex Media East LLC/Dex Media East
Finance Co., 9.875% Sr. Unsec.
Nts., 11/15/09 100,000 115,500
- --------------------------------------------------------------------------------
Dex Media, Inc., 8% Unsec. Nts., 11/15/13 150,000 161,250
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/DirecTV
Financing Co., Inc., 8.375% Sr. Unsec.
Nts., 3/15/13 400,000 458,000
- --------------------------------------------------------------------------------
EchoStar DBS Corp., 6.625% Sr. Nts., 10/1/14 7 500,000 513,750
- --------------------------------------------------------------------------------
Entravision Communications Corp., 8.125%
Sr. Sub. Nts., 3/15/09 100,000 107,750
- --------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.75%
Sr. Sec. Nts., 12/1/10 9,000 8,348
- --------------------------------------------------------------------------------
LCE Acquisition Corp., 9%
Sr. Sub. Nts., 8/1/14 7 175,000 184,188
- --------------------------------------------------------------------------------
Lin Television Corp., 6.50%
Sr. Sub. Nts., 5/15/13 150,000 155,250
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp., 9.50%
Sr. Sub. Debs., 6/15/13 100,000 109,750
- --------------------------------------------------------------------------------
Mediacom LLC/Mediacom Capital Corp., 9.50%
Sr. Unsec. Nts., 1/15/13 459,000 452,115
- --------------------------------------------------------------------------------
News America Holdings, Inc., 8.875%
Sr. Debs., 4/26/23 380,000 500,980
- --------------------------------------------------------------------------------
PanAmSat Corp., 9% Sr. Nts., 8/15/14 7 250,000 266,250
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13 7 500,000 503,750
8.875% Sr. Unsec. Nts., 5/15/11 9,000 9,428
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I, 10.875%
Sr. Sub. Nts., 12/15/12 7 200,000 245,500
- --------------------------------------------------------------------------------
Radio One, Inc., 8.875% Sr. Unsec. Sub. Nts.,
Series B, 7/1/11 200,000 222,000
- --------------------------------------------------------------------------------
Rainbow National Services LLC, 8.75%
Sr. Nts., 9/1/12 7 200,000 215,000
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8% Sr. Unsec. Sub. Nts., 3/15/12 1,200,000 1,266,000
8.75% Sr. Sub. Nts., 12/15/11 300,000 328,500
- --------------------------------------------------------------------------------
Spanish Broadcasting System, Inc., 9.625%
Sr. Unsec. Sub. Nts., 11/1/09 300,000 316,125
- --------------------------------------------------------------------------------
Vertis, Inc., 9.75% Sr. Sec. Nts., 4/1/09 100,000 109,500
- --------------------------------------------------------------------------------
WRC Media, Inc./Weekly Reader
Corp./CompassLearning, Inc.,
12.75% Sr. Sub. Nts., 11/15/09 300,000 283,875
-------------
9,714,247
- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Saks, Inc., 9.875% Nts., 10/1/11 200,000 236,000
12 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Asbury Automotive Group, Inc., 9%
Sr. Sub. Nts., 6/15/12 $ 200,000 $ 212,000
- --------------------------------------------------------------------------------
Building Materials Corp. of America, 7.75%
Sr. Nts., 8/1/14 7 100,000 99,750
- --------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 9.125%
Sr. Unsec. Sub. Nts., 5/1/08 5 100,000 100,500
- --------------------------------------------------------------------------------
Hollywood Entertainment Corp., 9.625%
Sr. Sub. Nts., 3/15/11 150,000 169,875
-------------
582,125
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Levi Strauss & Co.:
11.625% Sr. Unsec. Nts., 1/15/08 200,000 205,000
12.25% Sr. Nts., 12/15/12 250,000 259,375
- --------------------------------------------------------------------------------
Oxford Industries, Inc., 8.875%
Sr. Nts., 6/1/11 5 150,000 162,750
- --------------------------------------------------------------------------------
Russell Corp., 9.25% Sr. Nts., 5/1/10 100,000 108,000
-------------
735,125
- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.0%
- --------------------------------------------------------------------------------
BEVERAGES--0.0%
Constellation Brands, Inc., 8.125%
Sr. Sub. Nts., 1/15/12 100,000 110,000
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.2%
Great Atlantic & Pacific Tea Co., Inc.
(The), 9.125% Sr. Nts., 12/15/11 209,000 180,785
- --------------------------------------------------------------------------------
Ingles Markets, Inc., 8.875%
Sr. Unsec. Sub. Nts., 12/1/11 9,000 9,765
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10 250,000 268,125
9.50% Sr. Sec. Nts., 2/15/11 100,000 111,250
-------------
569,925
- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.7%
B&G Foods Holdings Corp., 8% Sr. Nts., 10/1/11 50,000 53,000
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc., 7.50%
Sr. Nts., 11/1/14 7 50,000 51,500
- --------------------------------------------------------------------------------
Del Monte Corp., 8.625% Sr. Sub. Nts., 12/15/12 200,000 226,500
- --------------------------------------------------------------------------------
Doane Pet Care Co., 10.75% Sr. Nts., 3/1/10 375,000 406,875
- --------------------------------------------------------------------------------
Dole Food Co., Inc., 8.875%
Sr. Unsec. Nts., 3/15/11 50,000 55,625
- --------------------------------------------------------------------------------
Hines Nurseries, Inc., 10.25% Sr. Unsec.
Sub. Nts., 10/1/11 5 100,000 107,500
- --------------------------------------------------------------------------------
Pinnacle Foods Holding Corp., 8.25%
Sr. Sub. Nts., 12/1/13 7 200,000 190,000
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.:
7.625% Sr. Unsec. Sub. Nts., 2/15/08 400,000 429,000
8% Sr. Nts., Series B, 10/15/09 300,000 334,500
-------------
1,854,500
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Playtex Products, Inc., 8% Sr. Sec. Nts., 3/1/11 300,000 329,250
13 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY--2.3%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.4%
Hornbeck-Leevac Marine Services, Inc., 10.625%
Sr. Nts., 8/1/08 $ 750,000 $ 830,625
- --------------------------------------------------------------------------------
Petroleum Helicopters, Inc., 9.375%
Sr. Nts., 5/1/09 100,000 108,625
- --------------------------------------------------------------------------------
Universal Compression, Inc., 7.25%
Sr. Unsec. Sub. Nts., 5/15/10 200,000 215,000
-------------
1,154,250
- --------------------------------------------------------------------------------
OIL & GAS--1.9%
Chesapeake Energy Corp., 6.875%
Sr. Unsec. Nts., 1/15/16 336,000 361,200
- --------------------------------------------------------------------------------
CITGO Petroleum Corp., 6% Sr. Nts., 10/15/11 7 50,000 51,125
- --------------------------------------------------------------------------------
El Paso Corp., 7.875% Sr. Unsec. Nts., 6/15/12 709,000 742,678
- --------------------------------------------------------------------------------
El Paso Production Holding Co., 7.75%
Sr. Unsec. Nts., 6/1/13 475,000 497,563
- --------------------------------------------------------------------------------
Enterprise Products Operating LP, 5.60%
Sr. Nts., 10/15/14 7 150,000 153,143
- --------------------------------------------------------------------------------
Forest Oil Corp., 7.75% Sr. Nts., 5/1/14 200,000 220,000
- --------------------------------------------------------------------------------
Frontier Oil Corp.:
6.625% Sr. Nts., 10/1/11 7 75,000 78,000
11.75% Sr. Nts., 11/15/09 600,000 638,250
- --------------------------------------------------------------------------------
MarkWest Energy Partners LP/MarkWest
Energy Finance Corp.,
6.875% Sr. Nts., 11/1/14 7 50,000 51,250
- --------------------------------------------------------------------------------
Newfield Exploration Co., 6.625%
Sr. Unsec. Sub. Nts., 9/1/14 7 200,000 215,500
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.50%
Unsub. Nts., 2/15/08 265,000 300,643
- --------------------------------------------------------------------------------
Pioneer Natural Resources Co., 5.875%
Sr. Unsec. Nts., 7/15/16 200,000 212,878
- --------------------------------------------------------------------------------
Premcor Refining Group, Inc., 9.50%
Sr. Nts., 2/1/13 500,000 592,500
- --------------------------------------------------------------------------------
Tesoro Petroleum Corp.:
8% Sr. Sec. Nts., 4/15/08 100,000 109,250
9.625% Sr. Sub. Nts., 4/1/12 9,000 10,553
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11 100,000 112,500
7.625% Nts., 7/15/19 800,000 904,000
- --------------------------------------------------------------------------------
XTO Energy, Inc., 7.50% Sr. Nts., 4/15/12 100,000 118,492
-------------
5,369,525
- --------------------------------------------------------------------------------
FINANCIALS--1.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
American Color Graphics, Inc., 10%
Sr. Sec. Nts., 6/15/10 100,000 77,000
- --------------------------------------------------------------------------------
Berry Plastics Corp., 10.75%
Sr. Sub. Nts., 7/15/12 200,000 231,000
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc., 12%
Sr. Unsec. Sub. Nts., Series B, 9/30/08 800,000 541,000
-------------
849,000
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Western Financial Bank, 9.625%
Unsec. Sub. Debs., 5/15/12 5 300,000 343,500
14 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.2%
Pemex Project Funding Master Trust, 7.375%
Unsec. Unsub. Nts., 12/15/14 $ 410,000 $ 455,305
- --------------------------------------------------------------------------------
INSURANCE--0.1%
Arbor I Ltd., 17.38% Nts., 6/15/06 7,9 250,000 258,613
- --------------------------------------------------------------------------------
Leap Wireless International, Inc.:
4/1/27, Escrow Shares 5,10 400,000 16,000
4/1/27, Escrow Shares 5,10 200,000 6,500
-------------
281,113
- --------------------------------------------------------------------------------
REAL ESTATE--0.5%
Felcor Lodging LP, 9% Sr. Nts., 6/1/11 294,000 332,220
- --------------------------------------------------------------------------------
Host Marriott LP, 9.50% Sr. Nts., 1/15/07 400,000 446,000
- --------------------------------------------------------------------------------
MeriStar Hospitality Corp., 9.125%
Sr. Unsec. Nts., 1/15/11 709,000 758,630
-------------
1,536,850
- --------------------------------------------------------------------------------
HEALTH CARE--2.1%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Fisher Scientific International, Inc., 8.125%
Sr. Sub. Nts., 5/1/12 174,000 194,880
- --------------------------------------------------------------------------------
HMP Equity Holdings Corp., 12.86%
Sr. Disc. Nts., 5/15/08 2,5 500,000 325,000
- --------------------------------------------------------------------------------
Inverness Medical Innovations, Inc., 8.75%
Sr. Sub. Nts., 2/15/12 7 150,000 155,250
-------------
675,130
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.9%
Alderwoods Group, Inc., 7.75%
Sr. Nts., 9/15/12 7 150,000 162,750
- --------------------------------------------------------------------------------
AmeriPath, Inc., 10.50%
Sr. Unsec. Sub. Nts., 4/1/13 100,000 98,500
- --------------------------------------------------------------------------------
Extendicare Health Services, Inc., 9.50%
Sr. Unsec. Sub. Nts., 7/1/10 100,000 113,000
- --------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust II, 7.875%
Nts., 2/1/08 900,000 972,000
- --------------------------------------------------------------------------------
HCA, Inc., 6.30% Sr. Unsec. Nts., 10/1/12 450,000 456,209
- --------------------------------------------------------------------------------
HealthSouth Corp.:
7.625% Nts., 6/1/12 800,000 780,000
10.75% Sr. Unsec. Sub. Nts., 10/1/08 9,000 9,428
- --------------------------------------------------------------------------------
Medquest, Inc., 11.875%
Sr. Unsec. Sub. Nts., Series B, 8/15/12 200,000 233,000
- --------------------------------------------------------------------------------
NDCHealth Corp., 10.50%
Sr. Unsec. Sub. Nts., 12/1/12 600,000 639,000
- --------------------------------------------------------------------------------
PacifiCare Health Systems, Inc., 10.75%
Sr. Unsec. Unsub. Nts., 6/1/09 259,000 299,793
- --------------------------------------------------------------------------------
Quintiles Transnational Corp., 10%
Sr. Sub. Nts., 10/1/13 150,000 164,250
- --------------------------------------------------------------------------------
Rotech Healthcare, Inc., 9.50%
Sr. Unsec. Sub. Nts., 4/1/12 400,000 438,000
- --------------------------------------------------------------------------------
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11 387,000 355,073
7.375% Nts., 2/1/13 9,000 8,550
9.875% Sr. Nts., 7/1/14 7 50,000 52,625
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.:
7% Sr. Nts., 5/15/12 200,000 215,000
7% Sr. Sub. Nts., 11/15/13 100,000 103,000
15 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
US Oncology, Inc.:
9% Sr. Nts., 8/15/12 7 $ 100,000 $ 108,500
10.75% Sr. Sub. Nts., 8/15/14 7 100,000 109,500
-------------
5,318,178
- --------------------------------------------------------------------------------
INDUSTRIALS--3.4%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.5%
Alliant Techsystems, Inc., 8.50%
Sr. Unsec. Sub. Nts., 5/15/11 200,000 221,500
- --------------------------------------------------------------------------------
BE Aerospace, Inc.:
8.50% Sr. Unsec. Nts., 10/1/10 100,000 110,000
8.875% Sr. Unsec. Sub. Nts., 5/1/11 209,000 220,913
- --------------------------------------------------------------------------------
K&F Industries, Inc., 9.625%
Sr. Unsec. Sub. Nts., 12/15/10 125,000 145,625
- --------------------------------------------------------------------------------
Rexnord Corp., 10.125%
Sr. Unsec. Sub. Nts., 12/15/12 5 150,000 170,250
- --------------------------------------------------------------------------------
TD Funding Corp., 8.375% Sr. Sub. Nts., 7/15/11 200,000 216,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13 134,000 154,770
11% Sr. Sub. Nts., 2/15/13 97,000 115,915
- --------------------------------------------------------------------------------
Vought Aircraft Industries, Inc., 8%
Sr. Nts., 7/15/11 100,000 98,000
-------------
1,452,973
- --------------------------------------------------------------------------------
AIRLINES--0.4%
America West Airlines, Inc., 10.75%
Sr. Nts., 9/1/05 1,000,000 985,000
- --------------------------------------------------------------------------------
ATA Holdings Corp., 13%
Sr. Unsec. Nts., 2/1/09 6,9 1,260,000 252,000
-------------
1,237,000
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Associated Materials, Inc., 9.75%
Sr. Sub. Nts., 4/15/12 100,000 114,500
- --------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625%
Sr. Sec. Nts., 7/1/10 156,000 176,280
-------------
290,780
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.3%
Allied Waste North America, Inc.:
7.375% Sr. Sec. Nts., Series B, 4/15/14 300,000 279,000
7.875% Sr. Nts., 4/15/13 400,000 409,000
8.50% Sr. Sub. Nts., 12/1/08 500,000 527,500
- --------------------------------------------------------------------------------
Boise Cascade LLC/Boise Cascade Finance Corp.,
7.125% Sr. Sub. Nts., 10/15/14 7 150,000 157,321
- --------------------------------------------------------------------------------
Comforce Operating, Inc., 12% Sr. Nts.,
Series B, 12/1/07 5 200,000 195,000
- --------------------------------------------------------------------------------
Corrections Corp. of America, 9.875%
Sr. Nts., 5/1/09 100,000 113,000
- --------------------------------------------------------------------------------
Hydrochem Industrial Services, Inc., 10.375%
Sr. Sub. Nts., 8/1/07 600,000 607,500
- --------------------------------------------------------------------------------
IMCO Recycling Escrow, Inc., 9%
Sr. Nts., 11/15/14 7,11 50,000 51,250
- --------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50%
Sr. Sub. Nts., 2/15/09 192,000 195,360
- --------------------------------------------------------------------------------
Mail-Well I Corp., 9.625% Sr. Nts., 3/15/12 300,000 334,500
16 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES Continued
Protection One, Inc., /Protection
One Alarm Monitoring, Inc.,
7.375% Sr. Unsec. Nts., 8/15/05 $ 400,000 $ 402,000
- --------------------------------------------------------------------------------
Synagro Technologies, Inc., 9.50%
Sr. Sub. Nts., 4/1/09 100,000 107,250
- --------------------------------------------------------------------------------
United Rentals, Inc., 7% Sr. Sub. Nts., 2/15/14 400,000 371,000
-------------
3,749,681
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.0%
URS Corp., 11.50% Sr. Unsec. Nts., 9/15/09 64,000 73,920
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.0%
Great Lakes Dredge & Dock Co., 7.75%
Sr. Unsec. Sub. Nts., 12/15/13 30,000 27,000
- --------------------------------------------------------------------------------
MACHINERY--0.7%
AGCO Corp., 9.50% Sr. Unsec. Nts., 5/1/08 5 500,000 540,000
- --------------------------------------------------------------------------------
Dresser-Rand Group, Inc., 7.375%
Sr. Sub. Nts., 11/1/14 5 50,000 52,625
- --------------------------------------------------------------------------------
Milacron Escrow Corp., 11.50%
Sr. Sec. Nts., 5/15/11 7 300,000 313,500
- --------------------------------------------------------------------------------
NMHG Holding Co., 10% Sr. Nts., 5/15/09 100,000 111,125
- --------------------------------------------------------------------------------
SPX Corp., 7.50% Sr. Nts., 1/1/13 400,000 430,000
- --------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 200,000 225,000
- --------------------------------------------------------------------------------
Trinity Industries, Inc., 6.50%
Sr. Nts., 3/15/14 5 150,000 150,000
-------------
1,822,250
- --------------------------------------------------------------------------------
MARINE--0.2%
Navigator Gas Transport plc, 10.50%
First Priority Ship Mtg. Nts., 6/30/07 4,5,6 750,000 543,750
- --------------------------------------------------------------------------------
ROAD & RAIL--0.1%
Kansas City Southern Railway Co. (The), 7.50%
Sr. Nts., 6/15/09 200,000 209,000
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Worldspan LP/Worldspan Financial Corp., 9.625%
Sr. Nts., 6/15/11 150,000 143,250
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--1.1%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.2%
Orion Network Systems, Inc., 12.50%
Sr. Unsub. Disc. Nts., 1/15/07 4,5,6 1,150,000 563,500
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.2%
Seagate Technology Hdd Holdings, 8%
Sr. Nts., 5/15/09 400,000 434,500
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.1%
Ingram Micro, Inc., 9.875%
Sr. Unsec. Sub. Nts., 8/15/08 300,000 330,750
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Globix Corp., 11% Sr. Nts., 5/1/08 5,12 42,888 38,385
- --------------------------------------------------------------------------------
NorthPoint Communications Group, Inc., 12.875%
Nts., 2/15/10 4,5,6 160,138 --
- --------------------------------------------------------------------------------
PSINet, Inc.:
10.50% Sr. Unsec. Nts., 12/1/06 4,5,6 [EUR] 500,000 25,184
11% Sr. Nts., 8/1/09 4,5,6 540,935 18,257
-------------
81,826
17 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--0.2%
Iron Mountain, Inc., 7.75%
Sr. Sub. Nts., 1/15/15 $ 500,000 $ 542,500
- --------------------------------------------------------------------------------
Titan Corp. (The), 8% Sr. Sub. Nts., 5/15/11 50,000 53,000
-------------
595,500
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.4%
AMI Semiconductor, Inc., 10.75%
Sr. Unsec. Sub. Nts., 2/1/13 5 194,000 228,435
- --------------------------------------------------------------------------------
Amkor Technology, Inc., 9.25%
Sr. Unsec. Sub. Nts., 2/15/08 300,000 289,500
- --------------------------------------------------------------------------------
ChipPAC International Co. Ltd., 12.75%
Sr. Unsec. Sub. Nts., Series B, 8/1/09 5 200,000 215,000
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc., 7.125%
Sr. Nts., 7/15/14 7 200,000 213,000
-------------
945,935
- --------------------------------------------------------------------------------
MATERIALS--4.4%
- --------------------------------------------------------------------------------
CHEMICALS--1.3%
Crompton Corp., 9.875% Sr. Nts., 8/1/12 7 125,000 138,438
- --------------------------------------------------------------------------------
Equistar Chemicals LP/Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09 200,000 221,000
10.125% Sr. Unsec. Nts., 9/1/08 9,000 10,384
10.625% Sr. Unsec. Nts., 5/1/11 200,000 232,000
- --------------------------------------------------------------------------------
Huntsman Co. LLC:
11.50% Sr. Nts., 7/15/12 7 375,000 423,750
11.625% Sr. Unsec. Nts., 10/15/10 9,000 10,654
- --------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co. plc, 13.08%
Sr. Unsec. Disc. Nts., 12/31/09 2,5 300,000 164,250
- --------------------------------------------------------------------------------
Huntsman International LLC, 9.875%
Sr. Nts., 3/1/09 600,000 669,000
- --------------------------------------------------------------------------------
IMC Global, Inc., 10.875%
Sr. Unsec. Nts., 8/1/13 9,000 11,408
- --------------------------------------------------------------------------------
Innophos, Inc., 8.875% Sr. Sub. Nts., 8/15/14 7 150,000 162,375
- --------------------------------------------------------------------------------
ISP Holdings, Inc., 10.625%
Sr. Sec. Nts., 12/15/09 200,000 222,000
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.50% Sec. Nts., 12/15/08 9,000 9,855
9.80% Debs., 2/1/20 50,000 55,750
9.875% Sec. Nts., Series B, 5/1/07 320,000 340,000
10.50% Sr. Sec. Nts., 6/1/13 50,000 59,250
- --------------------------------------------------------------------------------
Millennium America, Inc., 9.25%
Sr. Unsec. Sub. Nts., 6/15/08 50,000 56,000
- --------------------------------------------------------------------------------
Pioneer Cos., Inc., 5.475%
Sr. Sec. Nts., 12/31/06 5,9 27,687 27,964
- --------------------------------------------------------------------------------
PolyOne Corp.:
8.875% Sr. Unsec. Nts., 5/1/12 400,000 429,000
10.625% Sr. Unsec. Nts., 5/15/10 9,000 10,035
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc.:
10% Sr. Sec. Nts., 12/19/07 5,12 204,568 201,499
11.25% Sr. Sub. Nts., 8/15/06 4,5,6 200,000 --
- --------------------------------------------------------------------------------
Westlake Chemical Corp., 8.75%
Sr. Nts., 7/15/11 5 129,000 146,093
-------------
3,600,705
18 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.1%
Texas Industries, Inc., 10.25%
Sr. Unsec. Nts., 6/15/11 5 $ 200,000 $ 231,000
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.4%
Graham Packaging Co., Inc.:
8.50% Sr. Nts., 10/15/12 7 50,000 52,750
9.875% Sub. Nts., 10/15/14 7 100,000 106,500
- --------------------------------------------------------------------------------
Graphic Packaging International Corp.:
8.50% Sr. Nts., 8/15/11 250,000 283,125
9.50% Sr. Sub. Nts., 8/15/13 200,000 231,500
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp., 8.25%
Sr. Unsec. Nts., 10/1/12 450,000 501,750
- --------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc.:
8.25% Sr. Unsec. Nts., 5/15/13 9,000 9,945
8.75% Sr. Sec. Nts., 11/15/12 500,000 566,250
8.875% Sr. Sec. Nts., 2/15/09 900,000 992,250
- --------------------------------------------------------------------------------
Pliant Corp., 0%/11.125%
Sr. Sec. Disc. Nts., 6/15/09 8 200,000 179,000
- --------------------------------------------------------------------------------
Solo Cup Co., 8.50% Sr. Sub. Nts., 2/15/14 100,000 98,750
- --------------------------------------------------------------------------------
Stone Container Corp.:
9.25% Sr. Unsec. Nts., 2/1/08 250,000 282,500
9.75% Sr. Unsec. Nts., 2/1/11 400,000 448,000
- --------------------------------------------------------------------------------
TriMas Corp., 9.875%
Sr. Unsec. Sub. Nts., 6/15/12 250,000 257,500
-------------
4,009,820
- --------------------------------------------------------------------------------
METALS & MINING--1.3%
AK Steel Corp., 7.75% Sr. Unsec. Nts., 6/15/12 9,000 9,158
- --------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%
Sr. Nts., 7/1/13 9 200,000 213,500
- --------------------------------------------------------------------------------
California Steel Industries, Inc., 6.125%
Sr. Nts., 3/15/14 200,000 197,500
- --------------------------------------------------------------------------------
Century Aluminum Co., 7.50% Sr. Nts., 8/15/14 7 250,000 266,250
- --------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25% Sr. Nts., 8/1/14 7 100,000 107,375
- --------------------------------------------------------------------------------
IMCO Recycling, Inc., 10.375%
Sr. Sec. Nts., 10/15/10 5 200,000 224,000
- --------------------------------------------------------------------------------
International Steel Group, Inc., 6.50%
Sr. Nts., 4/15/14 50,000 53,750
- --------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 9.75%
Sr. Sec. Nts., 6/1/12 5 400,000 446,000
- --------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 10.875%
Sr. Nts., Series B, 10/15/06 4,6 500,000 470,000
- --------------------------------------------------------------------------------
Koppers Industry, Inc., 9.875%
Sr. Sec. Nts., 10/15/13 5 250,000 283,750
- --------------------------------------------------------------------------------
Metallurg, Inc., 11% Sr. Nts., 12/1/07 200,000 153,000
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc., 10% Sr. Nts., 7/15/09 200,000 223,000
- --------------------------------------------------------------------------------
Peabody Energy Corp., 6.875%
Sr. Unsec. Nts., Series B, 3/15/13 200,000 220,500
- --------------------------------------------------------------------------------
Steel Dynamics, Inc., 9.50% Sr. Nts., 3/15/09 200,000 222,250
- --------------------------------------------------------------------------------
UCAR Finance, Inc., 10.25% Sr. Nts., 2/15/12 100,000 114,500
- --------------------------------------------------------------------------------
United States Steel Corp, 10.75%
Sr. Nts., 8/1/08 260,000 309,400
- --------------------------------------------------------------------------------
United States Steel Corp., 9.75%
Sr. Nts., 5/15/10 168,000 193,200
-------------
3,707,133
19 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.3%
Buckeye Technologies, Inc., 8.50%
Sr. Nts., 10/1/13 $ 50,000 $ 55,500
- --------------------------------------------------------------------------------
Georgia-Pacific Corp., 8.125%
Sr. Unsec. Nts., 5/15/11 500,000 586,250
- --------------------------------------------------------------------------------
Tekni-Plex, Inc.:
8.75% Sr. Sec. Nts., 11/15/13 7 109,000 104,504
12.75% Sr. Unsec. Sub. Nts., Series B, 6/15/10 200,000 151,000
-------------
897,254
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.4%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.1%
COLO.com, Inc., 13.875% Sr. Nts., 3/15/10 4,5,6 249,878 25
- --------------------------------------------------------------------------------
Crown Castle International Corp., 7.50%
Sr. Nts., 12/1/13 200,000 215,000
- --------------------------------------------------------------------------------
Dex Media West LLC/Dex Media West Finance Co.:
8.50% Sr. Nts., 8/15/10 150,000 171,750
9.875% Sr. Sub. Nts., 8/15/13 293,000 347,938
- --------------------------------------------------------------------------------
MCI, Inc., 5.908% Sr. Unsec. Nts., 5/1/07 233,000 233,000
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc., 7.90%
Unsec. Nts., 8/15/10 134,000 130,315
- --------------------------------------------------------------------------------
Qwest Corp., 9.125% Nts., 3/15/12 7 700,000 792,750
- --------------------------------------------------------------------------------
Qwest Services Corp., 14% Nts., 12/15/10 7,9 925,000 1,103,063
- --------------------------------------------------------------------------------
Teligent, Inc., 11.50% Sr. Nts., 12/1/07 4,5,6 200,000 --
-------------
2,993,841
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES--1.3% Alamosa Delaware, Inc.:
11% Sr. Unsec. Nts., 7/31/10 9,000 10,575
12.50% Sr. Unsec. Nts., 2/1/11 200,000 227,000
- --------------------------------------------------------------------------------
American Tower Corp., 7.50% Sr. Nts., 5/1/12 100,000 105,000
- --------------------------------------------------------------------------------
American Tower Escrow Corp., 12.25%
Sr. Sub. Disc. Nts., 8/1/08 2 400,000 303,000
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc.,
Sr. Unsec. Disc. Nts., 10/1/07 4,5,6 554,000 --
- --------------------------------------------------------------------------------
Centennial Cellular Operating Co.
LLC/Centennial Communications Corp.,
10.125% Sr. Nts., 6/15/13 300,000 327,000
- --------------------------------------------------------------------------------
Crown Castle International Corp., 10.75%
Sr. Nts., 8/1/11 200,000 222,500
- --------------------------------------------------------------------------------
Dobson Cellular Systems, 8.375%
Sec. Nts., 11/1/11 7,11 50,000 51,813
- --------------------------------------------------------------------------------
Dobson Communications Corp., 8.875%
Sr. Nts., 10/1/13 209,000 141,598
- --------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375%
Sr. Nts., 8/1/15 1,040,000 1,159,600
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
9.625% Sr. Sub. Nts., Series B, 5/15/08 150,000 141,750
9.75% Sr. Sub. Nts., 1/15/10 9,000 7,785
9.875% Sr. Nts., 2/1/10 150,000 151,875
- --------------------------------------------------------------------------------
SBA Telecommunications, Inc./SBA
Communications Corp.,
0%/9.75% Sr. Disc. Nts., 12/15/11 8 459,000 389,003
- --------------------------------------------------------------------------------
Triton PCS, Inc., 8.50% Sr. Unsec. Nts., 6/1/13 300,000 276,750
20 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Western Wireless Corp., 9.25%
Sr. Unsec. Nts., 7/15/13 $ 259,000 $ 277,130
-------------
3,792,379
- --------------------------------------------------------------------------------
UTILITIES--2.9%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.1%
Allegheny Energy Supply Co. LLC, 8.25%
Bonds, 4/15/12 7 9,000 10,193
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp., 9.05%
Sr. Sec. Nts., Series B, 12/15/09 397,819 443,568
- --------------------------------------------------------------------------------
Calpine Corp., 8.75% Sr. Nts., 7/15/07 125,000 90,000
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25%
Sr. Nts., Series B, 9/1/10 100,000 112,048
- --------------------------------------------------------------------------------
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09 9,000 9,698
7.75% Sr. Nts., 8/1/10 100,000 110,000
9.875% Sr. Unsec. Nts., 10/15/07 900,000 1,014,750
- --------------------------------------------------------------------------------
ESI Tractebel Acquisition Corp., 7.99%
Sec. Bonds, Series B, 12/30/11 5 448,000 482,202
- --------------------------------------------------------------------------------
Midwest Generation LLC, 8.75%
Sr. Sec. Nts., 5/1/34 800,000 910,000
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC, 8.30%
Sr. Unsec. Nts., 5/1/11 4,6 600,000 583,500
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/MSW
Energy Finance Co., Inc.,
8.50% Sr. Sec. Nts., 9/1/10 5 100,000 110,000
- --------------------------------------------------------------------------------
NRG Energy, Inc., 8% Sr. Sec. Nts., 12/15/13 7 550,000 608,438
- --------------------------------------------------------------------------------
PG&E Corp., 6.875% Sr. Sec. Nts., 7/15/08 200,000 217,500
- --------------------------------------------------------------------------------
Reliant Resources, Inc.:
9.25% Sr. Sec. Nts., 7/15/10 359,000 400,285
9.50% Sr. Sec. Nts., 7/15/13 200,000 226,000
- --------------------------------------------------------------------------------
Teco Energy, Inc., 7.20% Unsec.
Unsub. Nts., 5/1/11 300,000 328,500
- --------------------------------------------------------------------------------
Westar Energy, Inc., 9.75%
Sr. Unsec. Nts., 5/1/07 185,000 211,611
-------------
5,868,293
- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
AmeriGas Partners LP/AmeriGas
Eagle Finance Corp.,
8.875% Sr. Unsec. Nts., Series B, 5/20/11 200,000 220,000
- --------------------------------------------------------------------------------
SEMCO Energy, Inc., 7.125% Sr. Nts., 5/15/08 100,000 106,000
-------------
326,000
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.7%
Consumers Energy Co., 7.375% Nts., 9/15/23 200,000 207,171
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11 400,000 389,000
8.75% Sr. Nts., 2/15/12 9,000 9,540
10.125% Sr. Sec. Nts., 7/15/13 7 900,000 1,053,000
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC, 8.625%
Sec. Pass-Through Certificates,
Series A, 6/30/12 131,808 138,481
21 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER Continued
NorthWestern Corp., 5.875%
Sr. Sec. Nts., 11/1/14 7,11 $ 30,000 $ 31,088
-------------
1,828,280
-------------
82,920,991
SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.7%
Dobson Communications Corp., 6% Cv.,
Series F (converts into
Dobson Communications Corp., Cl. A
common stock), Non-Vtg. 7 600 30,268
- --------------------------------------------------------------------------------
e.spire Communications, Inc., 12.75%
Jr. Redeemable, Non-Vtg. 4,5,12 249 25
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc., 11.75% Cum
Exchangeable, Series B, Non-Vtg. 4,5 4,000 361,000
- --------------------------------------------------------------------------------
Nebco Evans Holdings, Inc., 11.25%
Sr. Redeemable Exchangeable, Non-Vtg. 4,5,12 3,031 --
- --------------------------------------------------------------------------------
Paxson Communications Corp.:
14.25% Cum. Jr. Exchangeable, Non-Vtg. 12 41 312,625
14.25% Cum. 4,12 1 5,681
- --------------------------------------------------------------------------------
Pennsylvania Real Estate Investment Trust, 11% 4,000 242,000
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum., Series A, Non-Vtg. 4 24
- --------------------------------------------------------------------------------
Rural Cellular Corp., 11.375% Cum.,
Series B, Non-Vtg. 4,5,12 115 92,288
- --------------------------------------------------------------------------------
Sovereign Real Estate Investment Trust,
12% Non-Cum., Series A 7 5,750 863,938
-------------
1,907,849
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--0.1%
Swiss Re Capital Markets Corp./Fujiyama Ltd.
Catastrophe Linked Nts.,
5.711%, 5/16/05 7,9 $ 250,000 252,680
-------------
Total Corporate Sector (Cost $84,237,040) 86,390,077
UNITS
- --------------------------------------------------------------------------------
CONVERTIBLE SECTOR--0.0%
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
AboveNet, Inc. Wts.:
Exp. 9/8/08 4 78 644
Exp. 9/8/10 4 92 735
- --------------------------------------------------------------------------------
American Tower Corp. Wts., Exp. 8/1/08 4,7 400 84,200
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts., Exp. 3/15/10 4,5 300 3
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp. 12/15/07 4,5 600 --
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc. Wts.,
Exp. 9/30/08 4,5 800 --
- --------------------------------------------------------------------------------
e.spire Communications, Inc. Wts.,
Exp. 11/1/05 4,5 700 7
- --------------------------------------------------------------------------------
Horizon PCS, Inc. Wts., Exp. 10/1/10 4,5 1,000 --
- --------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/15/05 4,5 4,125 41
- --------------------------------------------------------------------------------
ICO Global Communication Holdings Ltd. Wts.:
Exp. 5/16/06 4,5 6,035 30
Exp. 5/16/06 4,5 9 --
22 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
VALUE
UNITS SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES Continued
Insilco Corp. Wts., Exp. 8/15/07 4,5 720 $ --
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. Wts.,
Exp. 4/15/10 4,5 400 4
- --------------------------------------------------------------------------------
Long Distance International, Inc. Wts.,
Exp. 4/13/08 4,5 400 --
- --------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts.,
Exp. 1/15/07 4,5 975 10
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts.,
Exp. 7/15/05 4,5 700 7
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 4,5 500 5
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts., Exp. 9/19/10 4 6,738 1,550
- --------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 6/30/05 4,5 6,400 --
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts., Exp. 12/19/08 4,5 431 335
- --------------------------------------------------------------------------------
Verado Holdings, Inc., Cl. B Wts.,
Exp. 4/15/08 4 500 304
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. A Wts.,
Exp. 1/16/10 4 2,188 1,652
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. B Wts.,
Exp. 1/16/10 4 1,641 771
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. C Wts.,
Exp. 1/16/10 4 1,641 509
-------------
Total Convertible Sector (Cost $45,818) 90,807
SHARES
- --------------------------------------------------------------------------------
INTERNATIONAL SECTOR--41.9%
- --------------------------------------------------------------------------------
COMMON STOCKS--0.3%
COLT Telecom Group plc, ADR 4 7,020 22,969
- --------------------------------------------------------------------------------
Microcell Telecommunications, Inc., Cl. A 4 7 199
- --------------------------------------------------------------------------------
Telewest Global, Inc. 4 44,358 545,603
- --------------------------------------------------------------------------------
Viatel Holding Ltd. (Bermuda) 4,5 877 745
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 4 31,882 208,080
-------------
777,596
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--3.8%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--0.4%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.2%
Intrawest Corp., 7.50%
Sr. Unsec. Nts., 10/15/13 $ 333,000 357,975
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8.75%
Sr. Unsub. Nts., 2/2/11 200,000 239,000
-------------
596,975
- --------------------------------------------------------------------------------
MEDIA--0.1%
Corus Entertainment, Inc., 8.75%
Sr. Sub. Nts., 3/1/12 200,000 224,000
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.1%
Jean Coutu Group (PJC), Inc. (The):
7.625% Sr. Nts., 8/1/12 7 100,000 106,250
8.50% Sr. Sub. Nts., 8/1/14 7 250,000 256,250
-------------
362,500
23 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CONSUMER STAPLES--0.4%
- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.4%
Burns Philp Capital Property Ltd., 9.75%
Sr. Unsec. Sub. Nts., 7/15/12 5 $ 100,000 $ 110,500
- --------------------------------------------------------------------------------
Tembec Industries, Inc., 8.50%
Sr. Unsec. Nts., 2/1/11 9,000 9,248
- --------------------------------------------------------------------------------
United Biscuits Finance plc, 10.75%
Sr. Sub. Nts., 4/15/11 5 [GBP] 500,000 957,876
-------------
1,077,624
- --------------------------------------------------------------------------------
ENERGY--1.2%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.4%
Ocean Rig Norway AS, 10.25%
Sr. Sec. Nts., 6/1/08 1,200,000 1,242,000
- --------------------------------------------------------------------------------
OIL & GAS--0.8%
Gazprom International SA, 7.201%
Sr. Unsec. Bonds, 2/1/20 1,520,000 1,592,968
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 6.625%
Nts., 4/4/10 [EUR] 460,000 644,186
-------------
2,237,154
- --------------------------------------------------------------------------------
FINANCIALS--0.5%
- --------------------------------------------------------------------------------
DIVERSIFIED
FINANCIALS--0.5% Network Rail MTN Finance plc, 4.875% Sec.
Nts., 3/6/09 [GBP] 740,000 1,352,944
- --------------------------------------------------------------------------------
INDUSTRIALS--0.3%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.0%
Videotron Ltee, 6.875% Sr. Unsec. Nts., 1/15/14 100,000 105,500
- --------------------------------------------------------------------------------
MARINE--0.2%
CP Ships Ltd., 10.375% Sr. Nts., 7/15/12 300,000 347,250
- --------------------------------------------------------------------------------
Pacific & Atlantic Holdings, Inc., 3.75%
Sec. Nts., 12/31/07 7,12 183,960 79,949
-------------
427,199
- --------------------------------------------------------------------------------
ROAD & RAIL--0.1%
Stena AB:
7.50% Sr. Unsec. Nts., 11/1/13 232,000 243,020
9.625% Sr. Nts., 12/1/12 150,000 169,688
-------------
412,708
- --------------------------------------------------------------------------------
MATERIALS--0.7%
- --------------------------------------------------------------------------------
CHEMICALS--0.1%
PCI Chemicals Canada, 10%
Sr. Sec. Nts., 12/31/08 87,434 90,494
- --------------------------------------------------------------------------------
Rhodia SA, 10.25% Sr. Unsec. Nts., 6/1/10 275,000 299,750
-------------
390,244
- --------------------------------------------------------------------------------
CONTAINERS &
PACKAGING--0.3% Crown Euro Holdings SA:
9.50% Sr. Sec. Nts., 3/1/11 300,000 343,500
10.875% Sr. Sec. Nts., 3/1/13 100,000 119,250
- --------------------------------------------------------------------------------
MDP Acquisitions plc, 9.625% Sr. Nts., 10/1/12 200,000 229,000
-------------
691,750
24 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING--0.1%
Ispat Inland ULC, 9.75% Sr. Sec. Nts., 4/1/14 $ 250,000 $ 305,000
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.2%
Abitibi-Consolidated, Inc., 8.55% Nts., 8/1/10 225,000 247,500
- --------------------------------------------------------------------------------
Western Forest Products, Inc., 15%
Sec. Nts., 7/28/09 5,12 156,000 176,280
-------------
423,780
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.2%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.2%
Telus Corp., 7.50% Nts., 6/1/07 596,000 655,257
- --------------------------------------------------------------------------------
UTILITIES--0.1%
- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
Intergas Finance BV, 6.875% Bonds, 11/4/11 7,11 270,000 270,338
-------------
10,774,973
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--31.6%
- --------------------------------------------------------------------------------
ARGENTINA--0.9%
Argentina (Republic of) Bonds:
1.389%, 5/3/05 9 24,000 23,657
1.98%, 8/3/12 9 2,220,000 1,671,174
Series PRE8, 2%, 1/3/10 4,5,6 [ARP] 810,000 394,260
Series PR12, 2%, 1/3/16 4,5,6 [ARP] 551,273 218,363
- --------------------------------------------------------------------------------
Argentina (Republic of) Disc. Bonds,
2.345%, 3/31/23 5,6 185,000 98,050
- --------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Bonos
de Consolidacion de Deudas,
Series PBA1, 3.257%, 4/1/07 5,6 [ARP] 50,689 20,293
-------------
2,425,797
- --------------------------------------------------------------------------------
AUSTRALIA--1.1%
Queensland Treasury Corp. Unsec. Nts.,
Series 09G, 6%, 7/14/09 [AUD] 3,940,000 3,025,231
- --------------------------------------------------------------------------------
AUSTRIA--1.1%
Austria (Republic of) Bonds, 6.25%,
7/15/27 [EUR] 1,465,000 2,332,601
- --------------------------------------------------------------------------------
Austria (Republic of) Nts.,
Series 98-1, 5%, 1/15/08 [EUR] 470,000 641,464
-------------
2,974,065
- --------------------------------------------------------------------------------
BELGIUM--2.1%
Belgium (Kingdom of) Bonds:
5%, 9/28/11 [EUR] 360,000 500,576
Series 19, 6.50%, 3/31/05 [EUR] 730,000 950,157
Series 26, 6.25%, 3/28/07 [EUR] 1,465,000 2,032,195
Series 28, 5.75%, 3/28/08 [EUR] 550,000 768,850
Series 32, 3.75%, 3/28/09 [EUR] 750,000 984,536
Series 35, 5.75%, 9/28/10 [EUR] 450,000 647,422
-------------
5,883,736
25 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
BRAZIL--2.3%
Brazil (Federal Republic of) Bonds:
8.875%, 10/14/19 $ 480,000 $ 475,200
Series 15 yr., 3.125%, 4/15/09 9 5,883 5,765
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt
Capitalization Bonds, Series 20 yr.,
8%, 4/15/14 3,097,284 3,079,862
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts., 12%, 4/15/10 460,000 549,700
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Unsec.
Unsub. Bonds:
10%, 8/7/11 305,000 335,500
11%, 2/4/10 [EUR] 150,000 218,503
11%, 8/17/40 1,070,000 1,208,298
Cl. B, 8.875%, 4/15/24 536,000 518,580
-------------
6,391,408
- --------------------------------------------------------------------------------
BULGARIA--0.3%
Bulgaria (Republic of) Bonds:
8.25%, 1/15/15 305,000 382,775
8.25%, 1/15/15 7 305,000 382,775
-------------
765,550
- --------------------------------------------------------------------------------
COLOMBIA--0.1%
Colombia (Republic of) Unsec. Unsub. Bonds,
8.375%, 2/15/27 315,000 288,225
- --------------------------------------------------------------------------------
DENMARK--0.3%
Denmark (Kingdom of) Nts., 4%, 8/15/08 [DKK] 5,400,000 962,302
- --------------------------------------------------------------------------------
ECUADOR--0.2%
Ecuador (Republic of) Unsec. Bonds, 8%,
8/15/30 9 570,000 480,225
- --------------------------------------------------------------------------------
EL SALVADOR--0.1%
El Salvador (Republic of) Bonds, 7.625%,
9/21/34 7 210,000 216,300
- --------------------------------------------------------------------------------
FINLAND--0.1%
Finland (Republic of) Sr. Unsec. Unsub. Bonds,
2.75%, 7/4/06 [EUR] 115,000 148,021
- --------------------------------------------------------------------------------
FRANCE--1.4%
France (Government of) Obligations
Assimilables du Tresor Bonds:
5.50%, 10/25/07 [EUR] 465,000 641,343
5.50%, 10/25/10 [EUR] 245,000 349,101
5.75%, 10/25/32 [EUR] 1,070,000 1,624,240
- --------------------------------------------------------------------------------
France (Government of) Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR] 945,000 1,212,089
5 yr., 4.75%, 7/12/07 [EUR] 50,000 67,439
-------------
3,894,212
26 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
GERMANY--5.5%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR] 950,000 $ 1,213,988
5.375%, 1/4/10 [EUR] 765,000 1,077,669
Series 01, 5%, 7/4/11 [EUR] 1,600,000 2,226,830
Series 140, 4.50%, 8/17/07 [EUR] 730,000 979,152
Series 143, 3.50%, 10/10/08 [EUR] 7,765,000 10,128,663
-------------
15,626,302
- --------------------------------------------------------------------------------
GREAT BRITAIN--1.7%
United Kingdom Treasury Nts., 4%, 3/7/09 [GBP] 2,725,000 4,879,905
- --------------------------------------------------------------------------------
GREECE--1.1%
Greece (Republic of) Bonds:
3.50%, 4/18/08 [EUR] 930,000 1,211,848
5.35%, 5/18/11 [EUR] 1,095,000 1,541,097
- --------------------------------------------------------------------------------
Greece (Republic of) Sr. Unsub. Bonds,
4.65%, 4/19/07 [EUR] 265,000 355,093
-------------
3,108,038
- --------------------------------------------------------------------------------
GUATEMALA--0.1%
Guatemala (Republic of) Nts.:
10.25%, 11/8/11 7 170,000 199,325
10.25%, 11/8/11 55,000 64,488
-------------
263,813
- --------------------------------------------------------------------------------
HUNGARY--0.1%
Hungary (Government of) Bonds,
Series 05/I, 8.50%, 10/12/05 [HUF] 68,320,000 350,605
- --------------------------------------------------------------------------------
IRELAND--0.2%
Ireland (Republic of) Treasury Bonds,
3.25%, 4/18/09 [EUR] 420,000 539,896
- --------------------------------------------------------------------------------
ISRAEL--0.2%
United States (Government of) Gtd.
Israel Aid Bonds, 5.50%, 12/4/23 560,000 587,097
- --------------------------------------------------------------------------------
ITALY--2.3%
Italy (Republic of) Treasury Bonds:
Buoni del Tesoro Poliennali, 4%, 3/1/05 [EUR] 290,000 373,242
Buoni del Tesoro Poliennali, 4.50%, 3/1/07 [EUR] 460,000 613,970
Buoni del Tesoro Poliennali, 5%, 10/15/07 [EUR] 2,475,000 3,376,559
Buoni del Tesoro Poliennali, 5%, 2/1/12 [EUR] 740,000 1,027,353
Buoni del Tesoro Poliennali,
5.25%, 12/15/05 [EUR] 860,000 1,138,351
-------------
6,529,475
- --------------------------------------------------------------------------------
IVORY COAST--0.0%
Ivory Coast (Government of) Past Due
Interest Bonds, 3/29/18 4,5,6 [FRF] 3,857,000 136,330
- --------------------------------------------------------------------------------
JAPAN--1.9%
Japan (Government of)
Bonds, 5 yr.,
Series 14, 0.40%, 6/20/06 [JPY] 572,000,000 5,418,854
27 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
KOREA (SOUTH)--0.3% Korea
(Republic of) Nts.:
4.25%, 6/1/13 $ 305,000 $ 297,695
8.875%, 4/15/08 460,000 542,915
-------------
840,610
- --------------------------------------------------------------------------------
MEXICO--0.7%
United Mexican States Bonds:
7.50%, 4/8/33 470,000 502,195
8.30%, 8/15/31 230,000 266,455
11.375%, 9/15/16 45,000 67,050
Series M20, 8%, 12/7/23 [MXN] 8,845,000 603,413
- --------------------------------------------------------------------------------
United Mexican States Unsec. Unsub. Nts.,
Series 6 BR, 6.75%, 6/6/06 [JPY] 40,000,000 414,645
-------------
1,853,758
- --------------------------------------------------------------------------------
NEW ZEALAND--0.1%
New Zealand (Government of) Bonds,
7%, 7/15/09 13 [NZD] 450,000 320,433
- --------------------------------------------------------------------------------
NIGERIA--0.1%
Central Bank of Nigeria Gtd. Bonds, Series WW,
6.25%, 11/15/20 140,000 133,000
- --------------------------------------------------------------------------------
Nigeria (Federal Republic of) Promissory Nts.,
Series RC, 5.092%, 1/5/10 135,613 123,945
-------------
256,945
- --------------------------------------------------------------------------------
PANAMA--0.4%
Panama (Republic of) Bonds:
8.125%, 4/28/34 285,000 286,425
9.375%, 1/16/23 785,000 853,688
-------------
1,140,113
- --------------------------------------------------------------------------------
PERU--0.4%
Peru (Republic of) Past Due Interest Bonds,
Series 20 yr., 5%, 3/7/17 9 1,232,000 1,133,440
- --------------------------------------------------------------------------------
PHILIPPINES--0.1%
Philippines (Republic of) Bonds, 8.375%, 2/15/11 263,000 262,374
- --------------------------------------------------------------------------------
POLAND--1.0%
Poland (Republic of) Bonds:
Series 0K0805, 5.24%, 8/12/05 2 [PLZ] 8,030,000 2,252,716
Series DS0509, 6%, 5/24/09 [PLZ] 1,800,000 510,230
Series WS0922, 5.75%, 9/23/22 [PLZ] 360,000 96,751
-------------
2,859,697
- --------------------------------------------------------------------------------
PORTUGAL--0.5%
Portugal (Republic of) Obrig Do Tes
Medio Prazo Nts., 4.875%, 8/17/07 [EUR] 265,000 358,520
- --------------------------------------------------------------------------------
Portugal (Republic of) Obrig Do Tes Medio
Prazo Unsec. Unsub. Nts.,
5.85%, 5/20/10 [EUR] 805,000 1,159,505
-------------
1,518,025
28 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
RUSSIA--1.2%
Aries Vermoegensverwaltungs GmbH Unsub. Nts.,
Series B, 7.75%,
10/25/09 5 [EUR] 270,000 $ 375,173
- --------------------------------------------------------------------------------
Ministry Finance of Russia Debs.,
Series VI, 3%, 5/14/06 770,000 757,010
- --------------------------------------------------------------------------------
Russian Federation Unsub. Nts., 5%, 3/31/30 9 2,160,750 2,163,108
-------------
3,295,291
- --------------------------------------------------------------------------------
SOUTH AFRICA--0.2%
South Africa (Republic of) Bonds:
Series R157, 13.50%, 9/15/15 [ZAR] 1,780,000 380,538
Series R203, 8.25%, 9/15/17 [ZAR] 1,070,000 163,965
-------------
544,503
- --------------------------------------------------------------------------------
SPAIN--1.8%
Spain (Kingdom of) Bonds:
Bonos y Obligacion del Estado,
5.35%, 10/31/11 [EUR] 1,470,000 2,087,270
- --------------------------------------------------------------------------------
Bonos y Obligacion del Estado,
5.75%, 7/30/32 [EUR] 840,000 1,272,052
- --------------------------------------------------------------------------------
Spain (Kingdom of) Treasury Bills,
2.05%, 12/17/04 2 [EUR] 1,450,000 1,850,156
-------------
5,209,478
- --------------------------------------------------------------------------------
SWEDEN--0.2%
Sweden (Kingdom of) Bonds, Series 1043,
5%, 1/28/09 [SEK] 4,420,000 664,155
- --------------------------------------------------------------------------------
THE NETHERLANDS--0.5%
Netherlands (Kingdom of the) Bonds:
5%, 7/15/11 [EUR] 250,000 347,750
5.50%, 1/15/28 [EUR] 735,000 1,070,901
-------------
1,418,651
- --------------------------------------------------------------------------------
TURKEY--0.1%
Turkey (Republic of) Nts., 7.25%, 3/15/15 335,000 336,675
- --------------------------------------------------------------------------------
VENEZUELA--0.9%
Venezuela (Republic of) Nts.:
8.50%, 10/8/14 460,000 466,716
10.75%, 9/13/13 1,540,000 1,781,588
- --------------------------------------------------------------------------------
Venezuela (Republic of) Sr. Unsec. Unsub
Bonds, 11%, 3/5/08 [EUR] 150,000 220,782
-------------
2,469,086
-------------
89,018,621
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS--1.4%
Algeria (Republic of) Loan Participation Nts.,
2.183%, 3/4/10 5,9 263,083 259,137
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Indonesia (Republic of) Rupiah Loan
Participation Nts., 2.636%, 3/21/05 9 835,000 834,666
Indonesia (Republic of) Rupiah Loan
Participation Nts., 2.636%, 1/25/06 9 965,000 950,043
OAO Gazprom Loan Participation Nts.,
6.50%, 8/4/05 5 960,000 982,368
29 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS Continued
Morgan Stanley Bank AG, OAO Gazprom Unsec.
Loan Participation Nts.,
9.625%, 3/1/13 $ 890,000 $ 1,017,938
-------------
4,044,152
SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
Pacific & Atlantic Holdings, Inc., 7.50%
Cum. Cv., Series A 4,5,12 9,083 18,166
UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Telus Corp. Wts., Exp. 9/15/05 4 539 6,788
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--4.8%
Citigroup Global Markets Holdings, Inc.:
Brazilian Real Unsec. Credit Linked Nts.,
0.93%, 1/14/05 $ 758,379 809,168
Colombia (Republic of) Unsec. Credit
Linked Nts., 15%, 3/15/07 [COP] 1,476,565,000 677,657
Colombia (Republic of) Unsec. Credit
Linked Nts., 15%, 4/27/12 [COP] 742,500,000 333,054
Colombia (Republic of) Unsec. Credit
Linked Nts., 15%, 4/27/12 [COP] 430,000,000 192,880
Peruvian Sol Unsec. Linked Nts., 1.466%,
1/14/05 [PEN] 1,605,000 504,989
- --------------------------------------------------------------------------------
Credit Suisse First Boston International:
Moscow (City of) Credit Linked Nts., Series
Fbi 101, 10%, 12/31/10 [RUR] 9,100,000 359,490
Moscow (City of) Credit Linked Nts., Series
Fbi 98, 11%, 4/23/09 [RUR] 9,495,000 371,791
OAO Gazprom Credit Linked Nts., 8.11%,
1/21/07 [RUR] 9,855,000 356,933
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.:
(USA), U.S. Dollar/South African Rand
Linked Nts., Series FBi 43,
1.468%, 5/23/22 540,000 521,910
(Nassau Branch), Turkey (Republic of)
Credit Linked Nts., Series EM 868,
19.92%, 8/25/05 790,000 667,408
(Nassau Branch), Turkey (Republic of)
Credit Linked Nts., Series EM 872,
23.57%, 10/20/05 9 140,000 143,879
(Nassau Branch), Turkey (Republic of)
Credit Linked Nts., Series EM 880,
20%, 10/18/07 415,000 415,208
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Moscow (City of) Linked Nts., 10%, 5/27/05 [RUR] 5,140,000 186,830
Moscow (City of) Linked Nts., 15%, 9/2/05 [RUR] 15,165,000 581,508
OAO Gazprom I Credit Nts., 6.20%, 10/20/07 310,000 322,270
OAO Gazprom II Credit Nts., 5.95%, 4/20/07 310,000 320,628
Korea (Republic of) Credit Bonds, 2.49%, 6/20/09 1,525,000 1,542,995
Ukraine (Republic of) Credit
Linked Nts., 6.541%, 8/5/11 1,540,000 1,593,053
- --------------------------------------------------------------------------------
Lehman Brothers International:
Turkey (Republic of) Treasury Bills Total
Return Linked Nts., 28.25%, 5/26/05 495,199 441,272
Turkey (Republic of) Treasury Bills Total
Return Linked Nts., 24.20%, 8/25/05 480,000 355,248
Turkey (Republic of) Treasury Bills Total
Return Linked Nts., 20%, 10/17/07 440,000 437,800
- --------------------------------------------------------------------------------
Morgan Stanley Capital Services, Inc.,
Venezuela (Republic of) Credit Bonds,
5%, 9/20/09 610,000 646,056
30 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
Pioneer 2002 Ltd. Sec. Catastrophe Linked Nts.:
Series 2003-II, Cl. A, 7.88%, 6/15/06 7,9 $ 250,000 $ 256,263
Series 2003-II, Cl. B, 6.88%, 6/15/06 7,9 250,000 254,338
Series 2003-II, Cl. C, 7.63%, 6/15/06 7,9 250,000 254,375
- --------------------------------------------------------------------------------
UBS AG, OAO Gazprom III Credit Nts.,
4.705%, 7/5/06 770,000 807,054
-------------
13,354,057
-------------
Total International Sector (Cost $110,660,602) 117,994,353
- --------------------------------------------------------------------------------
ASSET-BACKED SECTOR--20.3%
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.7%
- --------------------------------------------------------------------------------
AUTO LOAN--2.7%
Bank One Auto Securitization Trust, Automobile
Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%, 8/21/06 176,289 175,941
- --------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan
Certificates, Series 2004-A,
Cl. A2, 1.88%, 10/25/06 310,000 309,365
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust,
Automobile Mtg.-Backed Nts.,
Series 2002-3, Cl. A2A, 3.05%, 9/15/05 57,552 57,644
- --------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 67,148 67,844
Series 2003-A, Cl. A2, 1.26%, 1/16/06 24,535 24,541
Series 2003-B, Cl. A2, 1.28%, 3/15/06 80,793 80,758
- --------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile
Loan Pass-Through Certificates:
Series 2002-A, Cl. A3, 3.85%, 4/6/06 116,040 116,276
Series 2003-A, Cl. A2, 1.52%, 12/8/05 227,151 227,165
Series 2003-B, Cl. A2, 1.61%, 7/10/06 452,473 452,030
Series 2004-B, Cl. A2, 2.48%, 2/8/07 5 100,000 100,074
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile
Loan Pass-Through Certificates:
Series 2003-A, Cl. A2A, 1.62%, 8/15/05 7,053 7,057
Series 2004-A, Cl. A2, 2.13%, 10/15/06 440,000 439,404
- --------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust,
Motorcycle Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/15/07 5 11,659 11,659
Series 2003-3, Cl. A1, 1.50%, 1/15/08 270,783 270,091
- --------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust,
Automobile Receivable Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06 362,246 361,864
Series 2003-4, Cl. A2, 1.58%, 7/17/06 392,362 391,792
- --------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates, Series 2003-2,
Cl. A2, 1.56%, 12/18/06 157,793 157,580
- --------------------------------------------------------------------------------
M&I Auto Loan Trust,
Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 172,172 172,425
Series 2003-1, Cl. A2, 1.60%, 7/20/06 308,155 307,887
- --------------------------------------------------------------------------------
National City Auto Receivables Trust,
Automobile Receivable Obligations,
Series 2004-A, Cl. A2, 1.50%, 2/15/07 220,000 219,439
31 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
AUTO LOAN Continued
Nissan Auto Lease Trust, Automobile
Lease Obligations:
Series 2003-A, Cl. A2, 1.69%, 12/15/05 $ 133,806 $ 133,869
Series 2004-A, Cl. A2, 2.55%, 1/15/07 170,000 169,883
- --------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust,
Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06 58,018 58,472
Series 2004-A, Cl. A2, 1.40%, 7/17/06 250,000 249,239
- --------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile
Mtg.-Backed Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 41,951 42,097
Series 2003-B, Cl. A2, 1.43%, 2/15/06 185,447 185,387
- --------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan
Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 81,116 81,218
Series 2003-1, Cl. A2, 1.22%, 4/17/06 46,448 46,460
Series 2004-1, Cl. A2, 1.43%, 9/15/06 600,000 598,482
Series 2004-2, Cl. A2, 2.41%, 2/15/07 230,000 230,018
- --------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile
Lease Asset-Backed Securities,
Series 2004-A, Cl. A2, 2.47%, 1/22/07 230,000 229,775
- --------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust,
Automobile Loan
Receivable Certificates:
Series 2003-1, Cl. A2, 1.11%, 12/20/05 225,638 225,554
Series 2003-2, Cl. A2, 1.55%, 6/20/06 218,774 218,485
- --------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts., Series 2004-B,
Cl. A2, 2.40%, 5/21/07 170,000 169,898
- --------------------------------------------------------------------------------
Whole Auto Loan Trust,
Automobile Loan Receivable Certificates:
Series 2002-1, Cl. A3, 2.60%, 8/15/06 336,643 337,270
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 325,044 324,669
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 11 220,000 220,000
-------------
7,471,612
- --------------------------------------------------------------------------------
CREDIT CARD--0.4%
Citibank Credit Card Issuance Trust,
Credit Card Receivable Nts.,
Series 2002-A3, Cl. A3, 4.40%, 5/15/07 220,000 222,510
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates, Series 2002-B,
Cl. FX, 10.421%, 3/22/07 5 1,000,000 1,042,383
-------------
1,264,893
- --------------------------------------------------------------------------------
EQUIPMENT--0.1%
CIT Equipment Collateral,
Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06 5 190,000 189,970
- --------------------------------------------------------------------------------
HOME EQUITY LOAN--0.5%
Centex Home Equity Co.
LLC, Home Equity Loan Asset-Backed
Certificates:
Series 2003-C, Cl. AF1, 2.14%, 7/25/18 101,268 101,141
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 100,026 99,836
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 5 127,796 127,818
32 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOME EQUITY LOAN Continued
Chase Funding Mortgage Loan Asset-Backed
Certificates, Home Equity
Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%, 4/25/23 $ 58,050 $ 58,152
Series 2003-3, Cl. 1A1, 2.013%, 8/25/17 9 15,441 15,450
Series 2003-4, Cl. 1A1, 2.053%, 9/25/17 9 127,562 127,639
Series 2003-4, Cl. 1A2, 2.138%, 7/25/18 100,000 99,716
- --------------------------------------------------------------------------------
CIT Group Home Equity Loan Trust,
Home Equity Loan Asset-Backed
Certificates, Series 2003-1, Cl. A2, 2.35%, 4/20/27 142,580 142,395
- --------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc.,
Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1, 2.033%, 5/25/33 9 47,386 47,413
Series 2003-3, Cl. AF1, 2.053%, 8/25/33 9 107,334 107,399
- --------------------------------------------------------------------------------
Option One Mortgage Loan Trust,
Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 1.99%, 11/25/34 5,9 130,000 130,081
- --------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 364,710 364,318
-------------
1,421,358
-------------
10,347,833
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY--13.5%
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--13.4%
Federal Home Loan Mortgage Corp.:
5%, 9/1/33 211,624 211,657
5%, 12/1/34 11 3,053,000 3,036,782
5.50%, 1/1/34 151,783 154,829
5.50%, 12/1/34 11 490,000 497,963
7%, 3/1/31-11/1/34 11 1,805,438 1,917,088
7%, 9/1/33-11/1/33 580,959 618,336
12%, 5/1/10-6/1/15 130,182 146,570
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Collateralized Mtg. Obligations,
Structured Pass-Through Securities,
Series T-42, Cl. A2, 5.50%, 2/25/42 5 14 14
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd
Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 71,662 72,412
Series 2055, Cl. ZM, 6.50%, 5/15/28 161,566 168,551
Series 2080, Cl. Z, 6.50%, 8/15/28 108,715 112,479
Series 2387, Cl. PD, 6%, 4/15/30 225,779 234,297
Series 2430, Cl. ND, 6.50%, 1/15/31 1,436,639 1,450,135
Series 2466, Cl. PD, 6.50%, 4/15/30 89,209 89,919
Series 2498, Cl. PC, 5.50%, 10/15/14 32,683 33,056
Series 2500, Cl. FD, 2.37%, 3/15/32 9 88,335 88,574
Series 2526, Cl. FE, 2.27%, 6/15/29 9 123,930 124,727
Series 2551, Cl. FD, 2.27%, 1/15/33 9 99,721 100,307
Series 2551, Cl. TA, 4.50%, 2/15/18 90,569 90,608
33 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp.,
Interest-Only Stripped
Mtg.-Backed Security:
Series 177, Cl. B, (4.102)%, 7/1/26 14 $ 272,016 $ 48,276
Series 192, Cl. IO, 1.541%, 2/1/28 14 47,711 8,287
Series 200, Cl. IO, 0.982%, 1/1/29 14 58,084 10,226
Series 205, Cl. IO, (2.02)%, 9/1/29 14 334,410 57,167
Series 208, Cl. IO, (32.832)%, 6/1/30 14 300,579 48,400
Series 2074, Cl. S, 11.491%, 7/17/28 14 60,028 7,834
Series 2079, Cl. S, 9.942%, 7/17/28 14 94,621 12,384
Series 2526, Cl. SE, 20.275%, 6/15/29 14 161,306 13,703
Series 2819, Cl. S, 19.306%, 6/15/34 14 1,524,912 131,304
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-Backed
Security, Series 2819, Cl. PO, 11.057%,
6/15/34 15 217,845 191,954
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 11/1/19 11 1,219,000 1,222,428
5%, 1/1/17-7/1/17 1,132,800 1,158,300
5%, 11/1/19 11 619,000 631,767
5.50%, 3/1/33-9/1/34 1,679,103 1,713,296
5.50%, 11/1/19-11/1/34 11 7,558,000 7,766,979
6.50%, 1/1/29 1 1,471,958 1,552,590
6.50%, 10/1/30 64,172 67,687
7%, 9/1/29-8/1/34 2,524,226 2,684,006
7%, 11/1/34 11 8,267,000 8,778,521
7.50%, 6/1/10-9/1/29 349,620 374,740
8.50%, 7/1/32 25,446 27,690
11%, 7/1/16 62,789 70,803
13%, 6/1/15 160,752 185,441
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1996-35, Cl. Z, 7%, 7/25/26 416,877 438,033
Trust 1998-63, Cl. PG, 6%, 3/25/27 63,735 64,169
Trust 2001-50, Cl. NE, 6%, 8/25/30 123,068 124,305
Trust 2001-70, Cl. LR, 6%, 9/25/30 117,141 119,707
Trust 2001-72, Cl. NH, 6%, 4/25/30 96,125 99,187
Trust 2001-74, Cl. PD, 6%, 5/25/30 38,272 38,882
Trust 2002-50, Cl. PD, 6%, 9/25/27 109,713 110,063
Trust 2002-77, Cl. WF, 2.289%, 12/18/32 9 163,382 164,133
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 194,842 195,608
Trust 2003-81, Cl. PA, 5%, 2/25/12 79,186 79,716
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd
Real Estate Mtg. Investment Conduit
Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-28, Cl. SA, 20.25%, 4/25/32 14 89,347 8,281
Trust 2002-38, Cl. SO, 27.335%, 4/25/32 14 265,701 19,606
Trust 2002-39, Cl. SD, 14.29%, 3/18/32 14 140,997 13,056
Trust 2002-48, Cl. S, 18%, 7/25/32 14 141,505 13,599
Trust 2002-53, Cl. SK, 14.135%, 4/25/32 14 87,993 8,449
Trust 2002-56, Cl. SN, 20.834%, 7/25/32 14 194,921 18,990
Trust 2002-77, Cl. IS, 21.643%, 12/18/32 14 452,675 42,581
Trust 319, Cl. 2, (1.708)%, 2/1/32 14 105,954 19,401
34 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 221, Cl. 2, (1.348)%, 5/1/23 14 $ 100,119 $ 18,007
Trust 240, Cl. 2, 0.49%, 9/1/23 14 146,156 27,369
Trust 301, Cl. 2, (5.502)%, 4/1/29 14 209,308 36,700
Trust 321, Cl. 2, (2.718)%, 3/1/32 11,14 468,320 86,975
Trust 324, Cl. 2, (7.997)%, 6/1/32 14 670,807 122,149
Trust 333, Cl. 2, 1.99%, 3/1/33 14 149,359 31,657
Trust 2001-63, Cl. SD, 23.888%, 12/18/31 14 128,642 13,330
Trust 2001-68, Cl. SC, 17.876%, 11/25/31 14 95,723 10,020
Trust 2001-81, Cl. S, 22.192%, 1/25/32 14 119,110 12,644
Trust 2002-9, Cl. MS, 17.604%, 3/25/32 14 161,845 16,675
Trust 2002-77, Cl. SH, 24.146%, 12/18/32 14 140,896 14,434
-------------
37,879,813
- --------------------------------------------------------------------------------
GNMA/GUARANTEED--0.1%
Government National Mortgage Assn.:
4.75%, 7/20/27 21,351 21,606
7%, 1/15/28-3/15/28 70,596 75,473
11%, 10/20/19 49,117 55,652
12%, 11/20/13-9/20/15 69,685 79,945
- --------------------------------------------------------------------------------
Government National Mortgage Assn.,
Interest-Only Stripped
Mtg.-Backed Security:
Series 1998-6, Cl. SA, 10.899%, 3/16/28 14 116,319 14,095
Series 1998-19, Cl. SB, 10.699%, 7/16/28 14 193,733 25,187
-------------
271,958
-------------
38,151,771
- --------------------------------------------------------------------------------
PRIVATE--3.1%
- --------------------------------------------------------------------------------
COMMERCIAL--3.1%
Asset Securitization Corp., Commercial Mtg.
Pass-Through Certificates,
Series 1995-MD4, Cl. A5, 7.384%, 8/13/29 1,500,000 1,653,412
- --------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc.,
Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 225,080 225,468
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34 223,661 223,167
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 407,143 423,966
Series 2004-8, Cl. 5A1, 6.50%, 9/25/34 315,982 327,535
- --------------------------------------------------------------------------------
Capital Lease Funding Securitization LP,
Interest-Only Corporate-Backed
Pass-Through Certificates, Series 1997-CTL1,
10.868%, 6/22/24 14 8,825,004 339,484
- --------------------------------------------------------------------------------
Countrywide Alternative Loan Trust,
Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1, 2.113%, 10/25/34 9 288,199 288,087
- --------------------------------------------------------------------------------
First Union National Bank/Lehman
Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates,
Series 1998-C2, Cl. A2, 6.56%, 11/18/35 140,000 152,400
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc.,
Mtg. Pass-Through Certificates:
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 118,848 127,972
Series 1998-C1, Cl. F, 7.709%, 5/15/30 9 2,000,000 2,002,636
35 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL Continued
GSR Mortgage Loan Trust, Collateralized Mtg.
Obligations, Series 04-12,
Cl. 3A1, 4.593%, 12/25/34 $ 490,000 $ 490,000
- --------------------------------------------------------------------------------
Mastr Asset Securitization Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl
A3, 4.70%, 8/25/34 1,116,261 1,121,443
- --------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl.
A1B, 6.59%, 3/15/30 160,000 175,328
- --------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC,
Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1,
Cl. A2, 7.306%, 10/6/15 380,000 443,718
- --------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp.,
Collateralized Mtg. Pass-Through Certificates,
Series 2003-AR12, Cl. A2, 2.446%, 2/25/34 9 188,633 188,791
- --------------------------------------------------------------------------------
Wells Fargo Mortgage Backed Securities Trust,
Collateralized Mtg. Obligations, Series 2004-N,
Cl. A10, 3.803%, 8/25/34 5 417,465 418,639
-------------
8,602,046
- --------------------------------------------------------------------------------
OTHER--0.0%
CIT Equipment Collateral, Equipment
Receivable-Backed Nts., Series 2003-EF1, Cl.
A2, 1.49%, 12/20/05 67,223 67,217
- --------------------------------------------------------------------------------
RESIDENTIAL--0.0%
Salomon Brothers Mortgage Securities VII,
Inc., Commercial Mtg. Pass-Through Certificates,
Series 1996-B, Cl. 1, 5.247%, 4/25/26 5,9 26,426 24,394
-------------
8,693,657
-------------
Total Asset-Backed Sector (Cost $56,482,946) 57,193,261
- --------------------------------------------------------------------------------
MONEY MARKET SECTOR--7.7%
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--7.7%
Undivided interest of 9.01%
in joint repurchase agreement (Principal Amount/ Value $241,756,000, with a
maturity value of $241,791,659) with Zions Bank/ Capital Markets Group, 1.77%,
dated 10/29/04, to be repurchased at $21,784,213 on 11/1/04, collateralized by
U.S.
Treasury Nts., 1.875%--6.75%,
5/15/05--10/15/06, with a value of
$246,670,809 (Cost $21,781,000) 21,781,000 21,781,000
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding investments purchased with cash collateral from securities loaned)
(Cost $293,764,536) 304,053,761
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--1.0%
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.0%
CDC Financial Products, Inc. 16 2,000,000 2,000,000
- --------------------------------------------------------------------------------
Greenwich Capital 16 836,445 836,445
-------------
Total Investments Purchased with Cash
Collateral from Securities Loaned (Cost $2,836,445) 2,836,445
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $296,600,981) 108.8% 306,890,206
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (8.8) (24,895,046)
-----------------------------
NET ASSETS 100.0% $281,995,160
=============================
36 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
FOOTNOTES TO STATEMENT OF INVESTMENTS
Principal amount is
reported in U.S. Dollars, except for those denoted in the following currencies:
ARP Argentine Peso
AUD Australian Dollar
COP Colombian Peso
DKK Danish Krone
EUR Euro
FRF French Franc
GBP British Pound Sterling
HUF Hungarian Forint
JPY Japanese Yen
MXN Mexican Nuevo Peso
NZD New Zealand Dollar
PEN Peruvian New Sol
PLZ Polish Zloty
RUR Russian Ruble
SEK Swedish Krona
ZAR South African Rand
1. 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 $7,117,163. See Note 6 of Notes to Financial Statements.
2. Zero coupon bond reflects effective yield on the date of purchase.
3. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
4. Non-income producing security.
5. Illiquid or restricted security. See Note 11 of Notes to Financial
Statements.
6. Issue is in default. See Note 1 of Notes to Financial Statements.
7. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $14,214,332 or 5.04% of the Fund's net
assets as of October 31, 2004.
8. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
9. Represents the current interest rate for a variable or increasing rate
security.
10. Received as the result of issuer reorganization.
11. When-issued security or forward commitment to be delivered and settled after
October 31, 2004. See Note 1 of Notes to Financial Statements.
12. Interest or dividend is paid-in-kind.
13. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:
PRINCIPAL EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
New Zealand (Government of)
Bonds, 7%, 7/15/09 450NZD 12/9/04 6.205NZD $1,335 $2,793
14. 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 $1,250,270 or 0.44% of the Fund's net assets
as of October 31, 2004.
15. 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 $191,954 or 0.07% of the Fund's net assets as of
October 31, 2004.
16. 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 12 of Notes to Financial
Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES October 31, 2004
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $11,528,781)
(cost $296,600,981)--see accompanying statement of investments $ 306,890,206
- ---------------------------------------------------------------------------------------------------------
Cash 1,653,961
- ---------------------------------------------------------------------------------------------------------
Cash--foreign currencies (cost $94,660) 94,640
- ---------------------------------------------------------------------------------------------------------
Collateral for securities loaned 8,912,511
- ---------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 620,462
- ---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $6,937,115 sold on a when-issued basis or forward commitment) 9,630,772
Interest, dividends and principal paydowns 3,761,128
Futures margins 129,212
Other 23,089
-------------
Total assets 331,715,981
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $1,335)
- --see accompanying statement of investments 2,793
- ---------------------------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $49,210) 81,455
- ---------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 11,748,956
- ---------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 1,173,743
- ---------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 108,994
- ---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $31,427,151 purchased on a when-issued basis
or forward commitment) 35,907,699
Closed foreign currency contracts 502,428
Trustees' compensation 59,142
Shareholder communications 43,639
Management and administrative fees 37,126
Other 54,846
-------------
Total liabilities 49,720,821
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $ 281,995,160
=============
38 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
- ----------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 292,299
- ----------------------------------------------------------------------------------------------------------
Additional paid-in capital 299,460,018
- ----------------------------------------------------------------------------------------------------------
Accumulated net investment income 8,927,863
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (36,472,410)
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 9,787,390
- ----------------------------------------------------------------------------------------------------------
NET ASSETS--applicable to 29,229,920 shares of beneficial interest outstanding $ 281,995,160
==============
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 9.65
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENT OF OPERATIONS For the Year Ended October 31, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $ 14,846,745
- --------------------------------------------------------------------------------
Fee income 686,330
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $4,973) 103,932
- --------------------------------------------------------------------------------
Portfolio lending fees 12,194
-------------
Total investment income 15,649,201
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 1,788,296
- --------------------------------------------------------------------------------
Shareholder communications 76,583
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees 59,886
- --------------------------------------------------------------------------------
Custodian fees and expenses 35,107
- --------------------------------------------------------------------------------
Trustees' compensation 12,540
- --------------------------------------------------------------------------------
Other 56,575
-------------
Total expenses 2,028,987
Less reduction to custodian expenses (4,319)
-------------
Net expenses 2,024,668
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 13,624,533
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain (loss)
on:
Investments (including premiums on options exercised) (353,176)
Closing of futures contracts (33,099)
Closing and expiration of option contracts written 229,159
Closing and expiration of swaption contracts (37,023)
Foreign currency transactions 5,595,937
Swap contracts 1,404,948
-------------
Net realized gain 6,806,746
- --------------------------------------------------------------------------------
Net change in unrealized appreciation
on:
Investments 6,704,507
Translation of assets and liabilities denominated in
foreign currencies (164,844)
Futures contracts 409,817
Option contracts (114,531)
Swaption contracts (46,897)
Swap contracts (209,432)
-------------
Net change in unrealized appreciation 6,578,620
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,009,899
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004 2003
- -----------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $ 13,624,533 $ 18,320,998
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) 6,806,746 (998,513)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 6,578,620 30,285,612
-------------------------------
Net increase in net assets resulting from operations 27,009,899 47,608,097
- -----------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
Dividends from net investment income (17,362,572) (14,030,362)
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Total increase 9,647,327 33,577,735
- -----------------------------------------------------------------------------------------------
Beginning of period 272,347,833 238,770,098
-------------------------------
End of period (including accumulated net investment income of
$8,927,863 and $6,727,359, respectively) $ 281,995,160 $ 272,347,833
===============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.32 $ 8.17 $ 8.37 $ 8.85 $ 9.45
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .63 .65 .78 .86
Net realized and unrealized gain (loss) .45 1.00 (.18) (.44) (.62)
------------------------------------------------------------------------------
Total from investment operations .92 1.63 .47 .34 .24
- -------------------------------------------------------------------------------------------------------------------------------
Dividend and/or distributions to shareholders:
Dividends from net investment income (.59) (.48) (.67) (.79) (.68)
Tax return of capital distribution -- -- -- (.03) (.16)
------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.59) (.48) (.67) (.82) (.84)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.65 $ 9.32 $ 8.17 $ 8.37 $ 8.85
==============================================================================
Market value, end of period $ 8.50 $ 8.34 $ 7.36 $ 8.08 $ 7.88
==============================================================================
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT MARKET VALUE 1 8.53% 20.44% (1.35)% 12.79% 6.93%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 281,995 $ 272,348 $ 238,770 $ 244,166 $ 257,629
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 274,432 $ 256,904 $ 243,498 $ 251,362 $ 269,849
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.96% 7.13% 7.82% 8.99% 9.27%
Expenses 0.74% 3 0.69% 3 0.82% 3 0.75% 3 0.84% 3
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 4 93% 70% 133% 104%
1. Assumes a purchase at the current market price 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 a sale at the current market
price on the last business day of the period. Total return does not reflect
sales charges or brokerage commissions. Returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. The portfolio turnover rate excludes purchase and sales transactions of To Be
Announced (TBA) mortgage-related securities of $369,582,610 and $378,110,185,
respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Multi-Sector
Income Trust (the Fund) is registered under the Investment Company Act of 1940,
as amended, as a closed-end management investment company. The Fund’s
investment objective is to seek high current income consistent with preservation
of capital. The Fund’s investment advisor is OppenheimerFunds, Inc. (the
Manager). 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 60 days and all mortgage-backed securities will be valued at the mean between
the “bid” and “asked” prices. 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 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).
- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund
invests in structured notes whose market values, interest rates and/or
redemption prices are linked to the performance of underlying foreign
currencies, interest rate spreads, stock market indices, prices of individual
securities, commodities or other financial instruments or the occurrence of
other specific events. The structured notes are often leveraged, increasing the
volatility of each note’s market value relative to the change in the
underlying linked financial element or event. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. The Fund records a realized gain or loss when a structured
note is sold or matures. As of October 31, 2004, the market value of these
securities comprised 4.9% of the Fund’s net assets and resulted in
unrealized gains of $421,707.
- --------------------------------------------------------------------------------
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
43 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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 October
31, 2004, the Fund had purchased $31,427,151 of securities on a when-issued
basis or forward commitment and sold $6,937,115 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.
- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The
Fund invests in high-yield securities, which may be subject to a greater degree
of credit risk, market fluctuations and loss of income and principal, and may be
more sensitive to economic conditions than lower-yielding, higher-rated
fixed-income securities. The Fund may acquire securities in default, and is not
obligated to dispose of securities whose issuers subsequently default. As of
October 31, 2004, securities with an aggregate market value of $4,147,262,
representing 1.47% of the Fund’s net assets, were in default.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars 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. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates
44 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
of exchange prevailing on
the respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.
Reported
net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales and maturities of short-term securities, sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund’s
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
The
effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund’s Statement of Operations.
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
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.
45 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
NET UNREALIZED
APPRECIATION
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
---------------------------------------------------------------------------
$9,540,865 $-- $35,446,278 $7,888,873
1. As of October 31, 2004, the Fund had $35,438,648 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of October 31, 2004,
details of the capital loss carryforwards were as follows:
EXPIRING
2006 $ 190,030
2007 11,561,894
2008 5,440,197
2009 4,239,210
2010 9,434,931
2011 4,572,386
Total $ 35,438,648
============
2. The Fund had $7,630 of straddle losses which were deferred.
3. During the fiscal year ended October 31, 2004, the Fund utilized $1,319,511
of capital loss carryforward to offset capital gains realized in that fiscal
year.
4. During the fiscal year ended October 31, 2003, 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 October 31, 2004. Net assets of the Fund were unaffected by the
reclassifications.
INCREASE TO INCREASE TO
ACCUMULATED ACCUMULATED NET
NET INVESTMENT REALIZED LOSS
INCOME ON INVESTMENTS
------------------------------------
$ 5,938,543 $ 5,938,543
The tax character of
distributions paid during the years ended October 31, 2004 and October 31, 2003
was as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
---------------------------------------------------------------
Distributions paid from:
Ordinary income $ 17,362,572 $ 14,030,362
46 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
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 October 31, 2004 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 $ 297,215,893
Federal tax cost of other investments (5,111,044)
-----------------
Total federal tax cost $ 292,104,849
=================
Gross unrealized appreciation $ 17,734,504
Gross unrealized depreciation (9,845,631)
-----------------
Net unrealized appreciation $ 7,888,873
=================
- --------------------------------------------------------------------------------
TRUSTEES’
COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund’s independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 2004, the Fund’s projected benefit obligations were increased
by $5,389 and payments of $6,260 were made to retired trustees, resulting in an
accumulated liability of $50,674 as of October 31, 2004.
The
Board of Trustees has adopted a deferred compensation plan for independent
trustees that enables trustees to elect to defer receipt of all or a portion of
the annual compensation they are entitled to receive from the Fund. For purposes
of determining the amount owed to the Trustee under the plan, deferred amounts
are treated as though equal dollar amounts had been invested in shares of the
Fund or in other Oppenheimer funds selected by the Trustee. The Fund purchases
shares of the funds selected for deferral by the Trustee in amounts equal to his
or her deemed investment, resulting in a Fund asset equal to the deferred
compensation liability. Such assets are included as a component of
“Other” within the asset section of the Statement of Assets and
Liabilities. Deferral of trustees’ fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund’s assets,
liabilities or net investment income per share. Amounts will be deferred until
distributed in accordance to the Plan.
- --------------------------------------------------------------------------------
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.
47 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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. 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 Trust has authorized an
unlimited number of $.01 par value shares of beneficial interest. There were no
transactions in shares of beneficial interest for the year ended October 31,
2004 and the year ended October 31, 2003.
- --------------------------------------------------------------------------------
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 October 31, 2004,
were $119,043,539 and $138,915,376, respectively. There were purchases of
$58,775,473 and sales of $47,115,935 of U.S. government and government agency
obligations for the year ended October 31, 2004. In addition, there were
purchases of $369,582,610 and sales of $378,110,185 of To Be Announced (TBA)
mortgage-related securities for the year ended October 31, 2004.
- --------------------------------------------------------------------------------
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 0.65% on
the Fund’s average annual net assets.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. Shareholder Financial Services, Inc. (SFSI), a wholly-owned
subsidiary of the Manager, is the transfer agent and registrar for the Fund.
Fees paid to SFSI are based on the number of accounts, plus out-of-pocket costs
and expenses.
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract
is a commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate. The Fund may enter into foreign currency contracts
48 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
to settle specific
purchases or sales of securities denominated in a foreign currency and for
protection from adverse exchange rate fluctuation. Risks to the Fund include the
potential inability of the counterparty to meet the terms of the contract.
The
net U.S. dollar value of foreign currency underlying all contractual commitments
held by the Fund and the resulting unrealized appreciation or depreciation are
determined using prevailing foreign currency exchange rates. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities as a receivable or payable and in the
Statement of Operations with the change in unrealized appreciation or
depreciation.
The
Fund may realize a gain or loss upon the closing or settlement of the foreign
transaction. Contracts closed or settled with the same broker are recorded as
net realized gains or losses. Such realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
As of October 31, 2004, the
Fund had outstanding foreign currency contracts as follows:
CONTRACT VALUATION
EXPIRATION AMOUNT AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000S) OCT. 31, 2004 APPRECIATION DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
Argentine Peso (ARP) 2/2/05 1,430ARP $ 473,567 $ 6,948 $ --
Australian Dollar (AUD) 11/18/04 1,230AUD 919,204 22,792 --
Brazilian Real (BRR) 12/14/04-10/21/05 14,345BRR 4,782,185 145,786 844
British Pound
Sterling (GBP) 11/18/04 500GBP 917,567 21,187 --
Chilean Peso (CLP) 11/22/04-12/2/04 213,670CLP 348,772 1,900 --
Czech Koruna (CZK) 4/22/05 11,055CZK 448,133 6,983 --
Euro (EUR) 12/9/04 3,400EUR 4,348,883 131,421 --
Japanese Yen (JPY) 12/22/04-3/31/05 1,634,640JPY 15,569,887 261,929 --
New Zealand
Dollar (NZD) 11/18/04 1,320NZD 901,673 4,496 --
Polish Zloty (PLZ) 12/27/04 828PLZ 242,654 10,832 --
Russian Ruble (RUR) 10/27/05 9,910RUR 338,852 -- 648
Turkish Lira (TRL) 1/27/05 535,360,000TRL 347,449 2,111 --
Ukraine Hryvnia (UAH) 11/1/04 1,465UAH 275,428 -- 1,510
---------------------------
616,385 3,002
---------------------------
CONTRACTS TO SELL
British Pound
Sterling (GBP) 11/9/04-12/14/04 2,720GBP 4,992,810 -- 106,571
Euro (EUR) 11/16/04-4/22/05 17,085EUR 21,854,214 -- 993,304
Japanese Yen (JPY) 11/18/04 99,000JPY 936,348 -- 32,214
Mexican Nuevo
Peso (MXN) 11/26/04 6,360MXN 548,666 3,825 --
Russian Ruble (RUR) 11/29/04 9,910RUR 345,044 252 --
Swiss Franc (CHF) 11/18/04 1,120CHF 938,684 -- 38,652
---------------------------
4,077 1,170,741
---------------------------
Total unrealized appreciation and
depreciation $ 620,462 $ 1,173,743
===========================
49 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. 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.
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 and 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.
50 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
As of October 31, 2004, the
Fund had outstanding futures contracts as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF OCTOBER 31, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2004 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
DAX Index 12/17/04 5 $ 635,842 $ (16)
Euro-Bundesobligation, 10 yr. 12/8/04 11 1,645,485 39,724
FTSE 100 Index 12/17/04 1 85,239 967
Japan (Government of) Bonds, 10 yr. 12/9/04 1 1,305,334 20,220
NASDAQ 100 Index 12/16/04 11 1,639,000 115,514
United Kingdom Long Gilt 12/29/04 2 398,219 1,619
U.S. Long Bonds 12/20/04 145 16,507,344 247,784
U.S. Treasury Nts., 10 yr. 12/20/04 192 21,804,000 223,507
---------------
649,319
---------------
CONTRACTS TO SELL
Japan (Government of) Bonds, 10 yr. 12/9/04 3 3,916,001 (60,661)
U.S. Treasury Nts., 2 yr. 12/30/04 166 35,153,094 (42,876)
U.S. Treasury Nts., 5 yr. 12/20/04 106 11,805,750 (109,631)
---------------
(213,168)
---------------
$ 436,151
===============
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell
put and call options, or write put and covered call options on portfolio
securities in order to produce incremental earnings or protect against changes
in the value of portfolio securities.
The
Fund generally purchases put options or writes covered call options to hedge
against adverse movements in the value of portfolio holdings. When an option is
written, the Fund receives a premium and becomes obligated to sell or purchase
the underlying security at a fixed price, upon exercise of the option.
Options
are valued daily based upon the last sale price on the principal exchange on
which the option is traded and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon the expiration or closing of
the option transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option, or the cost of
the security for a purchased put or call option is adjusted by the amount of
premium received or paid.
Securities
designated to cover outstanding call options are noted in the Statement of
Investments where applicable. Contracts subject to call, expiration date,
exercise price, premium received and market value are detailed in a note to the
Statement of Investments. Options written are reported as a liability in the
Statement of Assets and Liabilities. Realized gains and losses are reported in
the Statement of Operations.
The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security [or commodity] increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security [or commodity] decreases and the
option is exercised. The risk in buying
51 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY Continued
an option is that the Fund
pays a premium whether or not the option is exercised. The Fund also has the
additional risk of not being able to enter into a closing transaction if a
liquid secondary market does not exist.
Written option activity for
the year ended October 31, 2004 was as follows:
CALL OPTIONS PUT OPTIONS
--------------------------- ----------------------------
PRINCIPAL/ PRINCIPAL/
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- --------------------------------------------------------------------------------------------
Options outstanding as of
October 31, 2003 5,310,000 $ 69,674 391,000,000 $ 72,987
Options written 915,000,450 66,980 295,000,000 41,194
Options closed or expired (918,540,000) (114,978) (686,000,000) (114,181)
Options exercised (1,770,000) (20,341) -- --
-----------------------------------------------------------
Options outstanding as of
October 31, 2004 450 $ 1,335 -- $ --
===========================================================
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS
The Fund may enter into an
interest rate swap transaction to maintain a total return or yield spread on a
particular investment, or portion of its portfolio, or for other non-speculative
purposes. Interest rate swaps involve the exchange of commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments. The coupon payments are based on an agreed upon principal amount and a
specified index. Because the principal amount is not exchanged, it represents
neither an asset nor a liability to either counterparty, and is referred to as
notional. The Fund records an increase or decrease to unrealized gain (loss), in
the amount due to or owed by the Fund at termination or settlement.
Interest
rate swaps are subject to credit risk (if the counterparty fails to meet its
obligations) and interest rate risk. The Fund could be obligated to pay more
under its swap agreements than it receives under them, as a result of interest
rate changes.
As of October 31, 2004, the
Fund had entered into the following interest rate swap agreements:
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY UNREALIZED
SWAP NOTIONAL THE FUND AT THE FUND AT FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT OCT. 31, 2004 OCT. 31, 2004 RATE INDEX DATES (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------
Deutsche Bank 90-day
AG, 5 yr. 20,340,000TWD 1.04% 1.024% CPTW Rate 8/19/09 $ (95)
Three-Month
Deutsche Bank LIBOR
AG, 10 yr. 4,000,000 1.68 5.32 BBA Rate 5/12/14 356,652
Deutsche Bank Three-Month
AG, 5 yr. 1,820,000 3.1025 1.81 LIBOR flat 3/4/08 10,758
52 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY UNREALIZED
SWAP NOTIONAL THE FUND AT THE FUND AT FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT OCT. 31, 2004 OCT. 31, 2004 RATE INDEX DATES (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------
Deutsche Bank
AG, 5 yr. 28,440,000INR 4.88 4.50 IRS 1/15/09 $ 33,877
JPMorgan Six-Month
Chase Bank 360,000EUR 3.135 2.08 LIBOR flat 7/14/08 (3,072)
JPMorgan Six-Month
Chase Bank 100,600,000HUF 9.13 7.00 LIBOR flat 7/14/08 (41,992)
Three-Month
JPMorgan LIBOR
Chase Bank 8,500,000 2.09 4.41 BBA Rate 10/22/14 (92,304)
Three-Month
JPMorgan LIBOR
Chase Bank 15,000,000 3.663 3.66 BBA Rate 10/22/09 (49,140)
Three-Month
JPMorgan LIBOR
Chase Bank 27,000,000 2.21 4.0725 BBA Rate 5/6/09 909,839
JPMorgan Three-Month
Chase Bank 8,500,000 1.95 4.38 LIBOR 9/27/09 (61,034)
JPMorgan Three-Month
Chase Bank 9,000,000 4.24 1.65 LIBOR 7/23/09 (316,087)
Three-Month
JPMorgan LIBOR
Chase Bank 710,000 1.68 4.94 BBA Rate 4/30/14 41,910
JPMorgan Three-Month
Chase Bank 4,300,000 3.052 1.86 LIBOR flat 3/10/08 33,311
Morgan Stanley
Capital Services, Three-Month
Inc. 8,500,000 3.82 1.71 LIBOR flat 11/10/08 (201,171)
Morgan Stanley
Capital Services, Three-Month
Inc. 11,000,000 2.32 1.71 LIBOR flat 11/10/05 (19,783)
--------------
$ 601,669
==============
Notional amount is reported in
U.S. Dollars, except for those denoted in the following currencies. Index
abbreviations and currencies are as follows:
EUR Euro
HUF Hungary Forints
INR Indian Rupee
TWD New Taiwan Dollar
CPTW Bloomberg Taiwan Secondary Commercial Papers
IRS India Swap Composites
LIBOR London-Interbank Offered Rate
LIBOR BBA London-Interbank Offered Rate British Bankers Association
53 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. CREDIT SWAP CONTRACTS
The Fund may enter into a
credit swap transaction to maintain a total return on a particular investment or
portion of its portfolio, or for other non-speculative purposes. Because the
principal amount is not exchanged, it represents neither an asset nor a
liability to either counterparty, and is referred to as a notional principal
amount. The Fund records an increase or decrease to unrealized gain (loss), in
the amount due to or owed by the Fund at termination or settlement. Credit swaps
are subject to credit risks (if the counterparty fails to meet its obligations).
The Fund pays an annual interest fee on the notional amount in exchange for the
counterparty paying in a potential credit event.
During the year ended
October 31, 2004, the Fund entered into transactions to hedge credit risk.
Information regarding the credit swaps is as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL OCTOBER 31, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
Citigroup Global Markets Ltd.,
Venezuela (Republic of) Credit Nts. 11/20/09 $1,220,000 $ 3,803 $ 3,803
- ------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Export-Import Bank of Korea Credit Bonds 6/20/09 300,000 (3,540) (3,540)
Korea Deposit Insurance Corp. Credit Bonds 6/20/09 300,000 (3,660) (3,660)
Korea Development Bank Credit Bonds 6/20/09 300,000 (3,390) (3,390)
Korea Electric Power Corp. Credit Bonds 6/20/09 300,000 (3,810) (3,810)
Philippines (Republic of) 10 yr. Credit Bonds 7/25/13 630,000 27,216 27,216
Samsung Electronic Co. Ltd. Credit Bonds 6/20/09 300,000 (3,420) (3,420)
Ukraine (Republic of) Credit Bonds 10/29/09 615,000 -- --
United Mexican States Credit Bonds 9/20/13 630,000 (31,457) (31,457)
Venezuela (Republic of) Credit Bonds 10/20/09 1,220,000 (27,957) (27,957)
Venezuela (Republic of) Credit Bonds 10/20/09 460,000 (7,473) (7,473)
- ------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Export-Import Bank of Korea Credit Bonds 6/20/09 150,000 (3,151) (3,151)
Jordan (Kingdom of) Credit Nts. 6/6/06 175,000 (1,602) (1,602)
Korea Deposit Insurance Corp. Credit Bonds 6/20/09 150,000 (3,222) (3,222)
Korea Development Bank Credit Bonds 6/20/09 150,000 (3,118) (3,118)
Korea Electric Power Co. Credit Bonds 6/20/09 150,000 (3,356) (3,356)
Russian Federation Credit Bonds 10/9/13 330,000 (2,678) (2,678)
Samsung Electronics Co. Ltd. Credit Bonds 6/20/09 150,000 (3,090) (3,090)
- ------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of) Credit Bonds 8/20/09 1,240,000 (113,344) (113,344)
Brazil (Federal Republic of) Credit Bonds 10/20/09 150,000 (632) (632)
Brazil (Federal Republic of) Credit Bonds 3/5/08 150,000 (4,372) (4,372)
54 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL OCTOBER 31, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of) Credit Bonds 8/20/09 $ 505,000 $ (46,129) $ (46,129)
Brazil (Federal Republic of) Credit Bonds 8/20/09 505,000 (47,215) (47,215)
Hungary (Republic of) Credit Bonds 12/2/13 900,000 (21,726) (21,726)
Philippines (Republic of) Credit Bonds 6/20/09 175,000 (1,680) (1,680)
Philippines (Republic of) Credit Bonds 6/20/09 85,000 (986) (986)
Philippines (Republic of) Credit Bonds 9/20/09 365,000 (1,102) (1,102)
Philippines (Republic of) Credit Bonds 6/20/09 175,000 (2,729) (2,729)
Venezuela (Republic of) Credit Bonds 8/20/06 920,000 39,041 39,041
Venezuela (Republic of) Credit Bonds 8/20/09 460,000 (39,674) (39,674)
Venezuela (Republic of) Credit Bonds 2/20/14 540,000 (124,586) (124,586)
- ------------------------------------------------------------------------------------------------------------
UBS AG:
Brazil (Federal Republic of) Credit Bonds 10/20/09 420,000 (2,708) (2,708)
Venezuela (Republic of) Credit Bonds 6/20/14 1,230,000 (267,566) (267,566)
Venezuela (Republic of) Credit Bonds 8/20/06 610,000 (25,923) (25,923)
Venezuela (Republic of) Credit Bonds 8/20/09 305,000 24,573 24,573
---------------
$ (710,663)
===============
- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS
The Fund may enter into a
swaption transaction, whereby 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 receives premiums and bears the risk of unfavorable changes in the preset
rate on the underlying interest rate swap. Swaption contracts written by the
Fund do not give rise to counterparty credit risk as they obligate the Fund, not
its counterparty, to perform. Swaptions written are reported as a liability in
the Statement of Assets and Liabilities.
Written swaption activity
for the year ended October 31, 2004 was as follows:
NOTIONAL AMOUNT OF
AMOUNT PREMIUMS
----------------------------------------------------------------
Swaptions outstanding as of
October 31, 2003 2,220,000 $ 19,758
Swaptions written 10,505,000 89,878
Swaptions closed or expired (5,670,000) (60,426)
------------------------
Swaptions outstanding as of
October 31, 2004 7,055,000 $ 49,210
========================
55 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS Continued
As of October 31, 2004, the
Fund had entered into the following swaption contracts.:
NOTIONAL EXPIRATION EXERCISE PREMIUM VALUE
SWAPTIONS AMOUNT DATES PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------
Deutsche Bank AG 3,940,000AUD 11/4/04 5.997% $ 18,387 $ 40,294
Lehman Brothers International 3,115,000GBP 12/30/04 5.150 30,823 41,161
----------------------
$ 49,210 $ 81,455
======================
Notional amount is denoted
in the following currencies:.
AUD Australian Dollar
GBP British Pound Sterling
- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES
As of October 31, 2004,
investments in securities included issues that are illiquid or restricted.
Restricted securities are purchased in private placement transactions, are not
registered under the Securities Act of 1933, may have contractual restrictions
on resale, and are valued under methods approved by the Board of Trustees as
reflecting fair value. A security may also be considered illiquid if it lacks a
readily available market or if its valuation has not changed for a certain
period of time. The Fund will not invest more than 10% of its net assets
(determined at the time of purchase and reviewed periodically) in illiquid or
restricted securities. Certain restricted securities, eligible for resale to
qualified institutional investors, are not subject to that limitation. The
aggregate value of illiquid or restricted securities subject to this limitation
as of October 31, 2004 was $13,170,847, which represents 4.67% of the
Fund’s net assets, of which $41,771 is considered restricted. Information
concerning restricted securities is as follows:
ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATE COST OCTOBER 31, 2004 DEPRECIATION
- --------------------------------------------------------------------------------
CURRENCY
Argentine Peso (ARP) 10/8/04 $ 42,052 $ 41,771 $ 281
- --------------------------------------------------------------------------------
12. SECURITIES LENDING
The Fund lends portfolio
securities from time to time in order to earn additional income. In return, the
Fund receives collateral in the form of US Treasury obligations or cash, against
the loaned securities and maintains collateral in an amount not less than 100%
of the market value of the loaned securities during the period of the loan. The
market value of the loaned securities is determined at the close of business of
the funds and any additional required collateral is delivered to the Fund on the
next business day. If the borrower defaults on its obligation to return the
securities loaned because of insolvency or other reasons, the Fund could
experience delays and cost in recovering the securities loaned or in gaining
access to the collateral. Cash collateral is invested in cash equivalents. The
Fund retains a portion of the interest earned from the collateral. The Fund also
continues to receive interest or dividends paid on the securities loaned. As of
56 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
October 31, 2004, the Fund
had on loan securities valued at $11,528,781. Cash of $11,748,956 was received
as collateral for the loans, of which $2,836,445 has been invested in approved
instruments.
- --------------------------------------------------------------------------------
13. LITIGATION
Six complaints have been
filed as putative derivative and class actions against the Manager, OFS and the
Distributor (collectively, “OppenheimerFunds”), as well as 51 of the
Oppenheimer funds (collectively, the “Funds”) excluding this Fund, and
nine Directors/ Trustees of certain of the Funds (collectively, the
“Directors/Trustees”). The complaints allege 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
of 1940 and the Investment Advisers Act of 1940. The complaints further allege
that by permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law. By order dated October 27, 2004, these
six actions, and future related actions, were consolidated by the U.S. District
Court for the Southern District of New York into a single consolidated
proceeding in contemplation of the filing of a superseding consolidated and
amended complaint.
OppenheimerFunds
believes that it is premature to render any opinion as to the likelihood of an
outcome unfavorable to them, the Funds or the Directors/Trustees and that no
estimate can yet be made with any degree of certainty as to the amount or range
of any potential loss. However, OppenheimerFunds, the Funds and the
Directors/Trustees believe that the allegations contained in the complaints are
without merit and intend to defend these lawsuits vigorously.
57 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER MULTI-SECTOR INCOME TRUST:
We have audited the
accompanying statement of assets and liabilities of Oppenheimer Multi-Sector
Income Trust, including the statement of investments, as of October 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 each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund’s management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We
conducted our audits in accordance with 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 examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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
Multi-Sector Income Trust as of October 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 each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Denver, Colorado
December 16, 2004
58 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2005, if
applicable, shareholders of record will receive information regarding all
dividends and distributions paid to them by the Fund during calendar year 2004.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
Dividends,
if any, paid by the Fund during the fiscal year ended October 31, 2004 which are
not designated as capital gain distributions should be multiplied by 0.25% to
arrive at the amount eligible for the corporate dividend-received deduction.
A
portion, if any, of the dividends paid by the Fund during the fiscal year ended
October 31, 2004 which are not designated as capital gain distributions are
eligible for lower individual income tax rates to the extent that the Fund has
received qualified dividend income as stipulated by recent tax legislation.
$75,794 of the Fund’s fiscal year taxable income may be eligible for the
lower individual income tax rates. In early 2005, shareholders of record will
receive information regarding the percentage of distributions that are eligible
for lower individual income tax rates.
The
foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
59 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
UPDATES TO STATEMENTS OF INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
A description of the Fund’s Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund’s website at www.oppenheimerfunds.com, and
(iii) on the SEC’s website at www.sec.gov. In addition, 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.
The
Fund files its complete schedule of portfolio holdings with the SEC for the
first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund’s Form N-Q filings are available on the SEC’s website at
www.sec.gov. Those forms may 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 1-800-SEC-0330.
60 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD
FUND, LENGTH OF SERVICE, AGE BY TRUSTEE; NUMBER OF PORTFOLIOS IN FUND COMPLEX CURRENTLY OVERSEEN BY TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY,
TRUSTEES CENTENNIAL, CO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, UNTIL HIS
OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
CLAYTON K. YEUTTER, Of Counsel (since June 1993) Hogan & Hartson (a law firm); a director (since
Chairman of the Board 2002) of Danielson Holding Corp. Formerly a director of Weyerhaeuser Corp.
of Trustees (since 2003); (1999-April 2004), Caterpillar, Inc. (1993-December 2002), ConAgra Foods
Trustee (since 1993) (1993-2001), Texas Instruments (1993-2001) and FMC Corporation (1993-2001).
Age: 73 Oversees 25 portfolios in the OppenheimerFunds complex.
ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 35 portfolios in the
Trustee (since 1993) OppenheimerFunds complex.
Age: 71
PHILLIP A. GRIFFITHS, A director (since 1991) of the Institute for Advanced Study, Princeton, N.J., a
Trustee (since 1999) director (since 2001) of GSI Lumonics, a trustee (since 1983) of Woodward
Age: 65 Academy, a Senior Advisor (since 2001) of The Andrew W. Mellon Foundation. A
member of: the National Academy of Sciences (since 1979), American Academy of
Arts and Sciences (since 1995), American Philosophical Society (since 1996) and
Council on Foreign Relations (since 2002). Formerly a director of Bankers Trust
New York Corporation (1994-1999). Oversees 25 portfolios in the OppenheimerFunds
complex.
MARY F. MILLER, Formerly a Senior Vice President and General Auditor, American Express Company
Trustee (since 2004) (July 1998-February 2003). Member of Trustees of the American Symphony Orchestra
Age: 62 (October 1998 to present). Oversees 25 portfolios in the OppenheimerFunds
complex.
JOEL W. MOTLEY, Director (since January 2002) Columbia Equity Financial Corp. (privately-held
Trustee (since 2002) financial adviser); Managing Director (since January 2002) Carmona Motley, Inc.
Age: 52 (privately-held financial adviser). Formerly a Managing Director of Carmona
Motley Hoffman Inc. (privately-held financial adviser) (January 1998-December
2001). Oversees 25 portfolios in the OppenheimerFunds complex.
KENNETH A. RANDALL, A director (since February 1972) of Dominion Resources, Inc. (electric utility
Trustee (since 1988) holding company); formerly a director of Prime Retail, Inc. (real estate investment
Age: 77 trust) and Dominion Energy, Inc. (electric power and oil & gas producer),
President and Chief Executive Officer of The Conference Board, Inc. (international
economic and business research) and a director of Lumbermens Mutual
Casualty Company, American Motorists Insurance Company and American
Manufacturers Mutual Insurance Company. Oversees 25 portfolios in the
OppenheimerFunds complex.
EDWARD V. REGAN, President, Baruch College, CUNY; a director of RBAsset (real estate manager); a
Trustee (since 1993) director of OffitBank; formerly Trustee, Financial Accounting Foundation (FASB
Age: 74 and GASB), Senior Fellow of Jerome Levy Economics Institute, Bard College,
Chairman of Municipal Assistance Corporation for the City of New York, New York
State Comptroller and Trustee of New York State and Local Retirement Fund.
Oversees 25 investment companies in the OppenheimerFunds complex.
61 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RUSSELL S. REYNOLDS, JR., Chairman (since 1993) of The Directorship Search Group, Inc. (corporate
Trustee (since 1989) governance consulting and executive recruiting); a Life Trustee of International
Age: 72 House (non-profit educational organization); a former trustee of The Historical
Society of the Town of Greenwich. Oversees 25 portfolios in the OppenheimerFunds
complex.
- -----------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS TWO WORLD FINANCIAL CENTER, 225
AND OFFICER LIBERTY STREET, 11TH FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY SERVES FOR AN
INDEFINITE TERM, UNTIL HIS RESIGNATION, DEATH OR REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director (since June 2001) and President
President and Trustee (since September 2000) of the Manager; President and a director or trustee of
(since 2001) other Oppenheimer funds; President and a director (since July 2001) of
Age: 55 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 63 portfolios as
Trustee/Director and 21 additional port- folios as Officer in the
OppenheimerFunds complex.
- ----------------------------------------------------------------------------------------------------------------
OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS AS FOLLOWS: FOR MESSRS.
STEINMETZ, WONG, AND ZACK, TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
FLOOR, NEW YORK, NY 10281-1008, AND FOR MR. WIXTED AND MR. VANDEHEY, 6803 S.
TUCSON WAY, CENTENNIAL, CO 80112-3924. EACH OFFICER SERVES FOR AN INDEFINITE TERM
OR UNTIL HIS EARLIER RESIGNATION, DEATH OR REMOVAL.
ARTHUR P. STEINMETZ, Senior Vice President of the Manager (since March 1993) and of HarbourView
Vice President (since 1999) Asset Management Corporation (since March 2000); an officer of 4 portfolios
Age: 46 in the OppenheimerFunds complex.
62 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
CALEB WONG, Vice President of the Manager since June 1999; worked in fixed-income
Vice President (since 1999) quantitative research and risk management for the Manager (since July 1996); an
Age: 39 officer of 1 portfolio in the OppenheimerFunds complex. Formerly Assistant Vice
President of the Manager (January 1997 - June 1999); before joining the Manager
in July 1996 Mr. Wong was enrolled in the Ph.D. program for Economics at the
University of Chicago.
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 84 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since
Secretary (since 2001) February 2002) of the Manager; General Counsel and a director (since November
Age: 56 2001) of the Distributor; General Counsel (since November 2001) of Centennial
Asset Management 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
84 portfolios in the OppenheimerFunds complex.
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer (since March 2004) of the
Vice President and Manager; Vice President (since June 1983) of OppenheimerFunds Distributor, Inc.,
Chief Compliance Officer Centennial Asset Management Corporation and Shareholder Services, Inc. Formerly
(since 2004) (until February 2004) Vice President and Director of Internal Audit of
Age: 54 OppenheimerFunds, Inc. An officer of 84 portfolios in the OppenheimerFunds
complex.
THE FUND’S STATEMENT
OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND’S
TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST, BY CALLING
1.800.525.7048.
63 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
GENERAL INFORMATION CONCERNING THE FUND Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oppenheimer Multi-Sector
Income Trust (the Fund) is a closed-end diversified management investment
company with a primary investment objective of seeking high current income
consistent with preservation of capital. The Fund’s secondary investment
objective is capital appreciation. In seeking its objectives under normal market
conditions, the Fund may invest any percentage of its assets in at least three
of the following seven fixed income sectors: U.S. Government, Corporate,
International, Asset-Backed, Municipal, Convertible and Money Market. Current
income, preservation of capital and, secondarily, possible capital appreciation
may be considerations in the allocation of assets among such sectors. The Fund
can invest in a number of different kinds of “derivative investments”
and can also engage in certain special investment techniques, including
repurchase transactions, when-issued and delayed delivery transactions and
hedging. Although, the Fund is not required to invest in any of these types of
securities at all times. The investment advisor to the Fund is OppenheimerFunds,
Inc. (the Manager).
The
Portfolio Managers of the Fund are Arthur Steinmetz and Caleb Wong. Mr.
Steinmetz is a Vice President of the Fund and a Senior Vice President of the
Advisor and Mr.Wong is Vice President of the Advisor and the Fund. Messrs.
Steinmetz and Wong have been the persons principally responsible for the
day-to-day management of the Fund’s portfolio since February 1, 1999. Prior
to February 1999, Mr. Steinmetz served as a portfolio manager and officer of
other Oppenheimer funds. Mr.Wong worked on fixed-income quantitative research
and risk management for the Advisor since July 1996, prior to which he was
enrolled in the Ph.D. program for Economics as the University of Chicago. Other
members of the Advisor’s fixed-income portfolio department, particularly
portfolio analysts, traders and other portfolio managers provide the Fund’s
Portfolio Managers with support in managing the Fund’s portfolio.
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN--Pursuant to the Fund’s Dividend Reinvestment and Cash
Purchase Plan (the Plan), as to shares of the Fund (Shares) not registered in
nominee name, all dividends and capital gains distributions (Distributions)
declared by the Fund will be automatically reinvested in additional full and
fractional Shares unless a shareholder elects to receive cash. If Shares are
registered in nominee name, the shareholder should consult the nominee if the
shareholder desires to participate in the Plan. Shareholders that participate in
the Plan (Participants) may, at their option, make additional cash investments
in Shares, semi-annually in amounts of at least $100, through payment to
Shareholder Financial Services, Inc., the agent for the Plan (the Agent),
accompanied by a service fee of $0.75.
Depending
upon the circumstances hereinafter described, Plan Shares will be acquired by
the Agent for the Participant’s account through receipt of newly issued
Shares or the purchase of outstanding Shares on the open market. If the market
price of Shares on the relevant date (normally the payment date) equals or
exceeds their net asset value, the Agent will ask the Fund for payment of the
Distribution in additional Shares at the greater of the Fund’s net asset
value determined as of the date of purchase or 95% of the then-current market
price. If the market price is lower than net asset value, the
64 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
Distribution will be paid
in cash, which the Agent will use to buy Shares on The New York Stock Exchange
(the NYSE), or otherwise on the open market to the extent available. If the
market price exceeds the net asset value before the Agent has completed its
purchases, the average purchase price per Share paid by the Agent may exceed the
net asset value, resulting in fewer Shares being acquired than if the
Distribution had been paid in Shares issued by the Fund.
Participants
may elect to withdraw from the Plan at any time and thereby receive cash in lieu
of Shares by sending appropriate written instructions to the Agent. Elections
received by the Agent will be effective only if received more than ten days
prior to the record date for any Distribution; otherwise, such termination will
be effective shortly after the investment of such Distribution with respect to
any subsequent Distribution. Upon withdrawal from or termination of the Plan,
all Shares acquired under the Plan will remain in the Participant’s account
unless otherwise requested. For full Shares, the Participant may either: (1)
receive without charge a share certificate for such Shares; or (2) request the
Agent (after receipt by the Agent of signature guaranteed instructions by all
registered owners) to sell the Shares acquired under the Plan and remit the
proceeds less any brokerage commissions and a $2.50 service fee.
Fractional
Shares may either remain in the Participant’s account or be redeemed at the
current market price with the proceeds remitted to the Participant. Shareholders
who have previously withdrawn from the Plan may rejoin at any time by sending
written instructions signed by all registered owners to the Agent.
There
is no direct charge for participation in the Plan; all fees of the Agent are
paid by the Fund. There are no brokerage charges for Shares issued directly by
the Fund. However, each Participant will pay a pro rata share of brokerage
commissions incurred with respect to open market purchases of Shares to be
issued under the Plan. Participants will receive tax information annually for
their personal records and to assist in federal income tax return preparation.
The automatic reinvestment of Distributions does not relieve Participants of any
income tax that may be payable on Distributions.
The
Plan may be terminated or amended at any time upon 30 days’ prior written
notice to Participants which, with respect to a Plan termination, must precede
the record date of any Distribution by the Fund. Additional information
concerning the Plan may be obtained by shareholders holding Shares registered
directly in their names by writing the Agent, Shareholder Financial Services,
Inc., P.O. Box 173673, Denver, CO 80217-3673 or by calling 1-800-647-7374.
Shareholders holding Shares in nominee name should contact their brokerage firm
or other nominee for more information.
SHAREHOLDER
INFORMATION--The Shares are traded on the NYSE. Daily market prices for the
Fund’s shares are published in the New York Stock Exchange Composite
Transaction section of newspapers under the designation “OppenMlti.”
The Fund’s NYSE trading symbol is OMS.Weekly net asset value (NAV) and
market price information about the Fund is generally published each Monday in
The Wall Street Journal and each Sunday in The New York Times and each Saturday
in Barron’s, and other newspapers in a table called “Closed-End Bond
Funds.”
65 | OPPENHEIMER MULTI-SECTOR INCOME TRUST
ITEM 2. CODE OF ETHICS
The
registrant has adopted a code of ethics that applies to the registrant’s
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The
Board of Trustees of the registrant has determined that Edward V. Regan, the
Chairman of the Board’s Audit Committee, possesses the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an
“audit committee financial expert,” and has designated Mr. Regan as
the Audit Committee’s financial expert. Mr. Regan is an
“independent” Trustee pursuant to paragraph (a)(2) of Item 3 to Form
N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed $33,000 in fiscal 2004 and $30,000 in fiscal 2003. |
(b) Audit-Related Fees
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed no such fees during the last two fiscal years. |
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed $5,000 in fiscal 2004 and no such fees in fiscal 2003 to the
registrant’s investment adviser or any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services to the
registrant. |
Such
fees include, among others: internal control reviews.
(c) Tax Fees
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed no such fees to the registrant during the last two fiscal
years. |
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed $6,000 in fiscal 2004 and $5,000 in fiscal 2003 to the
registrant’s investment adviser or any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services to the
registrant. |
| |
Such
fees include, among others: tax compliance, tax planning and tax advice. Tax
compliance generally involves preparation of original and amended tax returns,
claims for a refund and tax payment-planning services. Tax planning and tax
advice includes assistance with tax audits and appeals, tax advice related to
mergers and acquisitions and requests for rulings or technical advice from
taxing authorities. |
(d) All Other Fees
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed no such fees in fiscal 2004 and $58 in fiscal 2003. |
| |
The
principal accountant for the audit of the registrant’s annual financial
statements billed no such fees during the last two fiscal years to the
registrant’s investment adviser or any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services to the
registrant. |
| |
Such
fees include consultations regarding the registrant’s retirement plan with
respect to its trustees. |
(e) (1) During its regularly scheduled periodic meetings, the
registrant's audit committee will pre-approve all audit,
audit-related, tax and other services to be provided by the
principal accountants of the registrant.
| |
The
audit committee has delegated pre-approval authority to its Chairman for any
subsequent new engagements that arise between regularly scheduled meeting dates
provided that any fees such pre-approved are presented to the audit committee at
its next regularly scheduled meeting. |
| |
Pre-approval
of non-audit services is waived provided that: 1) the aggregate amount of all
such services provided constitutes no more than five percent of the total amount
of fees paid by the registrant to it principal accountant during the fiscal year
in which services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such services
are promptly brought to the attention of the audit committee of the registrant
and approved prior to the completion of the audit. |
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $11,000 in fiscal 2004 and $5,058 in
fiscal 2003 to the registrant and the registrant's investment
adviser or any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the
registrant related to non-audit fees. Those billings did not include
any prohibited non-audit services as defined by the Securities
Exchange Act of 1934.
(h) The registrant's audit committee of the board of trustees has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser, and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
account's independence. No such services were rendered.
ITEM 5. NOT APPLICABLE
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
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. A description of the Fund’s Portfolio Proxy Voting Policies
and Procedures is available (i) without charge, upon request, by calling the
Fund toll-free at 1.800.225.5677, (ii) on the Fund’s website at
www.oppenheimerfunds.com, and (iii) on the SEC’s website at www.sec.gov. In
addition, the Fund will be 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 first such filing is due no later than August 31, 2004, for
the twelve months ended June 30, 2004. Once filed, the Fund’s Form N-PX
filing will be available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.225.5677, and (ii) on the SEC’s website at www.sec.gov.
ITEM 8. NOT APPLICABLE
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At
a meeting of the Board of Trustees of the registrant held on February 18, 2004,
the Board adopted (1) a policy that, should the Board determine that a vacancy
exists or is likely to exist on the Board, the Governance Committee of the
Board, which is comprised entirely of independent trustees, shall consider any
candidates for Board membership recommended by the registrant’s security
holders and (2) a policy that security holders wishing to submit a nominee for
election to the Board may do so by mailing their submission to the offices of
OppenheimerFunds, Inc., Two World Financial Center, 225 Liberty Street - 11th
Floor, New York, NY 10281-1008, to the attention of the Chair of the Governance
Committee. Prior to February 18, 2004, the Board did not have a formalized
policy with respect to consideration of security holder nominees or a procedure
by which security holders may make their submissions. In addition to security
holder nominees, the Governance Committee may also consider nominees recommended
by independent Board members or recommended by any other Board members and is
authorized under its Charter, upon Board approval, to retain an executive search
firm to assist in screening potential candidates. Upon Board approval, the
Governance Committee may also obtain legal, financial, or other external counsel
that may be necessary or desirable in the screening process.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of October 31, 2004,
registrant's principal executive officer and principal financial
officer found registrant's disclosure controls and procedures to
provide reasonable assurances that information required to be
disclosed by registrant in the reports that it files under the
Securities Exchange Act of 1934 (a) is accumulated and communicated
to registrant's management, including its principal
| |
executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure, and (b) is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms adopted by the U.S.
Securities and Exchange Commission. |
(b) There have been no significant changes in registrant's internal
controls over financial reporting that occurred during the
registrant's last fiscal half-year that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)(NOT
APPLICABLE TO SEMIANNUAL REPORTS)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)
TOP HOLDINGS AND ALLOCATIONS
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--TOP TEN INDUSTRIES
- --------------------------------------------------------------------------------
Media 3.3%
- --------------------------------------------------------------------------------
Oil & Gas 3.0
- --------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 2.1
- --------------------------------------------------------------------------------
Wireless Telecommunication Services 1.4
- --------------------------------------------------------------------------------
Chemicals 1.4
- --------------------------------------------------------------------------------
Electric Utilities 1.3
- --------------------------------------------------------------------------------
Containers & Packaging 1.3
- --------------------------------------------------------------------------------
Commercial Services & Supplies 1.2
- --------------------------------------------------------------------------------
Health Care Providers & Services 1.0
- --------------------------------------------------------------------------------
Metals & Mining 1.0
Portfolio holdings and
allocations are subject to change. Percentages are as of September 30, 2004, and
are based on net assets.
- --------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Foreign Government Bonds 29.2%
Corporate Bonds 25.2
Government Agency Bonds 16.7
Other Bonds 11.3
U.S. Government Bonds 9.2
Stocks 4.4
Cash Equivalents 4.0
Portfolio holdings and
allocations are subject to change. Percentages are as of September 30, 2004, and
are based on total investments. The Fund may invest without limit in below
investment-grade securities, which carry a greater risk that the issue may
default on principal or interest payments, and in foreign securities, which
entail higher expenses and risks, such as currency fluctuation.
- --------------------------------------------------------------------------------
8 | OPPENHEIMER STRATEGIC INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED SEPTEMBER 30, 2004, FOLLOWED
BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO APPROPRIATE BROAD-BASED
MARKET INDICES.
MANAGEMENT’S
DISCUSSION OF FUND PERFORMANCE. The Fund’s performance during its recent
fiscal year was driven primarily by good results from its investments in
emerging market and U.S. high-yield corporate bonds, as well as by favorable
movements in foreign currency exchange rates.
The
Fund’s relatively heavy exposure to emerging-market bonds contributed
positively to performance, and debt securities from Brazil and Russia proved
beneficial as these nations reformed their financial systems and instilled
confidence among investors and rating agencies. Brazil’s economy benefited
during the reporting period from greater global demand for basic materials, and
Russia continued to emerge as a force in the global oil industry. The Fund also
avoided some of the weaker emerging markets, such as Turkey, sheltering the Fund
from the brunt of weakness in those countries.
The
Fund’s investments in the foreign currencies of major industrialized
regions, including the Euro and Yen, fared well when the U.S. dollar weakened.
We believe that the current U.S. account deficit and a ballooning U.S. federal
budget deficit were significant factors in the U.S. dollar’s decline.
High-yield
corporate bonds also contributed positively to the Fund’s performance,
particularly early in the reporting period, when bonds in the
“triple-C” range produced higher returns than more highly rated
securities. The Fund benefited from its investments in the high-yield debt of
companies in the cable television, energy and basic materials industries.
Although
the Fund’s holdings of U.S. government securities contributed less
positively than other areas, the Fund nonetheless benefited from its emphasis on
mortgage-backed securities within the sector. Mortgage-backed securities from
federal agencies fared better than U.S. Treasury securities as interest rates
rose and fewer homeowners refinanced their mortgages.
However,
the Fund’s performance was hindered by its duration posture, which for much
of the reporting period was set in a range that we considered shorter than
industry averages. While this stance helped preserve value during declining
markets, it limited the Fund’s participation in market rallies, and
slightly impeded performance
Nonetheless,
we have continued to maintain the Fund’s average duration in a relatively
short position in anticipation of higher interest rates. We also recently
reduced the Fund’s exposure to emerging markets debt by taking profits in
securities that had gained value. We have redeployed some of those assets to
bonds in foreign developed markets, where we currently believe values are more
attractive.
9 | OPPENHEIMER STRATEGIC INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
COMPARING THE FUND’S
PERFORMANCE TO THE MARKET. The graphs that follow show the performance of a
hypothetical $10,000 investment in each class of shares of the Fund held until
September 30, 2004. In the case of Class A and B shares, performance is measured
over a ten fiscal year period; Class C shares since inception of the Class on
May 26, 1995 and Class Y shares since inception of the Class on January 26,
1998. In the case of Class N shares, performance is measured from inception of
the Class on March 1, 2001. The Fund’s performance reflects the deduction
of the maximum initial sales charge on Class A shares, the applicable contingent
deferred sales charge on Class B, Class C and Class N shares, and reinvestments
of all dividends and capital gains distributions.
The
Fund’s performance is compared to the performance of the Lehman Brothers
Aggregate Bond Index and the Citigroup World Government Bond Index, formerly
Salomon Brothers World Government Bond Index. The former is a broad-based,
unmanaged index of U.S. corporate bond issues, U.S. Government securities and
mortgage-backed securities widely regarded as a measure of the performance of
the domestic debt securities market. The latter is an unmanaged index of
fixed-rate bonds having a maturity of one year or more, widely regarded as a
benchmark of fixed-income performance on a worldwide basis. Index performance
reflects the reinvestment of dividends but does not consider the effect of
capital gains or transaction costs, and none of the data in the graphs that
follow shows the effect of taxes. The Fund’s performance reflects the
effects of Fund business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund’s performance, it must be noted
that the Fund’s investments are not limited to the securities in the
indices.
10 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Income Fund (Class A)
Lehman Brothers Aggregate Bond Index
Citigroup World Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Strategic Income Fund Lehman Brothers Citigroup World
Date (Class A) Aggregate Bond Index Government Bond Index
09/30/1994 9,525 10,000 10,000
12/31/1994 9,338 10,038 10,048
03/31/1995 9,485 10,544 11,147
06/30/1995 10,032 11,186 11,741
09/30/1995 10,346 11,406 11,618
12/31/1995 10,774 11,892 11,961
03/31/1996 10,970 11,681 11,737
06/30/1996 11,260 11,748 11,785
09/30/1996 11,697 11,965 12,106
12/31/1996 12,130 12,324 12,394
03/31/1997 12,102 12,255 11,882
06/30/1997 12,592 12,705 12,242
09/30/1997 13,017 13,127 12,398
12/31/1997 13,144 13,514 12,423
03/31/1998 13,496 13,724 12,521
06/30/1998 13,584 14,044 12,769
09/30/1998 13,121 14,638 13,833
12/31/1998 13,364 14,688 14,324
03/31/1999 13,436 14,615 13,771
06/30/1999 13,480 14,486 13,297
09/30/1999 13,503 14,585 13,899
12/31/1999 13,904 14,567 13,713
03/31/2000 14,124 14,888 13,737
06/30/2000 14,201 15,148 13,717
09/30/2000 14,338 15,604 13,357
12/31/2000 14,211 16,260 13,931
03/31/2001 14,465 16,754 13,507
06/30/2001 14,344 16,848 13,296
09/30/2001 14,081 17,625 14,247
12/31/2001 14,711 17,633 13,793
03/31/2002 14,958 17,650 13,571
06/30/2002 14,952 18,302 15,152
09/30/2002 15,014 19,141 15,738
12/31/2002 15,718 19,442 16,482
03/31/2003 16,319 19,712 16,994
06/30/2003 17,387 20,205 17,654
09/30/2003 17,955 20,176 18,002
12/31/2003 18,799 20,240 18,940
03/31/2004 19,237 20,778 19,293
06/30/2004 18,884 20,270 18,651
09/30/2004 19,523 20,918 19,263
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year 3.57% 5-Year 6.61% 10-Year 6.92%
THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT AN INVESTOR’S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND
RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE
APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES
CHARGE OF 4.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5%
(1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1%
DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS
Y SHARES. SEE PAGE 16 FOR FURTHER INFORMATION.
11 | OPPENHEIMER STRATEGIC INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Income Fund (Class B)
Lehman Brothers Aggregate Bond Index
Citigroup World Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Strategic Income Fund Lehman Brothers Citigroup World
Date (Class B) Aggregate Bond Index Government Bond Index
09/30/1994 10,000 10,000 10,000
12/31/1994 9,786 10,038 10,048
03/31/1995 9,899 10,544 11,147
06/30/1995 10,472 11,186 11,741
09/30/1995 10,779 11,406 11,618
12/31/1995 11,203 11,892 11,961
03/31/1996 11,385 11,681 11,737
06/30/1996 11,664 11,748 11,785
09/30/1996 12,093 11,965 12,106
12/31/1996 12,516 12,324 12,394
03/31/1997 12,464 12,255 11,882
06/30/1997 12,944 12,705 12,242
09/30/1997 13,354 13,127 12,398
12/31/1997 13,459 13,514 12,423
03/31/1998 13,793 13,724 12,521
06/30/1998 13,857 14,044 12,769
09/30/1998 13,389 14,638 13,833
12/31/1998 13,581 14,688 14,324
03/31/1999 13,628 14,615 13,771
06/30/1999 13,678 14,486 13,297
09/30/1999 13,645 14,585 13,899
12/31/1999 14,023 14,567 13,713
03/31/2000 14,217 14,888 13,737
06/30/2000 14,268 15,148 13,717
09/30/2000 14,419 15,604 13,357
12/31/2000 14,292 16,260 13,931
03/31/2001 14,547 16,754 13,507
06/30/2001 14,426 16,848 13,296
09/30/2001 14,161 17,625 14,247
12/31/2001 14,795 17,633 13,793
03/31/2002 15,043 17,650 13,571
06/30/2002 15,037 18,302 15,152
09/30/2002 15,100 19,141 15,738
12/31/2002 15,808 19,442 16,482
03/31/2003 16,412 19,712 16,994
06/30/2003 17,486 20,205 17,654
09/30/2003 18,057 20,176 18,002
12/31/2003 18,906 20,240 18,940
03/31/2004 19,347 20,778 19,293
06/30/2004 18,992 20,270 18,651
09/30/2004 19,635 20,918 19,263
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year 2.66% 5-Year 6.53% 10-Year 6.98%
12 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Income Fund (Class C)
Lehman Brothers Aggregate Bond Index
Citigroup World Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Strategic Income Fund Lehman Brothers Citigroup World
Date (Class C) Aggregate Bond Index Government Bond Index
05/26/1995 10,000 10,000 10,000
06/30/1995 10,023 10,073 10,059
09/30/1995 10,309 10,271 9,954
12/31/1995 10,715 10,709 10,247
03/31/1996 10,889 10,519 10,055
06/30/1996 11,131 10,579 10,096
09/30/1996 11,542 10,774 10,371
12/31/1996 11,970 11,098 10,618
03/31/1997 11,920 11,036 10,179
06/30/1997 12,354 11,441 10,488
09/30/1997 12,773 11,821 10,621
12/31/1997 12,848 12,169 10,643
03/31/1998 13,167 12,358 10,727
06/30/1998 13,229 12,647 10,940
09/30/1998 12,780 13,182 11,851
12/31/1998 12,965 13,226 12,272
03/31/1999 13,039 13,160 11,798
06/30/1999 13,057 13,045 11,392
09/30/1999 13,026 13,133 11,908
12/31/1999 13,418 13,117 11,748
03/31/2000 13,574 13,407 11,769
06/30/2000 13,655 13,640 11,752
09/30/2000 13,728 14,051 11,443
12/31/2000 13,615 14,642 11,935
03/31/2001 13,832 15,087 11,572
06/30/2001 13,692 15,172 11,390
09/30/2001 13,380 15,872 12,206
12/31/2001 13,990 15,879 11,817
03/31/2002 14,162 15,894 11,626
06/30/2002 14,130 16,481 12,981
09/30/2002 14,202 17,236 13,483
12/31/2002 14,803 17,507 14,121
03/31/2003 15,382 17,751 14,559
06/30/2003 16,360 18,195 15,124
09/30/2003 16,822 18,168 15,423
12/31/2003 17,582 18,226 16,226
03/31/2004 17,960 18,710 16,528
06/30/2004 17,598 18,253 15,979
09/30/2004 18,160 18,837 16,503
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year 6.95% 5-Year 6.87% Since Inception (5/26/95) 6.59%
THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT AN INVESTOR’S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND
RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE
APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES
CHARGE OF 4.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5%
(1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1%
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, 10-YEAR RETURNS FOR CLASS B SHARES USES CLASS A PERFORMANCE FOR THE
PERIOD AFTER CONVERSION. SEE PAGE 16 FOR FURTHER INFORMATION.
13 | OPPENHEIMER STRATEGIC INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Income Fund (Class N)
Lehman Brothers Aggregate Bond Index
Citigroup World Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Strategic Income Fund Lehman Brothers Citigroup World
Date (Class N) Aggregate Bond Index Government Bond Index
03/01/2001 10,000 10,000 10,000
03/31/2001 9,799 10,050 9,712
06/30/2001 9,717 10,107 9,560
09/30/2001 9,539 10,573 10,244
12/31/2001 9,988 10,578 9,917
03/31/2002 10,122 10,588 9,757
06/30/2002 10,112 10,979 10,894
09/30/2002 10,177 11,482 11,316
12/31/2002 10,617 11,663 11,851
03/31/2003 11,044 11,825 12,219
06/30/2003 11,753 12,121 12,693
09/30/2003 12,092 12,103 12,944
12/31/2003 12,648 12,141 13,618
03/31/2004 12,929 12,464 13,872
06/30/2004 12,678 12,159 13,410
09/30/2004 13,094 12,548 13,850
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year 7.28% Since Inception (3/1/01) 7.82%
14 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS Y SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Strategic Income Fund (Class Y)
Lehman Brothers Aggregate Bond Index
Citigroup World Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Strategic Income Fund Lehman Brothers Citigroup World
Date (Class Y) Aggregate Bond Index Government Bond Index
01/26/1998 10,000 10,000 10,000
03/31/1998 10,181 10,027 9,981
06/30/1998 10,257 10,261 10,180
09/30/1998 9,936 10,695 11,028
12/31/1998 10,108 10,731 11,420
03/31/1999 10,194 10,678 10,979
06/30/1999 10,237 10,584 10,600
09/30/1999 10,241 10,656 11,081
12/31/1999 10,579 10,643 10,932
03/31/2000 10,732 10,878 10,951
06/30/2000 10,826 11,067 10,935
09/30/2000 10,912 11,401 10,648
12/31/2000 10,850 11,880 11,106
03/31/2001 11,049 12,241 10,768
06/30/2001 10,965 12,310 10,599
09/30/2001 10,740 12,877 11,358
12/31/2001 11,256 12,883 10,996
03/31/2002 11,419 12,895 10,819
06/30/2002 11,416 13,372 12,079
09/30/2002 11,498 13,984 12,546
12/31/2002 12,021 14,204 13,140
03/31/2003 12,496 14,402 13,548
06/30/2003 13,317 14,762 14,074
09/30/2003 13,721 14,741 14,351
12/31/2003 14,369 14,787 15,099
03/31/2004 14,706 15,181 15,380
06/30/2004 14,437 14,810 14,869
09/30/2004 14,927 15,283 15,356
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year 8.80% 5-Year 7.83% Since Inception (1/26/98) 6.18%
THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE
INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT AN INVESTOR’S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH
END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND
RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE
APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES
CHARGE OF 4.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5%
(1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1%
DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS
Y SHARES. SEE PAGE 16 FOR FURTHER INFORMATION.
15 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES
- --------------------------------------------------------------------------------
Total returns and the
ending account values in the graphs include changes in share price and
reinvestment of dividends and capital gains distributions in a hypothetical
investment for the periods shown. The Fund’s total returns shown do not
reflect the deduction of income taxes on an individual’s investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
Investors should consider
the Fund’s investment objectives, risks, and other charges and expenses
carefully before investing. The Fund’s prospectus contains this and other
information about the Fund, and may be obtained by asking your financial
advisor, calling us at 1.800.525.7048 or visiting our website at
www.oppenheimerfunds.com. Read the prospectus carefully before investing.
The Fund’s investment
strategy and focus can change over time. The mention of specific fund holdings
does not constitute a recommendation by OppenheimerFunds, Inc.
CLASS A shares of the Fund
were first publicly offered on 10/16/89. Unless otherwise noted, Class A returns
include the current maximum initial sales charge of 4.75%. The Fund’s
maximum sales charge for Class A shares was lower prior to 2/1/93, so actual
performance may have been higher.
CLASS B shares of the Fund
were first publicly offered on 11/30/92. Unless otherwise noted, Class B returns
include the applicable contingent deferred sales charge of 5% (1-year) and 2%
(5-year). Because Class B shares convert to Class A shares 72 months after
purchase, the “since inception” return for Class B uses Class A
performance for the period after conversion. Class B shares are subject to an
annual 0.75% asset-based sales charge.
CLASS C shares of the Fund
were first publicly offered on 5/26/95. Unless otherwise noted, Class C returns
include the contingent deferred sales charge of 1% for the 1-year period. Class
C shares are subject to an annual 0.75% asset-based sales charge.
CLASS N shares of the Fund
were first publicly offered on 3/1/01. Class N shares are offered only through
retirement plans. Unless otherwise noted, Class N returns include the contingent
deferred sales charge of 1% for the 1-year period Class N shares are subject to
an annual 0.25% asset-based sales charge.
CLASS Y shares of the Fund
were first publicly offered on 1/26/98. Class Y shares are offered only to
certain institutional investors under special agreement with the Distributor.
An explanation of the
calculation of performance is in the Fund’s Statement of Additional
Information.
16 | OPPENHEIMER STRATEGIC INCOME FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
FUND EXPENSES. As a
shareholder of the Fund, you incur two types of costs: (1) transaction costs,
which may include sales charges (loads) on purchase payments, contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and service fees; and
other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on
an investment of $1,000.00 invested at the beginning of the period and held for
the entire 6-month period ended September 30, 2004.
ACTUAL EXPENSES. The
“actual” lines of the table provide information about actual account
values and actual expenses. You may use the information on this line for the
class of shares you hold, together with the amount you invested, to estimate the
expense that you paid over the period. Simply divide your account value by
$1,000.00 (for example, an $8,600.00 account value divided by $1,000.00 = 8.60),
then multiply the result by the number in the “actual” line under the
heading entitled “Expenses Paid During Period” to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR
COMPARISON PURPOSES. The “hypothetical” lines of the table provide
information about hypothetical account values and hypothetical expenses based on
the Fund’s actual expense ratio for each class of shares, and an assumed
rate of return of 5% per year before expenses, which is not the Fund’s
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example for the
class of shares you hold with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the
expenses shown in the table are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as front-end or contingent deferred
sales charges (loads), or a $12.00 fee imposed annually on accounts valued at
less than $500.00 (subject to exceptions described in
17 | OPPENHEIMER STRATEGIC INCOME FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
the Statement of Additional
Information). Therefore, the “hypothetical” lines of the table are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(4/1/04) (9/30/04) SEPTEMBER 30, 2004
- ------------------------------------------------------------------------------
Class A Actual $1,000.00 $1,014.80 $4.80
- ------------------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,020.25 4.81
- ------------------------------------------------------------------------------
Class B Actual 1,000.00 1,011.10 8.53
- ------------------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,016.55 8.56
- ------------------------------------------------------------------------------
Class C Actual 1,000.00 1,011.10 8.53
- ------------------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,016.55 8.56
- ------------------------------------------------------------------------------
Class N Actual 1,000.00 1,012.70 6.97
- ------------------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,018.10 6.99
- ------------------------------------------------------------------------------
Class Y Actual 1,000.00 1,015.10 4.49
- ------------------------------------------------------------------------------
Class Y Hypothetical 1,000.00 1,020.55 4.51
Hypothetical assumes 5%
annual return before expenses.
Expenses are equal to the
Fund’s annualized expense ratio for that class, multiplied by the average
account value over the period, multiplied by 183/366 (to reflect the one-half
year period). Those annualized expense ratios based on the 6-month period ended
September 30, 2004 are as follows:
CLASS EXPENSE RATIOS
__________
Class A 0.95%
__________
Class B 1.69
__________
Class C 1.69
__________
Class N 1.38
__________
Class Y 0.89
18 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS September 30, 2004
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.7% (COST $262,422,911) $ 226,655,207 3.7%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--18.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%-12%, 10/1/16-10/1/34 1 $ 38,503,339 40,258,155 0.7
5%, 10/1/34 1 55,454,000 54,916,762 0.9
7%, 10/1/34 1 25,427,000 26,968,512 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate
Mtg. Investment Conduit Multiclass Pass-Through
Certificates, 2.109%-6.50%, 10/15/09-1/15/33 2 51,253,333 52,022,776 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security, (32.857)%-25.197%,
7/1/26-6/15/34 3 79,914,957 10,196,179 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only
Stripped Mtg.-Backed Security, Series 2819, Cl. PO,
11.429%, 6/15/34 4 5,270,303 4,629,255 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Structured
Pass-Through Security, Collateralized Mtg. Obligations,
Series T-42, Cl. A2, 5.50%, 2/25/42 3,072 3,071 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 10/1/19 1 28,007,000 27,910,712 0.5
5%, 10/1/19 1 62,675,000 63,673,914 1.0
5%, 10/1/34 1 31,538,000 31,212,780 0.5
5.50%, 10/1/19 1 73,509,000 75,966,994 1.2
5.50%, 10/1/34 1 47,621,000 48,260,931 0.8
6%, 11/1/34 1 28,550,000 29,424,344 0.5
6.50%, 10/1/34 1 87,034,000 91,304,062 1.5
7%, 10/1/34 1 212,711,000 225,540,026 3.6
5.50%-15%, 4/15/13-9/1/34 84,171,060 87,817,108 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust,
Commercial Mtg. Obligations, Interest-Only Stripped
Mtg.-Backed Security, Trust 2001-T10, Cl. IO, (14.798)%,
12/25/31 3,5 383,776,968 2,833,579 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg.
Obligations, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, 2.211%-6.50%,
8/25/09-12/18/32 2 24,606,430 24,850,086 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security,
(13.048)%-29.05%, 2/25/29-7/25/41 3,5 127,358,316 5,094,587 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, (26.373)%-25.237%, 5/1/23-6/1/32 3 57,437,971 9,661,049 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 237,320,126 3.8
---------------
Total Mortgage-Backed Obligations (Cost $1,161,605,133) 1,149,865,008
19 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--10.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Nts., 3.75%,
7/15/09 [EUR] 11,290,000 $ 14,092,755 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
2.75%, 8/15/06 101,820,000 101,811,040 1.6
2.875%, 12/15/06 52,450,000 52,424,195 0.9
4.50%-4.875%, 3/15/07-1/15/13 16,485,000 17,122,634 0.3
5.75%, 1/15/12 45,000,000 49,176,585 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.25%, 7/15/07 34,300,000 35,330,303 0.6
6%, 5/15/08 40,000,000 43,540,600 0.7
6.625%, 9/15/09 83,000,000 93,608,479 1.5
1.80%-7.25%, 5/27/05-5/15/30 40,900,000 44,064,842 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.93%-9.25%, 2/15/16-2/15/31 6,7 66,060,000 56,378,122 0.9
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.75%, 7/31/06 8,9 63,804,000 64,063,236 1.0
2.75%-4.25%, 8/15/07-8/15/14 17,594,000 17,669,928 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
United States (Government of) Gtd. Israel Aid Bonds,
5.50%, 12/4/23 11,400,000 11,816,522 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 31,180,130 0.5
---------------
Total U.S. Government Obligations (Cost $624,919,259) 632,279,371
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--32.4%
- ----------------------------------------------------------------------------------------------------------------------------------
ARGENTINA--0.9%
Argentina (Republic of) Bonds, 1.98%, 8/3/12 2 49,730,000 36,235,068 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 16,208,692 0.3
---------------
52,443,760
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA--1.1%
Queensland Treasury Corp. Unsec. Nts., Series 09G,
6%, 7/14/09 [AUD] 94,160,000 69,978,459 1.1
- ----------------------------------------------------------------------------------------------------------------------------------
AUSTRIA--1.1%
Austria (Republic of) Bonds, 6.25%, 7/15/27 [EUR] 36,250,000 55,452,354 0.9
- ----------------------------------------------------------------------------------------------------------------------------------
Austria (Republic of) Nts., Series 98-1, 5%, 1/15/08 [EUR] 11,325,000 14,970,025 0.2
---------------
70,422,379
- ----------------------------------------------------------------------------------------------------------------------------------
BELGIUM--1.6%
Belgium (Kingdom of) Bonds, 3.75%-6.50%,
3/31/05-9/28/11 [EUR] 72,685,000 96,134,027 1.6
- ----------------------------------------------------------------------------------------------------------------------------------
BRAZIL--1.8%
Brazil (Federal Republic of) Bonds, Series 15 yr., 2.125%,
4/15/09 2 138,241 135,822 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt Capitalization Bonds,
Series 20 yr., 8%, 4/15/14 42,665,373 42,212,053 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts., 12%, 4/15/10 10,760,000 12,874,340 0.2
20 | OPPENHEIMER STRATEGIC INCOME FUND
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
BRAZIL Continued
Brazil (Federal Republic of) Unsec. Unsub. Bonds:
8.875%-10%, 8/7/11-4/15/24 $ 20,800,000 $ 21,033,488 0.3%
11%, 2/4/10 [EUR] 3,450,000 4,874,112 0.1
11%, 8/17/40 25,105,200 28,174,311 0.5
---------------
109,304,126
- ----------------------------------------------------------------------------------------------------------------------------------
BULGARIA--0.3% 17,485,876 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.1% 4,868,550 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
DENMARK--0.4% 22,224,659 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR--0.1% 4,913,100 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
FINLAND--0.1% 3,733,695 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
FRANCE--2.3%
France (Government of) Obligations Assimilables
du Tresor Bonds:
5.50%, 10/25/07-10/25/10 [EUR] 16,365,000 22,071,267 0.4
5.75%, 10/25/32 [EUR] 25,445,000 37,072,990 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
France (Government of) Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR] 20,895,000 26,086,235 0.4
5 yr., 4.75%, 7/12/07 [EUR] 795,000 1,039,654 0.0
5 yr., 5%, 7/12/05 [EUR] 42,600,000 54,093,897 0.9
---------------
140,364,043
- ----------------------------------------------------------------------------------------------------------------------------------
GERMANY--5.9%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR] 42,040,000 52,201,991 0.8
4.50%-5%, 8/17/07-7/4/11 [EUR] 13,210,000 17,598,339 0.3
5.375%, 1/4/10 [EUR] 19,385,000 26,398,422 0.4
Series 02, 5%, 7/4/12 [EUR] 26,650,000 35,801,352 0.6
Series 143, 3.50%, 10/10/08 [EUR] 186,290,000 234,830,328 3.8
---------------
366,830,432
- ----------------------------------------------------------------------------------------------------------------------------------
GREECE--1.2%
Greece (Republic of) Bonds:
3.50%-4.60%, 4/18/08-5/20/13 [EUR] 14,455,000 18,301,695 0.3
5.35%, 5/18/11 [EUR] 19,780,000 26,874,464 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Greece (Republic of) Sr. Unsub. Bonds, 4.65%,
4/19/07 [EUR] 23,245,000 30,213,137 0.5
---------------
75,389,296
- ----------------------------------------------------------------------------------------------------------------------------------
GUATEMALA--0.1% 4,750,200 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
HUNGARY--0.1% 7,532,296 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
IRELAND--0.2% 12,555,769 0.2
21 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
ITALY--1.8%
Italy (Republic of) Treasury Bonds, Buoni del
Tesoro Poliennali:
4%-4.50%, 3/1/05-3/1/07 [EUR] 17,735,000 $ 22,690,367 0.4%
5%, 2/1/12 [EUR] 26,035,000 34,855,367 0.6
5%, 10/15/07 [EUR] 21,650,000 28,580,903 0.4
5.25%, 12/15/05 [EUR] 21,165,000 27,190,465 0.4
---------------
113,317,102
- ----------------------------------------------------------------------------------------------------------------------------------
IVORY COAST--0.1% 3,110,122 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
JAPAN--2.0%
Japan (Government of) Bonds, 5 yr., Series 14,
0.40%, 6/20/06 [JPY] 13,686,000,000 125,030,439 2.0
- ----------------------------------------------------------------------------------------------------------------------------------
KOREA, REPUBLIC OF SOUTH--0.3% 19,455,538 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
MEXICO--0.8% 48,135,569 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--0.1% 7,559,840 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
NIGERIA--0.1% 6,575,247 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
PERU--0.5%
Peru (Republic of) Sr. Nts., 4.53%, 2/28/16 6 56,124,120 31,589,238 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.2% 14,162,128 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
POLAND--1.0%
Poland (Republic of) Bonds, Series 0K0805, 5.23%,
8/12/05 6 [PLZ] 189,340,000 50,804,320 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Bonds, 5.75%-6%,
5/24/09-9/23/22 [PLZ] 49,035,000 13,325,312 0.2
---------------
64,129,632
- ----------------------------------------------------------------------------------------------------------------------------------
PORTUGAL--0.8%
Portugal (Republic of) Obrig Do Tes Medio Prazo
Nts., 4.875%, 8/17/07 [EUR] 23,400,000 30,686,554 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Portugal (Republic of) Obrig Do Tes Medio Prazo
Unsec. Unsub. Nts., 5.85%, 5/20/10 [EUR] 14,360,000 19,989,989 0.3
---------------
50,676,543
- ----------------------------------------------------------------------------------------------------------------------------------
RUSSIA--1.4%
Ministry Finance of Russia Debs.:
Series VI, 3%, 5/14/06 17,870,000 17,500,985 0.2
Series V, 3%, 5/14/08 48,955,000 44,423,138 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Russian Federation Unsub. Nts., 5%, 3/31/30 2 26,555,250 25,609,219 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 8,077,556 0.1
---------------
95,610,898
- ----------------------------------------------------------------------------------------------------------------------------------
SPAIN--2.0%
Spain (Kingdom of) Bonds, Bonos y Obligacion del Estado:
5.35%, 10/31/11 [EUR] 35,425,000 48,529,102 0.8
5.75%, 7/30/32 [EUR] 20,670,000 30,056,247 0.5
22 | OPPENHEIMER STRATEGIC INCOME FUND
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
SPAIN Continued
Spain (Kingdom of) Treasury Bills, 2.03%,
10/22/04 6 [EUR] 35,545,000 $ 44,161,143 0.7%
---------------
122,746,492
- ----------------------------------------------------------------------------------------------------------------------------------
SWEDEN--0.3% 15,404,280 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
THE NETHERLANDS--0.6%
Netherlands (Kingdom of the) Bonds:
5%, 7/15/11 [EUR] 5,250,000 7,044,311 0.1
5.50%, 1/15/28 [EUR] 22,970,000 32,166,027 0.5
---------------
39,210,338
- ----------------------------------------------------------------------------------------------------------------------------------
TURKEY--0.1% 7,420,050 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--2.4%
United Kingdom Treasury Nts., 4%, 3/7/09 [GBP] 84,035,000 147,679,882 2.4
- ----------------------------------------------------------------------------------------------------------------------------------
VENEZUELA--0.6% 39,955,105 0.6
---------------
Total Foreign Government Obligations (Cost $1,928,875,689) 2,010,699,110
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Indonesia (Republic of) Rupiah
Loan Participation Nts.:
2.636%, 1/25/06 2 23,680,000 23,154,304 0.4
2.636%, 3/21/05 2 20,675,000 20,577,828 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, OAO Gazprom Loan
Participation Nts., 6.50%, 8/4/05 5 25,000,000 25,620,000 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 29,924,628 0.5
---------------
Total Loan Participations (Cost $104,542,018) 99,276,760
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--27.7%
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--7.8%
Auto Components 48,024,274 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 131,050,925 2.1
- ----------------------------------------------------------------------------------------------------------------------------------
Household Durables 51,609,813 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Leisure Equipment & Products 2,053,250 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Media 200,510,147 3.3
- ----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail 7,602,350 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail 27,507,250 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods 13,981,875 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.1%
Beverages 3,615,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing 7,709,923 0.1
23 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES Continued
Food Products $ 47,641,013 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Household Products 10,003,375 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
ENERGY--3.6%
Energy Equipment & Services 38,446,375 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas
Gazprom International SA, 7.201% Sr. Unsec. Bonds,
2/1/20 $ 34,905,000 35,436,603 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 150,293,108 2.4
---------------
185,729,711
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIALS--1.1%
Capital Markets 4,833,250 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks 19,828,338 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services 13,036,225 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance 6,864,625 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate 18,509,934 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 5,407,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.2%
Health Care Equipment & Supplies 15,769,860 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services 60,313,059 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--3.2%
Aerospace & Defense 24,743,686 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Airlines 25,652,066 0.4
- ----------------------------------------------------------------------------------------------------------------------------------
Building Products 5,713,170 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Services & Supplies 72,785,582 1.2
- ----------------------------------------------------------------------------------------------------------------------------------
Construction & Engineering 5,138,055 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 4,166,500 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates 609,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Machinery 39,639,750 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Marine 15,063,390 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Road & Rail 4,465,688 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation Infrastructure 1,961,875 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.9%
Communications Equipment 5,867,750 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals 2,354,000 0.0
24 | OPPENHEIMER STRATEGIC INCOME FUND
VALUE PERCENT OF
SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY Continued
Electronic Equipment & Instruments $ 5,493,750 0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Internet Software & Services 909,904 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
IT Services 10,351,750 0.2
- ----------------------------------------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment 27,591,860 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
MATERIALS--4.3%
Chemicals 85,159,431 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
Construction Materials 3,696,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging 78,345,818 1.3
- ----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining 60,055,589 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 38,603,520 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.4%
Diversified Telecommunication Services 58,426,193 1.0
- ----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services 86,253,653 1.4
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--2.1%
Electric Utilities 81,484,138 1.3
- ----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities 8,360,000 0.1
- ----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power 39,696,256 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Water Utilities 2,166,000 0.0
---------------
Total Corporate Bond and Notes (Cost $1,712,641,527) 1,714,802,946
- ----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--0.8% (COST $77,458,299) 49,327,854 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--4.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Freddie Mac 18,900 1,233,036 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Prandium, Inc. 10,11 1,019,757 30,593 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 249,218,924 4.0
---------------
Total Common Stocks (Cost $231,331,906) 250,482,553
- ----------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0% (COST $1,728,328) 2,430,748 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--7.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Korea (Republic of) Credit Bonds,
1.56%, 6/20/09 $ 35,750,000 36,103,925 0.6
Moscow (City of) Linked Nts.,
10%-15%, 5/27/05-9/2/05 [RUR] 463,537,000 16,963,868 0.3
25 | OPPENHEIMER STRATEGIC INCOME FUND
SUMMARY STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE PERCENT OF
AMOUNT SEE NOTE 1 NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG: Continued
OAO Gazprom I Credit Nts., 5.588%, 10/20/07 $ 7,145,000 $ 7,463,726 0.1%
OAO Gazprom II Credit Nts., 5.338%, 4/20/07 7,145,000 7,440,008 0.1
Ukraine (Republic of) Credit Linked Nts.,
6.541%, 8/15/11 35,010,000 36,025,290 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Dow Jones CDX High Yield Index Pass-Through
Certificates:
Series 3-1, 7.75%, 12/29/09 12,13 100,000,000 101,375,000 1.7
Series 3-3, 8%, 12/29/09 12,13 113,000,000 113,353,125 1.8
- ----------------------------------------------------------------------------------------------------------------------------------
Other Securities 168,432,267 2.7
---------------
Total Structured Notes (Cost $477,097,559) 487,157,209
- ----------------------------------------------------------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0% (COST $1,434,463) 307,720 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--4.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.51% in joint repurchase agreement (Principal Amount/
Value $195,664,000, with a maturity value of $195,673,403) with DB Alex Brown
LLC, 1.73%, dated 9/30/04, to be repurchased at $1,000,048 on 10/1/04,
collateralized by U.S. Treasury Bonds, 6.25%--9.25%, 2/15/16--5/15/30,
with a value of $182,065,645 and U.S. Treasury Nts.,
3.375%, 1/15/07, with a value of $17,636,762 1,000,000 1,000,000 0.0
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 1.35% in joint repurchase agreement (Principal Amount/
Value $1,446,038,000, with a maturity value of $1,446,110,302) with UBS Warburg
LLC, 1.80%, dated 9/30/04, to be repurchased at $19,500,975 on 10/1/04,
collateralized by Federal National Mortgage
Assn., 5%, 3/1/34, with a value of $1,477,979,332 19,500,000 19,500,000 0.3
- ----------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 71.44% in joint repurchase agreement (Principal Amount/
Value $361,238,000, with a maturity value of $361,255,058) with Cantor
Fitzgerald & Co./Cantor Fitzgerald Securities, 1.70%, dated 9/30/04, to
be repurchased at $258,069,186 on 10/1/04, collateralized by U.S.
Treasury Bonds, 1.625%--9.875%, 3/31/05--8/15/28, with a value
of $298,717,670 and U.S. Treasury Bills, 1/20/05,
with a value of $70,023,125 258,057,000 258,057,000 4.2
---------------
Total Joint Repurchase Agreements (Cost $278,557,000) 278,557,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $6,862,614,092) 6,901,841,486 111.4
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (706,867,069) (11.4)
------------------------------
NET ASSETS $ 6,194,974,417 100.0%
==============================
FOOTNOTES TO SUMMARY STATEMENT OF INVESTMENTS
“Other
securities” are unaffiliated holdings that are not individually one of the
top 50 holdings of the Fund, do not individually represent more than 1% of the
Fund’s net assets and are issued by an entity in which the Fund’s
aggregate holdings of securities issued by that entity do not represent more
than 1% of net assets.
The following footnotes to
the statement of investments apply to either the individual securities noted or
one or more of the securities aggregated and listed as a single line item.
26 | OPPENHEIMER STRATEGIC INCOME FUND
Principal amount, contracts
and exercise price are reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD Australian Dollar
EUR Euro
GBP British Pound Sterling
JPY Japanese Yen
NZD New Zealand Dollar
PLZ Polish Zloty
RUR Russian Ruble
1. When-issued security or forward commitment to be delivered and settled after
September 30, 2004. See Note 1 of Notes to Financial Statements.
2. Represents the current interest rate for a variable or increasing rate
security.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). 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 $30,067,013 or 0.49% of the Fund's net assets
as of September 30, 2004.
4. 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 $4,629,255 or 0.07% of the Fund's net assets as of
September 30, 2004.
5. Illiquid or restricted security. See Note 11 of Notes to Financial
Statements.
6. Zero coupon bond reflects the effective yield on the date of purchase.
7. Holdings are held in collateralized accounts to cover initial margin
requirements on open futures sales contracts with an aggregate market value of
$27,764,000. See Note 6 of Notes to Financial Statements.
8. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
9. A sufficient amount of liquid assets has been designated to cover outstanding
written call options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO CALL DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------
Japanese Yen (JPY) 21,980,000,000JPY 10/8/04 104.400JPY $ 1,576,917 $ --
New Zealand (Government of)
Bonds, 7%, 7/15/09 10,785NZD 12/9/04 6.205NZD 31,999 41,107
--------------------------
$ 1,608,916 $ 41,107
==========================
10. Non-income producing security.
11. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended September 30,
2004. The aggregate fair value of securities of affiliated companies held by the
Fund as of September 30, 2004 amounts to $30,593. Transactions during the period
in which the issuer was an affiliate are as follows:
SHARES SHARES
SEPT. 30, GROSS GROSS SEPT. 30, UNREALIZED
2003 ADDITIONS REDUCTIONS 2004 DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
Prandium, Inc. 1,019,757 -- -- 1,019,757 $11,955,407
12. 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 $416,465,073 or 6.72% of the Fund's net
assets as of September 30, 2004.
13. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2004
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------
Investments, at value (including securities loaned of approximately
$382,192,000)--see accompanying statement:
Unaffiliated companies (cost $6,850,628,092) $ 6,901,810,893
Affiliated companies (cost $11,986,000) 30,593
----------------
6,901,841,486
- ---------------------------------------------------------------------------------------
Cash 4,219,855
- ---------------------------------------------------------------------------------------
Cash--foreign currencies (cost $659,393) 652,268
- ---------------------------------------------------------------------------------------
Collateral for securities loaned 390,346,302
- ---------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 4,705,942
- ---------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 2,452,702
- ---------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $106,030,886 sold on a when-issued basis
or forward commitment) 134,063,188
Interest, dividends and principal paydowns 86,701,845
Shares of beneficial interest sold 4,660,678
Other 78,929
----------------
Total assets 7,529,723,195
- ---------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------
Options written, at value (premiums received $1,608,916)--see
accompanying summary statement of investments 41,107
- ---------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $1,181,001) 1,564,955
- ---------------------------------------------------------------------------------------
Return of collateral for securities loaned 390,346,302
- ---------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 23,102,068
- ---------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $835,449,053 purchased on a
when-issued basis or forward commitment) 889,180,496
Shares of beneficial interest redeemed 11,417,728
Closed foreign currency contracts 9,620,609
Distribution and service plan fees 3,730,238
Dividends 2,922,945
Futures margins 996,895
Transfer and shareholder servicing agent fees 795,139
Shareholder communications 559,495
Trustees' compensation 110,017
Other 360,784
----------------
Total liabilities 1,334,748,778
- ---------------------------------------------------------------------------------------
NET ASSETS $ 6,194,974,417
================
28 | OPPENHEIMER STRATEGIC INCOME FUND
- ----------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 1,464,099
- ----------------------------------------------------------------------------------------
Additional paid-in capital 7,128,865,393
- ----------------------------------------------------------------------------------------
Accumulated net investment income 119,924,802
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (1,087,197,545)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 31,917,668
-----------------
NET ASSETS $ 6,194,974,417
=================
- ----------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ----------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net
assets of $4,117,666,340 and 973,545,971 shares of beneficial
interest outstanding) $ 4.23
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $ 4.44
- ----------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $1,163,555,335 and 274,111,241 shares of beneficial
interest outstanding) $ 4.24
- ----------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $710,084,684 and 168,216,761 shares of beneficial
interest outstanding) $ 4.22
- ----------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $52,969,470 and 12,516,022 shares of beneficial interest
outstanding) $ 4.23
- ----------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $150,698,588 and 35,708,894 shares of
beneficial interest outstanding) $ 4.22
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------
Interest $ 344,307,567
- ----------------------------------------------------------------------------------------
Fee income 15,925,307
- ----------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $216,419) 5,150,052
- ----------------------------------------------------------------------------------------
Portfolio lending fees 560,653
-----------------
Total investment income 365,943,579
- ----------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------
Management fees 33,967,119
- ----------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 9,891,924
Class B 14,260,769
Class C 7,163,671
Class N 199,666
- ----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 5,760,790
Class B 1,748,998
Class C 896,600
Class N 125,777
Class Y 1,601,641
- ----------------------------------------------------------------------------------------
Shareholder communications:
Class A 645,678
Class B 248,729
Class C 91,228
Class N 6,069
- ----------------------------------------------------------------------------------------
Custodian fees and expenses 802,111
- ----------------------------------------------------------------------------------------
Trustees' compensation 159,292
- ----------------------------------------------------------------------------------------
Other 543,960
-----------------
Total expenses 78,114,022
Less reduction to custodian expenses (94,722)
Less payments and waivers of expenses (1,011,245)
-----------------
Net expenses 77,008,055
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 288,935,524
30 | OPPENHEIMER STRATEGIC INCOME FUND
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised) $ (273,420)
Closing of futures contracts (18,657,324)
Closing and expiration of option contracts written 3,525,972
Closing and expiration of swaption contracts (969,972)
Foreign currency transactions 150,909,396
Swap contracts (9,065,648)
-----------------
Net realized gain 125,469,004
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 161,658,067
Translation of assets and liabilities denominated in foreign (44,388,863)
currencies
Futures contracts (12,712,112)
Option contracts (787,163)
Swaption contracts (569,007)
Swap contracts 3,748,280
-----------------
Net change in unrealized appreciation (depreciation) 106,949,202
- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 521,353,730
=================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER STRATEGIC INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004 2003
- ---------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $ 288,935,524 $ 387,022,687
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) 125,469,004 (178,426,068)
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 106,949,202 863,388,406
--------------------------------------
Net increase in net assets resulting from operations 521,353,730 1,071,985,025
- ---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (192,285,670) (228,607,620)
Class B (57,497,267) (101,542,711)
Class C (28,954,074) (35,917,109)
Class N (1,737,495) (1,359,641)
Class Y (10,331,686) (12,603,902)
- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 102,366,894 271,084,579
Class B (576,954,365) (358,847,116)
Class C (13,106,700) 59,394,216
Class N 21,566,186 12,050,473
Class Y (97,360,343) 65,509,777
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Total increase (decrease) (332,940,790) 741,145,971
- ---------------------------------------------------------------------------------------------
Beginning of period 6,527,915,207 5,786,769,236
--------------------------------------
End of period (including accumulated net investment
income (loss) of $119,924,802 and $(26,416,177),
respectively) $ 6,194,974,417 $ 6,527,915,207
======================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.08 $ 3.64 $ 3.72 $ 4.18 $ 4.33
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20 .26 .32 .36 .43
Net realized and unrealized gain (loss) .15 .43 (.08) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .35 .69 .24 (.07) .26
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.20) (.25) (.30) (.26) (.41)
Tax return of capital distribution -- -- (.02) (.13) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.20) (.25) (.32) (.39) (.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.23 $ 4.08 $ 3.64 $ 3.72 $ 4.18
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 8.73% 19.59% 6.63% (1.79)% 6.18%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $4,117,666 $3,873,018 $3,202,825 $3,186,441 $3,431,763
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $4,025,554 $3,521,307 $3,263,490 $3,349,859 $3,517,517
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.69% 6.60% 7.91% 8.90% 9.98%
Total expenses 0.95% 3,4 0.95% 3 1.01% 3 0.93% 3 0.95% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.10 $ 3.66 $ 3.73 $ 4.19 $ 4.34
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16 .22 .28 .33 .39
Net realized and unrealized gain (loss) .15 .44 (.05) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .31 .66 .23 (.10) .22
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.17) (.22) (.28) (.24) (.37)
Tax return of capital distribution -- -- (.02) (.12) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.17) (.22) (.30) (.36) (.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.24 $ 4.10 $ 3.66 $ 3.73 $ 4.19
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 7.66% 18.62% 6.11% (2.53)% 5.37%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,163,555 $1,686,295 $1,847,182 $2,186,638 $2,581,391
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,424,322 $1,757,152 $2,056,449 $2,394,886 $2,907,627
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.16% 5.92% 7.22% 8.14% 9.01%
Total expenses 1.69% 3,4 1.68% 3 1.75% 3 1.68% 3 1.71% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 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 that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS C YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.07 $ 3.64 $ 3.71 $ 4.17 $ 4.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .23 .29 .33 .39
Net realized and unrealized gain (loss) .15 .42 (.06) (.43) (.17)
-------------------------------------------------------------------------------
Total from investment operations .32 .65 .23 (.10) .22
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.17) (.22) (.28) (.24) (.37)
Tax return of capital distribution -- -- (.02) (.12) --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.17) (.22) (.30) (.36) (.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.22 $ 4.07 $ 3.64 $ 3.71 $ 4.17
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 7.95% 18.45% 6.15% (2.54)% 5.39%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 710,085 $ 698,196 $ 568,487 $ 553,399 $ 548,332
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 716,206 $ 623,598 $ 571,292 $ 554,279 $ 568,742
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.06% 5.85% 7.15% 8.15% 9.21%
Total expenses 1.69% 3,4 1.69% 3 1.75% 3 1.68% 3 1.71% 3
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 5 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. Voluntary waiver of transfer agent fees less than 0.01%.
5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.08 $ 3.65 $ 3.72 $ 4.13
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .25 .30 .22
Net realized and unrealized gain (loss) .16 .42 (.05) (.41)
---------------------------------------------------------------
Total from investment operations .33 .67 .25 (.19)
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.18) (.24) (.30) (.15)
Tax return of capital distribution -- -- (.02) (.07)
---------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.18) (.24) (.32) (.22)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.23 $ 4.08 $ 3.65 $ 3.72
===============================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 8.28% 18.82% 6.70% (4.61)%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 52,969 $ 30,110 $ 15,508 $ 3,215
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 40,043 $ 22,627 $ 8,954 $ 1,348
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 4.19% 6.08% 7.07% 9.74%
Total expenses 1.38% 4,5 1.34% 4 1.22% 4 0.98% 4
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 6 104% 117% 209%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
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 of 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
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER STRATEGIC INCOME FUND
CLASS Y YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.07 $ 3.64 $ 3.71 $ 4.17 $ 4.32
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .21 .26 .32 .36 .46
Net realized and unrealized gain (loss) .14 .42 (.06) (.42) (.19)
------------------------------------------------------------------------------
Total from investment operations .35 .68 .26 (.06) .27
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.20) (.25) (.31) (.26) (.42)
Tax return of capital distribution -- -- (.02) (.14) --
------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.20) (.25) (.33) (.40) (.42)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.22 $ 4.07 $ 3.64 $ 3.71 $ 4.17
==============================================================================
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 8.80% 19.33% 7.06% (1.58)% 6.55%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 150,699 $ 240,296 $ 152,767 $ 103,858 $ 75,748
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 213,632 $ 194,308 $ 127,992 $ 94,400 $ 57,127
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.80% 6.57% 7.86% 9.09% 11.39%
Total expenses 1.29% 1.41% 1.74% 1.35% 0.83%
Expenses after payments and waivers
and reduction to custodian expenses 0.90% 0.91% 0.90% 0.78% N/A 3
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 90% 4 104% 117% 209% 136%
1. 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 of 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
4. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$5,593,936,243 and $5,563,251,032, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Strategic
Income 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 high current income by investing mainly in debt
securities. The Fund’s investment advisor is OppenheimerFunds, Inc. (the
Manager).
The
Fund offers Class A, Class B, Class C, Class N and Class Y shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. 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. Class Y shares
are sold to certain institutional investors without either a front-end sales
charge or a CDSC, however, the institutional investor 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. No such plan has been adopted for Class Y shares. 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 60 days and all mortgage-backed securities will be valued at the mean between
the “bid” and “asked” prices. 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 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
38 | OPPENHEIMER STRATEGIC INCOME FUND
with remaining maturities
of sixty days or less are valued at amortized cost (which approximates market
value).
- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund
invests in structured notes whose market values, interest rates and/or
redemption prices are linked to the performance of underlying foreign
currencies, interest rate spreads, stock market indices, prices of individual
securities, commodities or other financial instruments or the occurrence of
other specific events. The structured notes are often leveraged, increasing the
volatility of each note’s market value relative to the change in the
underlying linked financial element or event. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. The Fund records a realized gain or loss when a structured
note is sold or matures. As of September 30, 2004, the market value of these
securities comprised 7.9% of the Fund’s net assets and resulted in
unrealized gains of $10,059,650.
- --------------------------------------------------------------------------------
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 September
30, 2004, the Fund had purchased $835,449,053 of securities on a when-issued
basis or forward commitment and sold $106,030,886 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.
39 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
SECURITY CREDIT RISK. The
Fund invests in high-yield securities, which may be subject to a greater degree
of credit risk, market fluctuations and loss of income and principal, and may be
more sensitive to economic conditions than lower-yielding, higher-rated
fixed-income securities. The Fund may acquire securities in default, and is not
obligated to dispose of securities whose issuers subsequently default. As of
September 30, 2004, securities with an aggregate market value of $60,275,197,
representing 0.97% of the Fund’s net assets, were in default.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY
TRANSLATION. The Fund’s accounting records are maintained in U.S. dollars.
Prices of securities denominated in foreign currencies are translated into U.S.
dollars 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. Amounts related to the
purchase and sale of foreign securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions.
Foreign exchange rates may be valued primarily using dealer supplied valuations
or a portfolio pricing service authorized by the Board of Trustees.
Reported
net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales and maturities of short-term securities, sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund’s
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
The
effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund’s Statement of Operations.
- --------------------------------------------------------------------------------
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 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
40 | OPPENHEIMER STRATEGIC INCOME FUND
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 1,2,3,4,5,6 TAX PURPOSES
------------------------------------------------------------------------------
$140,321,504 $-- $1,059,119,870 $14,094,601
1. As of September 30, 2004, the Fund had $1,030,395,294 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of September 30, 2004,
details of the capital loss carryforwards were as follows:
EXPIRING
------------------------------
2007 $ 16,381,920
2008 358,683,799
2009 52,578,252
2010 185,647,798
2011 294,188,800
2012 122,914,725
--------------
Total $1,030,395,294
==============
2. As of September 30, 2004, the Fund had $25,835,930 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.
3. The Fund had $2,888,646 of straddle losses which were deferred.
4. During the fiscal year ended September 30, 2004, the Fund did not utilize any
capital loss carryforward.
5. During the fiscal year ended September 30, 2003, the Fund did not utilize any
capital loss carryforward.
6. During the fiscal year ended September 30, 2004, $114,650,580 of unused
capital loss carryforward expired.
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.
41 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Accordingly, the following amounts have been reclassified for September 30,
2004. Net assets of the Fund were unaffected by the reclassifications.
INCREASE TO
REDUCTION TO ACCUMULATED NET
REDUCTION TO ACCUMULATED NET REALIZED LOSS
PAID-IN CAPITAL INVESTMENT LOSS ON INVESTMENTS
-----------------------------------------------------------
$114,650,580 $148,211,647 $33,561,067
The tax character of distributions paid during the years ended September 30,
2004 and September 30, 2003 was as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
-----------------------------------------------------------
Distributions
paid from:
Ordinary income $290,806,192 $380,030,983
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 September 30, 2004 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 $ 6,885,152,828
Federal tax cost of other investments (643,139,762)
----------------
Total federal tax cost $ 6,242,013,066
================
Gross unrealized appreciation $ 343,729,578
Gross unrealized depreciation (357,824,179)
----------------
Net unrealized depreciation $ (14,094,601)
================
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded
42 | OPPENHEIMER STRATEGIC INCOME FUND
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.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
CLASS A
Sold 239,096,359 $ 999,651,057 239,075,415 $ 920,837,843
Dividends and/or
distributions reinvested 32,121,259 134,314,145 39,925,641 153,907,293
Redeemed (246,819,671) (1,031,598,308) (208,815,336) (803,660,557)
---------------------------------------------------------------------
Net increase 24,397,947 $ 102,366,894 70,185,720 $ 271,084,579
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS B
Sold 31,907,359 $ 133,737,139 63,952,473 $ 246,602,223
Dividends and/or
distributions reinvested 8,657,421 36,309,677 15,896,757 61,263,462
Redeemed (178,229,376) (747,001,181) (173,280,500) (666,712,801)
---------------------------------------------------------------------
Net decrease (137,664,596) $ (576,954,365) (93,431,270) $ (358,847,116)
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS C
Sold 34,946,299 $ 145,838,345 44,468,531 $ 171,414,411
Dividends and/or
distributions reinvested 4,955,123 20,669,780 6,320,901 24,316,496
Redeemed (43,114,379) (179,614,825) (35,649,094) (136,336,691)
---------------------------------------------------------------------
Net increase (decrease) (3,212,957) $ (13,106,700) 15,140,338 $ 59,394,216
=====================================================================
43 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST Continued
YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
CLASS N
Sold 7,364,068 $ 30,835,235 4,309,056 $ 16,669,277
Dividends and/or
distributions reinvested 393,458 1,645,805 334,213 1,294,796
Redeemed (2,615,117) (10,914,854) (1,522,702) (5,913,600)
---------------------------------------------------------------------
Net increase 5,142,409 $ 21,566,186 3,120,567 $ 12,050,473
=====================================================================
- ----------------------------------------------------------------------------------------------------
CLASS Y
Sold 19,171,754 $ 79,967,710 41,339,112 $ 159,458,161
Dividends and/or
distributions reinvested 1,795,794 7,487,037 2,467,304 9,527,352
Redeemed (44,274,233) (184,815,090) (26,811,939) (103,475,736)
---------------------------------------------------------------------
Net increase (decrease) (23,306,685) $ (97,360,343) 16,994,477 $ 65,509,777
=====================================================================
- --------------------------------------------------------------------------------
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 September 30, 2004,
were $4,021,933,541 and $4,891,449,509, respectively. There were purchases of
$823,936,177 and sales of $479,537,395 of U.S. government and government agency
obligations for the year ended September 30, 2004.
- --------------------------------------------------------------------------------
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 0.75% of
the first $200 million of average annual net assets of the Fund, 0.72% of the
next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million, and 0.50% of average annual net assets
in excess of $1 billion.
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.
- --------------------------------------------------------------------------------
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 September 30, 2004, the Fund paid $9,227,522 to OFS for
services to the Fund.
Additionally,
Class Y shares are subject to minimum fees of $10,000 for assets of $10 million
or more. The Class Y shares are subject to the minimum fees in the event that
the per account fee does not equal or exceed the applicable minimum fees. OFS
may voluntarily waive the minimum fees.
- --------------------------------------------------------------------------------
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.
44 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
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% per year on Class B and Class C shares and
0.25% per year on Class N shares. The Distributor also receives a service fee of
up to 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
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 September 30, 2004 for Class B, Class C
and Class N shares were $96,344,899, $20,621,328 and $820,116, 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
- ---------------------------------------------------------------------------------------------
September 30, 2004 $1,886,271 $73,000 $3,803,185 $117,463 $22,540
- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF
EXPENSES. 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 September 30, 2004, OFS waived $126,162, $31,110, $11,641,
$811 and $841,521 for Class A, Class B, Class C, Class N and Class Y shares,
respectively. This undertaking may be amended or withdrawn at any time.
45 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract
is a commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate. The Fund may enter into foreign currency contracts to settle
specific purchases or sales of securities denominated in a foreign currency and
for protection from adverse exchange rate fluctuation. Risks to the Fund include
the potential inability of the counterparty to meet the terms of the contract.
The
net U.S. dollar value of foreign currency underlying all contractual commitments
held by the Fund and the resulting unrealized appreciation or depreciation are
determined using prevailing foreign currency exchange rates. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities as a receivable or payable and in the
Statement of Operations with the change in unrealized appreciation or
depreciation.
The
Fund may realize a gain or loss upon the closing or settlement of the foreign
transaction. Contracts closed or settled with the same broker are recorded as
net realized gains or losses. Such realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
As of September 30, 2004,
the Fund had outstanding foreign currency contracts as follows:
CONTRACT VALUATION
EXPIRATION AMOUNT AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000s) SEPT. 30, 2004 APPRECIATION DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
Argentine Peso (ARP) 2/2/05 34,420ARP $ 11,233,629 $ 2,147 $ --
Australian Dollar (AUD) 10/18/04 29,100AUD 21,138,930 762,819 --
Brazilian Real (BRR) 12/14/04-1/26/05 281,137BRR 95,297,528 2,625,712 --
British Pound
Sterling (GBP) 10/18/04-12/14/04 17,380GBP 31,403,911 178,297 63,428
Japanese Yen (JPY) 3/15/05-4/1/05 32,889,960JPY 302,132,803 445,307 8,082,651
New Zealand Dollar (NZD) 10/18/04 33,670NZD 22,760,690 563,574 --
Polish Zloty (PLZ) 12/27/04 25,347PLZ 7,128,187 31,566 --
South African Rand (ZAR) 10/25/04 68,965ZAR 10,637,036 -- 11,627
----------------------------
4,609,422 8,157,706
----------------------------
CONTRACTS TO SELL
British Pound
Sterling (GBP) 10/4/04-11/18/04 61,475GBP 111,286,539 -- 1,744,908
Canadian Dollar (CAD) 2/24/05 20,695CAD 16,369,460 -- 520,089
Euro (EUR) 11/16/04-12/27/04 462,511EUR 575,034,373 -- 11,670,565
Japanese Yen (JPY) 10/18/04-12/22/04 7,809,000JPY 71,189,637 96,520 666,450
Mexican Nuevo
Peso (MXN) 10/26/04 146,451MXN 12,808,570 -- 98,016
Swiss Franc (CHF) 10/18/04 28,620CHF 23,000,520 -- 244,334
----------------------------
96,520 14,944,362
----------------------------
Total unrealized appreciation and depreciation $ 4,705,942 $ 23,102,068
============================
46 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
6. 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.
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 Summary 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 and depreciation is reported on 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 September 30, 2004,
the Fund had outstanding futures contracts as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
Euro-Bundesobligation 12/8/04 132 $ 18,985,306 $ 251,674
Japan (Government of) Bonds, 10 yr. 12/9/04 13 16,303,322 231,604
NASDAQ 100 Index 12/16/04 132 18,711,000 429,165
Nikkei 225 Index 12/9/04 27 1,465,425 (31,376)
United Kingdom Long Gilt 12/29/04 25 4,877,684 19,558
U.S. Long Bonds 12/20/04 1,663 186,619,781 4,169,058
U.S. Treasury Nts., 10 yr. 12/20/04 2,360 265,795,000 2,296,835
---------------
7,366,518
---------------
47 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
CAC-40 10 Index 12/17/04 176 $ 7,989,205 $ 5,472
DAX Index 12/17/04 52 6,321,471 98,621
FTSE 100 Index 12/17/04 157 13,098,269 (52,632)
Japan (Government of) Bonds, 10 yr. 12/9/04 71 89,041,222 (1,264,921)
Nikkei 225 Index 12/9/04 155 15,342,908 584,726
Standard & Poor's 500 Index 12/16/04 269 74,977,025 299,263
U.S. Treasury Nts., 2 yr. 12/30/04 1,998 422,046,281 929,727
U.S. Treasury Nts., 5 yr. 12/20/04 2,274 251,845,500 (948,630)
---------------
(348,374)
---------------
$ 7,018,144
===============
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put
and call options, or write put and covered call options on portfolio securities
in order to produce incremental earnings or protect against changes in the value
of portfolio securities.
The
Fund generally purchases put options or writes covered call options to hedge
against adverse movements in the value of portfolio holdings. When an option is
written, the Fund receives a premium and becomes obligated to sell or purchase
the underlying security at a fixed price, upon exercise of the option.
Options
are valued daily based upon the last sale price on the principal exchange on
which the option is traded and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon the expiration or closing of
the option transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option, or the cost of
the security for a purchased put or call option is adjusted by the amount of
premium received or paid.
Securities
designated to cover outstanding call options are noted in the Summary Statement
of Investments where applicable. Contracts subject to call, expiration date,
exercise price, premium received and market value are detailed in a note to the
Summary Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
48 | OPPENHEIMER STRATEGIC INCOME FUND
Written option activity for
the year ended September 30, 2004 was as follows:
CALL OPTIONS PUT OPTIONS
-------------------------------- ---------------------------------
PRINCIPAL/ PRINCIPAL/
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ----------------------------------------------------------------------------------------------------
Options outstanding as of
September 30, 2003 31,328,426,104 $ 5,007,567 9,711,600,000 $ 1,846,057
Options written 21,980,010,785 1,608,916 7,130,000,000 995,631
Options closed or expired (112,146,104) (1,680,923) (16,841,600,000) (2,841,688)
Options exercised (31,216,280,000) (3,326,644) -- --
---------------------------------------------------------------------
Options outstanding as of
September 30, 2004 21,980,010,785 $ 1,608,916 -- $ --
=====================================================================
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS
The Fund may enter into an
interest rate swap transaction to maintain a total return or yield spread on a
particular investment, or portion of its portfolio, or for other non-speculative
purposes. Interest rate swaps involve the exchange of commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments. The coupon payments are based on an agreed upon principal amount and a
specified index. Because the principal amount is not exchanged, it represents
neither an asset nor a liability to either counterparty, and is referred to as
notional. The Fund records an increase or decrease to unrealized gain (loss), in
the amount due to or owed by the Fund at termination or settlement.
Interest
rate swaps are subject to credit risk (if the counterparty fails to meet its
obligations) and interest rate risk. The Fund could be obligated to pay more
under its swap agreements than it receives under them, as a result of interest
rate changes.
As of September 30, 2004,
the Fund had entered into the following interest rate swap agreements:
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY
THE FUND AT THE FUND AT UNREALIZED
SWAP NOTIONAL SEPT. 30, SEPT. 30, FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT 2004 2004 RATE INDEX DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
Citigroup Three-Month
Global Markets LIBOR BBA
Holdings $ 125,000,000 1.18% 4.96% Rate 5/6/14 $ 6,637,096
Deutsche Bank Three-Month
AG 43,910,000 3.1025 1.81 LIBOR flat 3/4/08 397,062
Deutsche Bank 90-day
AG 461,160,000TWD 1.02 2.509 CPTW Rate 8/19/09 (3,536)
Deutsche Bank
AG 609,375,000INR 4.88 4.50 IRS 1/15/09 604,806
49 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS Continued
FIXED RATE FLOATING RATE
PAID BY RECEIVED BY
THE FUND AT THE FUND AT UNREALIZED
SWAP NOTIONAL SEPT. 30, SEPT. 30, FLOATING TERMINATION APPRECIATION
COUNTERPARTY AMOUNT 2004 2004 RATE INDEX DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
Three-Month
Deutsche Bank LIBOR BBA
AG $ 90,000,000 1.68 5.32 Rate 5/12/14 $ 7,680,819
JPMorgan Six-Month
Chase Bank EUR 11,025,000EUR 3.14 2.08 LIBOR flat 7/14/08 (1,135)
JPMorgan Six-Month
Chase Bank HUF 3,075,000,000HUF 9.13 7.00 LIBOR flat 7/14/08 (1,472,712)
JPMorgan Three-Month
Chase Bank 22,120,000 3.052 1.41 LIBOR flat 3/10/08 247,169
Three-Month
JPMorgan LIBOR BBA
Chase Bank 180,000,000 1.66 3.893 Rate 4/26/09 4,019,017
Three-Month
JPMorgan LIBOR BBA
Chase Bank 134,000,000 1.17 4.8425 Rate 4/26/14 6,339,746
JPMorgan Three-Month
Chase Bank 209,000,000 4.24 1.65 LIBOR flat 7/23/09 (5,614,938)
Three-Month
JPMorgan BBA LIBOR
Chase Bank 16,745,000 1.68 4.94 Rate 4/30/14 924,842
Morgan Stanley
Capital Services, Three-Month
Inc. 80,800,000 3.82 1.18 LIBOR flat 11/10/08 (1,454,295)
Morgan Stanley
Capital Services, Three-Month
Inc. 253,000,000 2.32 1.18 LIBOR flat 11/10/05 (352,852)
---------------
$ 17,951,089
===============
Notional amounts are
reported in U.S. Dollars, except for those denoted in the following currencies.
Index abbreviations and currencies are as follows:
CPTW Bloomberg Taiwan Secondary Commercial Papers
EUR Euro
HUF Hungary Forints
INR Indian Rupee
IRS India Swap Composites
LIBOR London-Interbank Offered Rate
LIBOR BBA London-Interbank Offered Rate British Bankers Association
TWD New Taiwan Dollar
- --------------------------------------------------------------------------------
9. CREDIT SWAP CONTRACTS
The Fund may enter into a
credit swap transaction to maintain a total return on a particular investment or
portion of its portfolio, or for other non-speculative purposes. Because the
principal amount is not exchanged, it represents neither an asset nor a
50 | OPPENHEIMER STRATEGIC INCOME FUND
liability to either
counterparty, and is referred to as a notional principal amount. The Fund
records an increase or decrease to unrealized gain (loss), in the amount due to
or owed by the Fund at termination or settlement. Credit swaps are subject to
credit risks (if the counterparty fails to meet its obligations). The Fund pays
an annual interest fee on the notional amount in exchange for the counterparty
paying in a potential credit event. During the year ended September 30, 2004,
the Fund entered into transactions to hedge credit risk. Information regarding
the credit swaps is as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Export-Import Bank of Korea
Credit Bonds 6/20/09 $ 7,160,000 $ (59,428) $ (59,428)
Korea Development Bank
Credit Bonds 6/20/09 7,160,000 (56,564) (56,564)
Korea Deposit Insurance Corp.
Credit Bonds 6/20/09 7,160,000 (60,144) (60,144)
Korea Electric Power Corp.
Credit Bonds 6/20/09 7,160,000 (62,292) (62,292)
Philippines (Republic of)
10 yr. Credit Bonds 7/25/13 15,770,000 158,917 158,917
Samsung Electronic Co. Ltd.
Credit Bonds 6/20/09 7,160,000 (53,700) (53,700)
Turkey (Republic of)
2 yr. Credit Nts. 5/7/06 15,180,000 (725,287) (725,287)
Turkey (Republic of)
5 yr. Credit Nts. 5/7/09 7,150,000 1,612,382 1,612,382
United Mexican States
Credit Bonds 9/20/13 14,505,000 (620,683) (620,683)
Venezuela (Republic of)
Credit Bonds 10/20/09 27,240,000 (187,432) (187,432)
Venezuela (Republic of)
Credit Bonds 10/20/09 15,350,000 (4,658) (4,658)
- -------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Export-Import Bank of Korea
Credit Bonds 6/20/09 3,580,000 (60,908) (60,908)
Jordan (Kingdom of) Credit Nts. 6/6/06 4,350,000 (31,676) (31,676)
Korea Deposit Insurance Corp.
Credit Bonds 6/20/09 3,580,000 (60,944) (60,944)
Korea Development Bank
Credit Bonds 6/20/09 3,580,000 (59,318) (59,318)
Korea Electric Power Co.
Credit Bonds 6/20/09 3,580,000 (66,583) (66,583)
Russian Federation Credit Bonds 10/9/13 8,060,000 114,140 114,140
Samsung Electronics Co. Ltd.
Credit Bonds 6/20/09 3,580,000 (61,083) (61,083)
51 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. CREDIT SWAP CONTRACTS Continued
VALUATION AS OF UNREALIZED
EXPIRATION NOTIONAL SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES AMOUNT 2004 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of)
Credit Bonds 8/20/09 $ 29,440,000 $ (2,625,525) $ (2,625,525)
Brazil (Federal Republic of)
Credit Bonds 10/20/09 3,450,000 6,932 6,932
Venezuela (Republic of)
Credit Bonds 3/5/08 3,450,000 (53,200) (53,200)
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of)
Credit Bonds 8/20/09 12,010,000 (980,609) (980,609)
Brazil (Federal Republic of)
Credit Bonds 8/20/09 12,010,000 (1,006,154) (1,006,154)
Hungary (Republic of)
Credit Bonds 12/2/13 21,410,000 (508,872) (508,872)
Peru (Republic of)
Credit Bonds 6/20/09 15,000,000 (1,367,922) (1,367,922)
Philippines (Republic of)
5 yr. Credit Bonds 9/20/09 8,335,000 (162,745) (162,745)
Philippines (Republic of)
Credit Bonds 6/20/09 4,190,000 (105,046) (105,046)
Philippines (Republic of)
Credit Bonds 6/20/09 2,100,000 (56,869) (56,869)
Philippines (Republic of)
Credit Bonds 6/20/09 4,190,000 (130,308) (130,308)
Turkey (Republic of) 2 yr
Credit Nts. 5/8/06 15,205,000 (795,234) (795,234)
Turkey (Republic of) 5 yr
Credit Nts. 5/8/09 7,160,000 820,809 820,809
Venezuela (Republic of)
Credit Bonds 8/20/06 20,830,000 779,370 779,370
Venezuela (Republic of)
Credit Bonds 8/20/09 10,415,000 (732,008) (732,008)
Venezuela (Republic of)
Credit Bonds 2/20/14 12,850,000 (2,694,289) (2,694,289)
- -------------------------------------------------------------------------------------------------------------
UBS AG:
Venezuela (Republic of)
Credit Bonds 6/20/14 28,345,000 (5,559,567) (5,559,567)
Venezuela (Republic of)
Credit Bonds 8/20/06 13,890,000 (502,571) (502,571)
Venezuela (Republic of)
Credit Bonds 8/20/09 6,945,000 460,682 460,682
---------------
$ (15,498,387)
===============
52 | OPPENHEIMER STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS
The Fund may enter into a
swaption transaction, whereby 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 receives premiums and bears the risk of unfavorable changes in the preset
rate on the underlying interest rate swap. Swaption contracts written by the
Fund do not give rise to counterparty credit risk as they obligate the Fund, not
its counterparty, to perform. Swaptions written are reported as a liability in
the Statement of Assets and Liabilities.
Written swaption activity
for the year ended September 30, 2004 was as follows:
NOTIONAL AMOUNT OF
AMOUNT PREMIUMS
----------------------------------------------------------------
Swaptions outstanding as of
September 30, 2003 44,445,000 $ 395,561
Swaptions written 252,075,000 2,159,030
Swaptions closed or expired (127,415,000) (1,373,590)
------------------------------
Swaptions outstanding as of
September 30, 2004 169,105,000 $ 1,181,001
==============================
As of September 30, 2004, the
Fund had entered into the following swaption contracts:
NOTIONAL EXPIRATION EXERCISE PREMIUM VALUE
SWAPTIONS AMOUNT DATES PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
Deutsche Bank AG 94,160,000GBP 11/4/04 5.997% $ 439,416 $ 818,017
Lehman Brothers International 74,945,000AUD 12/30/04 5.150 741,585 746,938
--------------------------
$ 1,181,001 $ 1,564,955
==========================
Notional amounts are
denoted in the following currencies:
AUD Australian Dollar
GBP British Pound Sterling
- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY
As of September 30, 2004,
investments in securities included issues that are illiquid or restricted.
Restricted securities are purchased in private placement transactions, are not
registered under the Securities Act of 1933, may have contractual restrictions
on resale, and are valued under methods approved by the Board of Trustees as
reflecting fair value. A security may also be considered illiquid if it lacks a
readily available market or if its valuation has not changed for a certain
period of time. The Fund will not invest more than 10% of its net assets
(determined at the time of purchase and reviewed periodically) in illiquid or
restricted securities. Certain restricted securities, eligible for resale to
qualified institutional investors, are not subject to that limitation. The
aggregate value of illiquid or restricted securities subject to this limitation
as of September 30, 2004 was $327,109,136, which represents 5.28% of the
Fund’s net assets, of which $813,863 is considered restricted. Information
concerning restricted securities and currency is as follows:
53 | OPPENHEIMER STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY Continued
ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATES COST SEPTEMBER 30, 2004 DEPRECIATION
- ------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
Geotek Communications, Inc.,
Series B, Escrow Shares 1/4/01 $ 2,500 $ -- $ 2,500
CURRENCY
Argentine Peso (ARP) 3/17/04 820,382 813,863 6,519
- --------------------------------------------------------------------------------
12. SECURITIES LENDING
The Fund lends portfolio
securities from time to time in order to earn additional income. In return, the
Fund receives collateral in the form of US Treasury obligations or cash, against
the loaned securities and maintains collateral in an amount not less than 100%
of the market value of the loaned securities during the period of the loan. The
market value of the loaned securities is determined at the close of business of
the funds and any additional required collateral is delivered to the Fund on the
next business day. If the borrower defaults on its obligation to return the
securities loaned because of insolvency or other reasons, the Fund could
experience delays and cost in recovering the securities loaned or in gaining
access to the collateral. Cash collateral is invested in cash equivalents. The
Fund retains a portion of the interest earned from the collateral. The Fund also
continues to receive interest or dividends paid on the securities loaned. As of
September 30, 2004, the Fund had on loan securities valued at approximately
$382,192,000. Cash of $390,346,302 was received as collateral for the loans, and
has been invested in approved instruments
- --------------------------------------------------------------------------------
13. LITIGATION
Six complaints have been
filed as putative derivative and class actions against the Manager, OFS and the
Distributor (collectively, “OppenheimerFunds”), as well as 51 of the
Oppenheimer funds (collectively, the “Funds”) including this Fund, and
nine Directors/ Trustees of certain of the Funds other than this Fund
(collectively, the “Directors/Trustees”). The complaints allege 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 of 1940 and the Investment Advisers Act of 1940. The
complaints further allege that by permitting and/or participating in those
actions, the Directors/Trustees breached their fiduciary duties to Fund
shareholders under the Investment Company Act of 1940 and at common law. By
order dated October 27, 2004, these six actions, and future related actions,
were consolidated by the U.S. District Court for the Southern District of New
York into a single consolidated proceeding in contemplation of the filing of a
superceding consolidated and amended complaint.
54 | OPPENHEIMER STRATEGIC INCOME FUND
OppenheimerFunds
believes that it is premature to render any opinion as to the likelihood of an
outcome unfavorable to them, the Funds or the Directors/Trustees and that no
estimate can yet be made with any degree of certainty as to the amount or range
of any potential loss. However, OppenheimerFunds, the Funds and the
Directors/Trustees believe that the allegations contained in the complaints are
without merit and intend to defend these lawsuits vigorously.
55 | OPPENHEIMER STRATEGIC INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC INCOME FUND:
We have audited the
accompanying statement of assets and liabilities of Oppenheimer Strategic Income
Fund, including the summary statement of investments, as of September 30, 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 examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Oppenheimer
Strategic Income Fund as of September 30, 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.
DELOITTE & TOUCHE LLP
Denver, Colorado
November 16, 2004
56 | OPPENHEIMER STRATEGIC INCOME FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2005, if
applicable, shareholders of record will receive information regarding all
dividends and distributions paid to them by the Fund during calendar year 2004.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
Dividends,
if any, paid by the Fund during the fiscal year ended September 30, 2004 which
are not designated as capital gain distributions should be multiplied by 0.42%
to arrive at the amount eligible for the corporate dividend-received deduction.
A
portion, if any, of the dividends paid by the Fund during the fiscal year ended
September 30, 2004 which are not designated as capital gain distributions are
eligible for lower individual income tax rates to the extent that the Fund has
received qualified dividend income as stipulated by recent tax legislation.
$2,966,142 of the Fund’s fiscal year taxable income may be eligible for the
lower individual income tax rates. In early 2005, shareholders of record will
receive information regarding the percentage of distributions that are eligible
for lower individual income tax rates.
The
foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
57 | OPPENHEIMER STRATEGIC INCOME FUND
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
STATEMENTS OF INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
A description of the Fund’s Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund’s website at www.oppenheimerfunds.com, and
(iii) on the SEC’s website at www.sec.gov. In addition, 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.
The
Fund files its complete schedule of portfolio holdings with the SEC for the
first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund’s Form N-Q filings are available on the SEC’s website at
www.sec.gov. Those forms may 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 1-800-SEC-0330.
The
Fund has included a Summary Portfolio Schedule in this shareholder report, that
includes each of the Fund’s 50 largest portfolio holdings in unaffiliated
issuers and each investment in unaffiliated issuers that exceeds 1% of the
Fund’s net asset value. A complete schedule of the Fund’s portfolio
investments is available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.525.7048, and (ii) by obtaining the Fund’s Form N-CSR on
the SEC’s website at www.sec.gov.
58 | OPPENHEIMER STRATEGIC INCOME FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD
FUND, LENGTH OF SERVICE, AGE BY TRUSTEE; NUMBER OF PORTFOLIOS IN FUND COMPLEX CURRENTLY OVERSEEN BY TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL,
TRUSTEES CO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, UNTIL HIS OR HER
RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
WILLIAM L. ARMSTRONG, Chairman of the following private mortgage banking companies: Cherry Creek
Chairman of the Board Mortgage Company (since 1991), Centennial State Mortgage Company (since
of Trustees (since 2003) 1994), The El Paso Mortgage Company (since 1993), Transland Financial Services,
and Trustee (since 2000) Inc. (since 1997); Chairman of the following private companies: Great Frontier
Age: 67 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 39 portfolios in the OppenheimerFunds complex.
ROBERT G. AVIS, Formerly, Director and President of A.G. Edwards Capital, Inc. (General Partner
Trustee (since 1993) of private equity funds) (until February 2001); Chairman, President and Chief
Age: 73 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 39 portfolios in the OppenheimerFunds complex.
GEORGE C. BOWEN, Formerly Assistant Secretary and a director (December 1991-April 1999) of
Trustee (since 2000) Centennial Asset Management Corporation; President, Treasurer and a director
Age: 67 (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 39 portfolios in the OppenheimerFunds
complex.
EDWARD L. CAMERON, A member of The Life Guard of Mount Vernon, George Washington's home
Trustee (since 2000) (since June 2000). Formerly Director (March 2001-May 2002) of Genetic ID, Inc.
Age: 66 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 39 portfolios in the OppenheimerFunds complex.
JON S. FOSSEL, Director (since February 1998) of Rocky Mountain Elk Foundation (a not-for-
Trustee (since 1990) profit foundation); a director (since 1997) of Putnam Lovell Finance (finance
Age: 62 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
59 | OPPENHEIMER STRATEGIC INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
JON S. FOSSEL, Oppenheimer Acquisition Corp., Shareholders Services Inc. and Shareholder
Continued Financial Services, Inc. Oversees 39 portfolios in the OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado Uplift (a non-profit charity) (since September 1984).
Trustee (since 1996) Formerly (until October 1994) Mr. Freedman held several positions in subsidiary
Age: 63 or affiliated companies of the Manager. Oversees 39 portfolios in the
OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee of Monterey International Studies (an educational organization) (since
Trustee (since 2002) February 2000); a director of The California Endowment (a philanthropic organization)
Age: 57 (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 38 portfolios in the OppenheimerFunds
complex.
ROBERT J. MALONE, Chairman, Chief Executive Officer and Director of Steele Street State Bank (a
Trustee (since 2002) commercial banking entity) (since August 2003); director of Colorado UpLIFT
Age: 60 (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
38 portfolios in the OppenheimerFunds complex.
F. WILLIAM MARSHALL, JR., Trustee of MassMutual Institutional Funds (since 1996) and MML Series
Trustee (since 2000) Investment Fund (since 1987) (both open-end investment companies) and the
Age: 62 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
39 portfolios in the OppenheimerFunds complex.
60 | OPPENHEIMER STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS TWO WORLD FINANCIAL CENTER,
AND OFFICER 225 LIBERTY STREET, 11TH FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY SERVES FOR
AN INDEFINITE TERM, UNTIL HIS RESIGNATION, DEATH OR REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director (since June 2001) and President
President and Trustee (since September 2000) of the Manager; President and a director or trustee
(since 2001) of other Oppenheimer funds; President and a director (since July 2001) of
Age: 55 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 74 portfolios as Trustee/Director and 10 portfolios as
Officer in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS AS FOLLOWS: FOR MESSRS. STEINMETZ
AND ZACK, TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH FLOOR, NEW YORK, NY
10281-1008, FOR MESSRS. VANDEHEY AND WIXTED 6803 S. TUCSON WAY, CENTENNIAL, CO
80112-3924. EACH OFFICER SERVES FOR AN INDEFINITE TERM OR UNTIL HIS OR HER EARLIER
RESIGNATION, DEATH OR REMOVAL.
ARTHUR P. STEINMETZ, Senior Vice President of the Manager (since March 1993) and of HarbourView
Vice President and Portfolio Asset Management Corporation (since March 2000); an officer of 4 portfolios in
Manager (since 2002) the OppenheimerFunds complex.
Age: 46
BRIAN W. WIXTED, Senior Vice President and Treasurer (since March 1999) of the Manager;
Treasurer (since 1999) Treasurer of HarbourView Asset Management Corporation, Shareholder Financial
Age: 45 Services, 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
61 | OPPENHEIMER STRATEGIC INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
BRIAN W. WIXTED, and Chief Financial Officer (since May 2000) of OFI Trust Company (a trust
Continued 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 84 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since
Vice President and Secretary February 2002) of the Manager; General Counsel and a director (since November
(since 2001) 2001) of the Distributor; General Counsel (since November 2001) of Centennial
Age: 56 Asset Management 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 84 portfolios in the OppenheimerFunds complex.
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer (since March 2004) of the
Vice President and Manager; Vice President (since June 1983) of OppenheimerFunds Distributor,
Chief Compliance Officer Inc., Centennial Asset Management Corporation and Shareholder Services, Inc.
(since 2004) Formerly (until February 2004) Vice President and Director of Internal Audit of
Age: 54 OppenheimerFunds, Inc. An officer of 84 portfolios in the Oppenheimer funds
complex.
THE FUND’S STATEMENT
OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND’S
TRUSTEES AND IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING
1.800.525.7048.
62 | OPPENHEIMER STRATEGIC INCOME FUND
OPPENHEIMER STRATEGIC INCOME FUND
FORM N-14
PART C
OTHER INFORMATION
Item 16. Exhibits
- ------------------
(1) Amended and Restated Declaration of Trust dated September 25, 2002:
Filed with Registrant's Post-Effective Amendment No. 23 (11/22/02), and
incorporated herein by reference.
(2) Amended By-Laws dated October 24, 2000: Filed with Registrant's
Post-Effective Amendment No. 21 (1/25/01), and incorporated herein by
reference.
(3) Not Applicable
(4) Not Applicable
(5) Specimen Class A Share Certificate: Filed with Registrant's
Post-Effective Amendment No. 22 (1/28/02), and incorporated herein by
reference.
(6) Investment Advisory Agreement dated 10/22/90: Filed with Registrant's
Post-Effective Amendment No. 3, 11/26/90 and refiled with Registrant's
Post-Effective Amendment No. 9, 1/31/95, pursuant to Item 102 of Regulation
S-T, and incorporated herein by reference.
(7) (i) General Distributor's Agreement dated 10/13/92: Filed with
Registrant's Post-Effective Amendment No. 5, 12/3/92 and refiled with
Registrant's Post-Effective Amendment No. 9, 1/31/95, pursuant to Item 102 of
Regulation S-T, 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: 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 between Registrant
and JP Morgan Chase Bank: Previously filed with Post-Effective Amendment No.
10 to the Registration Statement of Oppenheimer International Bond Fund (Reg.
No. 33-58383), 11/21/02, 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 4/26/04: Filed with Registrant's Post-Effective Amendment No. 25
(11/24/04) and incorporated herein by reference
(ii) Oppenheimer Funds Multiple Class Plan under Rule 18f-3 updated
through 9/15/04: Previously filed with Post-Effective Amendment No. 24 to the
Registration Statement of Oppenheimer Cash Reserves (Reg. No. 33-23223),
9/27/04, and incorporated herein by reference.
(11) Powers of Attorney dated June 28, 2004 for all Trustees and Officers:
Filed with Registrant's Post-Effective Amendment No. 25 (11/24/04) and
incorporated herein by reference.
(12) Form of Legal opinion of supporting tax matters and consequences (to be
filed by amendment)
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, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 26th day of April, 2005.
Oppenheimer Strategic Income 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 April 26, 2005
- ------------------------------- Board of Trustees
William L. Armstrong
/s/ John V. Murphy* President, Principal April 26, 2005
- ------------------------ Executive Officer & Trustee
John V. Murphy
/s/ Brian W. Wixted* Treasurer, Principal April 26, 2005
- ------------------------- Financial &
Brian W. Wixted Accounting Officer
/s/ Robert G. Avis* Trustee April 26, 2005
- ----------------------
Robert G. Avis
/s/ George Bowen* Trustee April 26, 2005
- ----------------------
George Bowen
/s/ Edward Cameron* Trustee April 26, 2005
- ------------------------
Edward Cameron
/s/ Jon S. Fossel* Trustee April 26, 2005
- --------------------
Jon S. Fossel
/s/ Sam Freedman* Trustee April 26, 2005
- ----------------------
Sam Freedman
/s/ Beverly L. Hamilton*
- ------------------------------ Trustee April 26,
2005
Beverly L. Hamilton
/s/ Robert J. Malone*
- -------------------------- Trustee April 26, 2005
Robert J. Malone
/s/ F. William Marshall, Jr.* Trustee April 26,
2005
- --------------------------------
F. William Marshall, Jr.
*By: /s/ Phillip Gillespie
-----------------------------------------
Phillip Gillespie, Attorney-in-Fact
